UNIVERSITY OF MALAŴI

THE POLYTECHNIC

LAW 212: COMMERCIAL LAW

TEACHING MANUAL

Prepared by: Mwayi Msungama BAH, LLB(Hons)

TOPIC ONE: INTRODUCTION

Definition of Commercial law

 Law of business trade and other commercial transactions and regulations

of commercial relations and other affairs.

 Branch of law concerned with the rights and duties arising from the supply
of goods and services in the way of trade

 It’s not a course on its own. In it, there are contract law, trade law,
international trade, banking law and that’s why it is segmented mostly
because of its historical background

 Commercial law distinguishes itself with law of Business organizations in that

the latter is theoretical while the former is practical

Brief Historical Background

 Many principles of modern commercial law developed from lex

mercatoria(law of merchants).

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 Developed in Europe out of practices and customs, way back from
medieval times
 At that time, much trade was carried on at fairs and much of it was
international in character.

 Merchants from all over the world would travel with their goods to all fairs
all over the world and disputes that arose between merchants were settled
by special courts (mercantile courts) according to custom and practices of
merchants. They had no time in commerce and wanted to have a quick
court and not follow common law which would delay

 That’s where the idea of commercial courts develop even nowadays so

that they must act speedily (eg in Malawi we have the commercial court
division of the High court as a specialized court in commercial matters)

 Then mercantile courts in different countries would decide cases according

to the same principles.

 These came to be described as lex mercatoria (principles different from

those of the general common law).

 However, in the 17th century, competition for business led to common law
courts to take much of the business of mercantile courts. These mercantile
principles got absorbed into the common law and by 19th Century, many
of the principles of modern commercial law were developed by common
law

 Nations then codified them into statutes (eg the Sale of Goods Act, the Bills
of Exchange Act etc)

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Principles of commercial law

 In modern era, there are principles of commercial law as follows:

1. To facilitate commercial activities
 ie it provides prompt and speed solutions to deal speedily in their problems
so as to avoid costly and time consuming.

 Arbitration is a commercial feature of commercial law ie before going to

court, try arbitration and it’s a must practice these days to resolve matters
easily, to avoid costs and waste of time.
 According to Mandatory Mediation Rules, mediation is nowadays a must
not only in commercial matters but any civil matter commenced at the high
court needs to undergo mediation before proceeding for trial

2. Non-intervention on part of courts

 Courts develop a non-intervention attitude towards commercial matters
 Commercial law is founded on law of contract i.e. contract law is the basis
of commercial law. In the law of contract, consideration is not regarded in
adequacy (consideration must be sufficient but not adequate) Thus, the
courts do not intervene even in commercial.

 This does not mean they encourage unfair dealing If there is unfair dealing
they step in it.

3. Flexibility
 Commercial law has to be flexible to adapt to changing practices and
accommodate established customs and changing financial activities

 Many principles and transactions are changing and when these change,
the law must change too. Eg nowadays we are talking about visa

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credit/debit cards, ecommerce, airtel money, TNM Mpamba, Zoona, and
others- all these changes have to be accommodated into the law.

Sources of commercial law

1. Constitution ss 5 and199(supremacy of the constitution), section 29(right to

economic activity), section 13(economic management)

However, in practice, the most important source is common law

2. Common law-from mercantile courts to common law up to now
3. Commercial customs and practices-Terms can be implied by custom of a
particular area or trade

4. Statutes-Sale of Goods Act, Bills of Exchange Act, consumer protection Act,

competition and fair trading Act, Fair investment Act
5. International trade law- part of our law by s.211 of constitution eg COMESA,
SADC, WTO, GATT(general agreement on tariffs and trade), CISG(UN

Convention on contracts of International sale of goods), INCOTERMS

(international commercial terms)(Set of international rules for the
interpretation of the most commonly used foreign trade terms)

6. Equity- doctrines of equity are also used in resolving disputes of commercial

nature

Functions of commercial law

1. Regulating contracts of agency, sale, loan, carriage, bills of exchange and

insurance. How does commercial law regulate the above contracts? 2.
Protection of consumer

There are three broad topics in commercial law as follows:

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1. Transactions
2. Goods and services
3. Financing of the goods and services

TOPIC TWO: AGENCY LAW

In any agency relationship, there will always be three parties, Principal, Agent and
Third party

1. P-person whose behalf the agent will act/transact

2. T-party that transacts with A on behalf of P
3. A-party that transacts with the T on behalf of P

Definition

 An Agency relationship arises where P who is principal instructs A (agent) to

make contract with 3rd party on behalf of principal. Arises when one person
(the agent) acts on behalf of another (the principal) and has the power to
affect the principal’s legal position with regard to a third party.

 The basis of law of agency is the Latin maxim: ‘Qui facit per allum facit per
se’ meaning that he who does things through others does them himself.

 Thus, there will normally be contract between principal and agent.

 When agent carries these instructions, the contract created is between

principal and third party. Agent isn’t a party to the contract.

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 However, in certain situations, the agent may still incur liability.

Distinction between agency and other relationship

1. Agents and trustees-

 Trustee relationship is equitable whereas agency relationship is a

common law doctrine.

 In trustee relationship, trustees get the legal title of the property(owner)

while in an agency relationship, legal title vests in the principal

2. Agents, servants and independent contractors

 The concept of agency appears principally in the law of contract

whereas the distinction of a servant and a contractor is of importance
in another law ie tort

 Agents are mainly employed to make contracts and to dispose of the

property (agent’s power=to contract and to dispose of the property)
whereas servants and independent contractors are often employed for
other tasks.

 Agent is a person with greater independence and freedom from control

than a servant

3. Agents and bailees

 A bailee is a person who receives possession of goods from or for the

owner for a specific purpose

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 The concept of bailement overlaps with agency where the agent
receives possession as in the case of factors and other mercantile
agents

 On the other hand, many agents eg brokers and estates agents are
not bailees since they don’t receive possession

 Conversely many bailees are not agents since they in no way

represent their bailers

There are three Relations which we will look at: P and A, P and 3rd party, and A
and 3rd party

RELATIONSHIPS BETWEEN PRNCIPAL & AGENT, & PPRINCIPAL & 3RD PARTY

 The key to these relationships is authority given by principal to agent.

 The principal is bound to the third party by acts which he has
authorized or appears to have authorized.

 As between principal and agent, the agent’s entitlement to

remuneration will depend on performance of his authority and if he
acts in breach of his authority, he will be liable to the principal.

 As between agent the third party, the agent may incur personal
liability if he claims authority he doesn’t have.

AUTHORITY

 The basis of relationship between principal and agent is consent.

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 There is no forced agency; somebody must accept willingly.

 The law recognizes agent as having power to bind principal in the

following situations;

i. Where principal gives prior consent to the agent’s action and in such
case agent is said to have actual authority.

ii. where agent acts without prior authority but the principal gives
Retrospective consent by ratification

iii. where an agent acts without principal’s consent but the law deems the
principal to have consented as is the case in agency of necessity

iv. Where agent acts without the principal’s consent but the principal is
estopped from denying agent’s authority. In that case agent has
apparent authority.

Apparent authority refers to a situation where a reasonable third party

would understand that an agent had authority to act. This means a
principal is bound by the agent's actions, even if the agent had
no actual authority, whether express or implied. It raises
an estoppel because the third party is given an assurance, which he relies
on and would be inequitable for the principal to deny the authority given.
Apparent authority can legally be found, even if actual authority has not
been given.

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Types of authority and ways in which agency relationship can be created
Two major classes are actual and apparent authority

A. ACTUAL AUTHORITY

This can be Express or Implied

1. Express actual authority-

 This is where principal and agent agree in words that the Agent will have
authority to act for the principal and this can be orally or in writing. This
creates Agency by agreement

Pole vs Leasky (1863) 33Ch D 1-Lord Cranworth said that no one becomes
the agent of another person except by the will of that other person. His will
may be manifested in writing or orally or simply by placing another in a
situation in which according to ordinary usages of mankind that other is
understood to represent and act for the person who has so placed him

Car hire limited vs DSS Gel fuel company limited

 So this authority derives from agreement between principal and agent.

 Though no special formalities are required, it is always prudent to have it in
writing

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 If words used are ambiguous and vague, the court will construe them most
favourable to an agent as an agent is regarded to be a weaker party

 Since it is a contract, some contract principles may also apply eg a minor

cannot be an agent.

Re Shepherd (1953)Ch D 728

G vs G 19702QB 643/3ALLER

2. Implied Actual Authority

 This exists where, although a particular action is not sanctioned by any

express agreement between P and A, nevertheless P is taken to have given
implied consent to an action or transaction in question.

 This still creates Agency by agreement since agreement can be by express

or implied

 It arises from P and A’s relationship to each other or from their conduct

 On scenarios where implied authority may arise see the following cases:
Heley-Huntchinson vs Brayhead ltd (1967) 2 ALLER 14, (1968) 1QB 549-The
directors of a company allowed the company chairman to act as if he was the
managing director while he had not been appointed as such. When he made a
contract with a 3rd party on the company’s behalf, it was held that he had implied
actual authority and the company was bound because by its conduct, it had
impliedly agreed with the chairman to act as such

Garnac Grain Company vs HMF Faure & Fair Clough Ltd (1967)2 ALLER 358
per Lord Pearson

Rosenbaum vs Belson (1900) 2Ch 267, (1900-3) ALLER Rep 670-An agent

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instructed to sell a house was held to have incidental authority to sign the
agreement of sale.

 This authority also exists where Agent’s express authority is expanded by the
usual customary authority.

 This is to say that if the principal appoints an agent expressly, the agent will
have implied authority which an agent normally has unless the principal
expressly exclude that.

Panorama Developments vs Fidelis Furnishing Fabrics (1971) 2QB 719,

3ALLER 16-A company secretary used his position to order cars from the plaintiff
car hire for his own purposes. When the plaintiff sent in a bill, the company refused
to pay. The court held that the company was liable because the company
secretary had apparent authority to order the cars on behalf of the
company.(usual authority within apparent authority)

 Where it is a common commercial practice, it may also be implied and

expert evidence shall be called where an agent claims commercial
practice as a defence

United Bank of Kuwait vs Hammoud (1988)3ALLER 418

City trust ltd vs Levy (1988) 1WLR 1051

Waugh vs BH Clifford and sons ltd (1982) 1Ch 835, 1ALLER 835
Hill vs Harris (1965) 2 ALLER 358

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B. APPARENT/OSTENSIBLE AUTHORITY

If the principal has led others to believe that the agency relationship
exists, he will be bound by the acts that an agent in that situation
would customarily have the authority to do.

 This is the authority of an agent as it appears to others

 It is the authority which a person appears to have to act on behalf of
another person.

 Apparent authority and actual authority usually coincide

 There are certain obvious situations where apparent authority will arise.
 Eg where a person is appointed to a certain authority in a company, it may
be reasonable to assume that he has apparent authority.

Drew vs Nunn 1879 4 QBD 661-Wife was appointed by D as agent to purchase

goods from P. later D became insane but wife cont’d to purchase goods on behalf
of D from P who was not aware of D’s insanity. When he regained his sanity, he
refused to pay for the gods ordered by wife when he was in the asylum. It was held
that P was entitled to recover because although the authority was put to an end
by the D’s insanity, but D whilst he was sane made representations and he had no
notice of the insanity.

Freeman & Lockyer vs Buckhurst Park Properties 1964 2QB 480, 1ALLER

630-The directors of a company allowed one director, Kapoor, to act as if he had

been appointed managing director of a company. He engaged a firm of
architects to act on the company’s behalf. The company later refused to pay the
architects, arguing that Kapoor was not managing director and had no power to
make contracts on the company’s behalf. The court of appeal held that the
company was bound by the contract. They had given the impression that Kapoor
had the power to bind the company and so the company was liable on the

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contract to the architects who had relied on this representation by making a
contract

 Another example is where A is not appointed as agent of B but B allows him

to act as if he were appointed or leads another person to believe that A is
his agent.
 The basis of apparent authority is the doctrine of estoppel and it creates
Agency by estoppel

Rama Corporation vs Proved Tin and General Investment ltd 1952 2QB 147,

1ALLER 554

Conditions attached to agency by estoppel

1. Representation.

 In order for the 3rd party to succeed, he must show that there was a
representation by the principal to the third party that A is his agent and ha
authority.

Armagas ltd vs Mundogas SA 1986 2ALLER 385

 The representation must be one of fact and not law

 The representation may be made by words or conduct What if the
representation was made negligently?

Moorgate Mercantile ltd vs Twitching (1977) AC890, (1976) 2ALLER 641

Caparo Industries ltd vs Dickman (1990) 2AC 605, (1991) 1ALLER 568

 The representation will only bind P if made by him or somebody authorized

by him
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2. Reliance

 3rd party must show that he relied on the representation that the agent has
authority of P and therefore entered into a transaction

 3rd party has to show that he actually had no notice/knowledge that the
agent did not have authority. Constructive notice will not suffice.

Rama Corporation vs Proved Tin and General Investment ltd 1952 2QB 147,

1ALLER 554

Watteau vs Fenwick 1893 1QB 346

3. Loss

3rd party should show that he suffered loss

Overbrooke estates ltd vs Glencombe properties ltd (1974) 3ALLER 511

C. AGENCY BY OPERATION OF LAW

there are two types under his head
i. Agency of necessity
ii. ii. Presumed agency

i. Agency of necessity

 This is where a principal is bound by his agent’s act even if he did not
consent to it.

 Normally in cases of bailement

 It occurs when an emergency situation has arisen and A is forced to act
in order to preserve the interest of P though he is not authorized to do so.

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Great Northern Railway Company vs Swaffield (1874)9 Ex 132-A horse was
sent by rail and on arrival at its destination, there was no one to collect it. The
railway incurred expenses as a result of stabling it for the night. It was held that
though they had no authority to incur this expense, they were entitled to claim
indemnity from the owner of the horse and as such, authority might be implied.

 When this arises, it creates privity of contract between P and 3rd party
 In certain circumstances, it may be used as a defence of A if the goods
may be damaged or stolen in the process of storage.

 However, it is not an absolute defence and if proven that he acted

negligently, the A may be liable.

Springer vs GWRY company (1921)1KB 257-Carriers of tomatoes were

delayed. Tomatoes were rapidly going bad and so the carriers decided
to sell them locally. It was held that they were liable to the owners and no
agency of necessity arose because the carriers could have
communicated to the owners before they did this.

Plager vs Blatspiel Stamp and Heacock ltd 1924 1KB 567, ALLER Rep 524-It
was held that A must satisfy that he acted in the interests of his so called P in a
bona fide manner

Conditions required for necessity to apply

1. Goods must have been entrusted to a bailee by a bailor-ie consensual

bailement is required –Both parties must agree to bailement

2. There must be a danger to the goods entrusted to the bailee- ie the

agent must show that there as real emergency

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3. Bailee must be unable to communicate with a bailor in order to obtain
instructions ie it must be practically impossible to obtain instructions from
P

4. Bailee/agent must act bona fide in the best interest of the bailor/P
5. Must show that he acted reasonably in all circumstances of the case
See also:

Courturier vs Hastie (1856) 8 Ex 40, 10 ER 1065

China Pacific SA vs Food cooperation of India (1982) AC 939

Seaman Co vs Railway Co.(1913) 1KB103

ii. Presumed agency

 One spouse should be able to carryout transactions that should bind the
other
 Debatable-is this right; why then should they sue each other in tort-critique
it What about in partnerships; aren’t partners presumed agents of each
other? Spiro vs Lintern

D. AGENCY BY RATIFICATION

Agency by ratification arises when a person (the principal) ratifies (that is,
approves and adopts) an act which has already been done in his name and
on his behalf by another person (the agent) who in fact, had no actual
authority (whether express or implied) to act on his (the principal's) behalf
when the act was done.

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Agency relationship may also arise by ratification (i.e endorsing) that which he
did not authorize but P must be aware of all material facts. He may adopt
the contract and so make himself liable on it. He can’t be forced to ratify.

Keighley, Maxsted and Co vs Durant (1901)AC 240-A was authorized to buy

wheat at a certain price. He however bought it at a greater price intending it to
be for partnership. He didn’t tell the merchant that it was for the partnership. The
partnership ratified the contract but later it refused to accept delivery of the
wheat. It was held that the ratification was not effective because A had not made
it plain that he was acting as A when he bought the wheat. Therefore, the
partnership was not bound by the contract.

 P can only ratify acts which have been done in his name. Undisclosed P
can’t ratify.

 No need for the A to say “I am acting on behalf of so and so”. It is disclosed

provided A indicates that he is A without disclosing the identity of P.

Southern Water Authority v Carey and others (1985) 2 ALL ER 1077

 The principal must be in existence at the time A is making the transactions.

If not in existence A will be liable.

Kelner V. Baxter (1866) 2 CP 174. Three people intended to form company.

Before it was formed they bought wine on behalf of company. When the
company was formed the wine was consumed but it went into liquidation before
paying for the wine. The supplier sued the 3 who argued that as the company
ratified the contract, they were no longer liable on it. It was held that the
ratification was not effective because the company did not have capacity to
make the contract when the agents made it. Because the company had not yet
been formed, it had no capacity.

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Newborne v Sensolid (Great Britain) Ltd (1954)1QB 45, (1953) 1 ALLER 708-
Newborne signed a contract of sale on behalf of a company which at the time of
sale had not yet been registered and was thus not in existence. It was held that
the contract could not be ratified because P wasn’t in existence at time of
contract

Phonogram Ltd v Lane (1982) QB 938, (1981) 3 ALLER 182 (Lord Denning) -
Prior to the formation of company, defendant signed a contract on behalf of a company
but the money was not paid and plaintiffs sued for payment. It was held that a contract
was made on behalf of the company which was not in existence and therefore D was
personally liable because the company could not ratify it.

Grover and Grover vs Mathews 1910 2 KB 401-Capacity must continue to the

time of ratification

 Principal can only ratify if he was competent to make it at the time of

agent’s action or ratification/must have capacity to act

Boston Deep sea Fishing and Lacing Co Ltd vs Farnharn (1957) 1WLR 1058-
Incompetent principal 2nd world war-French company

Brook v Hook (1871) 6 Ex R- The case involved a forgery of Principal’s signature

on promissory note by his agent. It was held that Principal could not ratify the
agent’s act as the signature was a nullity. Agent did not purport to act on behalf
of Principal but to be the Principal himself.

Danish Merchantile Ltd v Beaumont (1951) Ch 680-Acts which are merely

voidable can be ratified unlike void ones

Greenwood v Martins Bank (1933) AC 51

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 Ratification can be done when Principal communicates to third party that
he has ratified it or by conduct( by express words or by conduct) It is
necessary to expressly state that he has ratified it.

 Ratification must be unequivocal (must be clear and undoubted –freely done)

 Ratification must be done within a reasonable time
 What constitutes a reasonable time will depend on facts of each case and
is a question of facts and not of law.

Metropolitan Asylum board vs Kingham(1890) 6Times Report-Ratification

after 10 days was held to be too long

 Principal cannot ratify an unauthorized contract which is prohibited by

statute
Beford Insurance Co. Ltd v. Instituti des Ressegurous des Brasil (1985) QB

966 per Lord Parker-Principal cannot ratify an unauthorized contract which is

prohibited by statute

 Ratification will be ineffective where third parties have acquired property

rights which would be adversely affected by ratification.

Bird v Brown (1850) 4 ED R 786-Principal sent goods to Third party. After hearing of
Third party’s insolvency, Principal’s agent gave unauthorized notice to the carrier to stop
the goods in transitu. Third party’s trustee in bankruptcy seized the goods. Then principal
purported to ratify agent’s notice. This was held to be too late.

EFFECT OF RATIFICATION

 Agent is given retrospective authority to act on behalf of Principal and his

acts bind the Principal (contract made last week before ratification will still bind
P) There is privity of contract between Principal and third party
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RELATIONSHIP BETWEEN AGENT AND THIRD PARTY

 The general rule is that where Agent makes contract on behalf of Principal,
the contract is that of Principal and not that of Agent and prima facie, at
common law; the only person to sue or be sued is the Principal.

Montgomerie v UK Mutual SS Association (1891)QB 370 per Wright J. who

said “The contract is the contract of Principal, not that of Agent and prima facie
at common law the only person who can sue is the Principal and the only person
who can be used is the Principal”.

Two scenarios under this

1. Where principal is disclosed

2. Where principal is not disclosed

WHERE AGENT DISCLOSES THE FACT THAT THERE IS PRINCIPAL

 Principal is entitled to sue/be sued

 Principal should have authorized A to act or transact on Principal’s behalf.
 He may act without authorization but the principal must ratify. Thus, P may
sue or be sued to enforce the contract

Irvine & Co. vs Watson and sons (1880)5QB 414, (1874-80)ALLER Rep 1007

Exceptions to the general rule

(ie where P may not be liable but A even where P is disclosed)

1. Foreign Principal

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 Earlier position was that A will be liable when P is not within the jurisdiction.
This presumption was dropped and as of now they look at the facts and see
if A should be liable or not.

 In the case of Teheram Europe Co. Ltd vs ST Belton(tractors)Ltd 1968

2ALLER 886(Per Lord Diplock), it was held that the presumption no longer existed
but the existence of a foreign principal might be one factor to consider in assessing
the intent of the parties.

2. Where A is a party to the contract

 ie where the contract expressly states that A is a party to it or where the

court construes that A is a party to a contract Sika contracts Ltd vs Gill

3. Deed

 Where A signs a deed, he will be liable on it unless he signed it through a

power of attorney

4. Bills of Exchange and cheques

 If A signs a bill of exchange, he may be liable if he signs it with his own name.
A cheque cannot be signed on somebody’s behalf.
Elliott vs Bax-Ironcide (1925)2KB 301-Two directors were liable when they
signed a bill

5. Exception relating to custom

 If it is custom that A that has always been liable in particular transaction

then he may be liable i.e. he will be liable following the custom.

 If it is indeed proved that there is a custom to that effect and evidence is

always shown/need to prove this.

6. Cases dealing with warranty of authority

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 Where an agent enters into transaction purporting to act for a Principal, the
A implied warrants to third party that he has a principal authority to enter
the transaction in question.

 If that warrant proves to be false, then he will be liable to a third party.

 It’s kind of strict liability and Agent has the burden to prove that there was
a warranty.

Yonge v Toynbee –A firm of solicitors had continued to act for the principal who,
unknown to them, had became insane. It was held that the solicitors were
personally liable to third parties with whom they had subsequently dealt. By acting
for the principal, they had impliedly warranted that they had authority to act
whereas their authority had in fact terminated upon principal’s being certified. This
seems to hold that the 3rd party in such circumstances may alternatively hold an
agent liable.

 However, there are limitations before applying this principle:

1. If Agent is unsure of his position then he has to warn 3rd party and if third
party still wants to transact, then Agent won’t be liable. Third party will
count for his losses.

Harbot vs Lens [1901]1 Ch 304 – where Agent informed third party that he
had no authority to sign a contract, it was held that he could not be made
liable for breach of warranty. It was established that Agent won’t be liable for
breach of warranty for authority if he specifically denies having authority, or if
the third party did not rely on the existence of his authority.

2. If agent acts without authority but principal ratifies his action, the lack of
authority on the part of agent is retroactively pured and is taken as if he
has acted with authority. In this case, Principal will be liable.

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3. Agent’s authority may be terminated when Principal becomes
bankrupt. However Agent is not liable to third party where his authority
has been terminated in this way provided he acts in good faith and
without notice of bankruptcy.

4. If Agent acts pursuant to a power of attorney, he is not liable for acts

done after revocation of that power provided he acts without the
notice of the revocation.

If he has the notice and continues to act, then Agent will be liable.
Suleman v Shahsavari (1989) 2 ALLER 460- Remedy for false warranty is
restitution.

WHERE THERE IS UNDISCLOSED PRINCIPAL

 This does not mean that Agent has no authority to act.

 This is the situation in which the third party is dealing with an agent in
ignorance of any other person being interested in the contract and later
own he appears mostly to enforce the contract. Should the third party
recognize the principal or not?

 The general rule is that Principal is allowed to intervene because agents are
middlemen and these are important

But there are exceptions.

1. The undisclosed Principal can only intervene if he was existent and had
capacity to enter into the contract at the time it was made.

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2. He can only intervene if he had only given actual authority for the
making of the contract prior to the conclusion.

3. He cannot intervene if there’s an express term of the contract to that

effect.

Humble v Hunter (1848) 12 QB 310

Fred Drughorn Ltd v Rederiaktie bolaget transatlantic (1919) AC 203

(1918-19) ALL ER rep 1122.

4. He may be prevented where third party had special reasons for

contracting with agent and not contracting with Principal

Greer v Downs Supply Co (1927) 2 KB 28-The courts will not permit the
undisclosed P to sue 3rd party where the latter’s contract with agent is one which the
3rd party entered into relying on agent’s personal skill or solvency

Collins v Associated Greyhound (1930) 1 Ch 1

Dyster v Rayndall and Sons (1926)Ch-Plaintiff(P) knew that the defendant(T)

would not agree to transact with him. He therefore employed agent to do it without
revealing that he was acting for the Principal. Upon discovery, T sought to resist
performance of the contract on the grounds that he had been deceived by agent.
The court held that the contract could be enforced by the undisclosed principal as it
was not a personal contract and the identity of who to transact was not a material
ingredient. The mere failure to disclose that A is acting for a particular P, even if the
latter is aware that

T wouldn’t have contracted with him, will not deprive the P of his right to intervene on
A’s contract

However, the position is different if A has misrepresented the identity of

his P. In Archer vs Stone(1898), D specifically asked A, whether he was acting for

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Smith and A untruthfully replied that he was not. When Archer subsequently sought
specific performance of the contract, North J held that since this misrepresentation,
which he termed ‘a lie appurtenant’ induced the T to contract with him, specific
performance would not be granted

Said v Butt (1920) 3 KB 497-Where the personal element is ‘strikingly present’ in the
contract made with agent, an undisclosed P may not intervene.

When the undisclosed Principal intervenes, he cannot bring in new terms to

the contract. He will intervene on the same terms of the contract that agent
agreed with third party.

Cooke and Sons v Eshelby (1887( 12 AC 271-When the undisclosed P

intervened, the third party sought to set off against the claim for other monies
owed to him by the agents. This was unsuccessful.

THE RELATIONSHIP OF AGENT AND A PRINCIPAL

RIGHTS OF AN AGENT AGAINST THE PRINCIPAL

1. Right to Remuneration

 The most important right which an agent possesses against his Principal is
the right to be remunerated for his services.

 The right stems from a contract and therefore an agent will only be entitled
to receive a commission for his services if there is an express/implied term in
the contract of agency providing for his remuneration.

 So, Agent is entitled to remuneration if it is a term of a contract, expressly

stated or where not expressed but court construes as such.

 Kofi Sunkersette Obu v Strauss and Co Ltd (1951) AC 2-Where the parties in
their contract have expressly provided for the remuneration of A, the terms they

25
have agreed will govern their relationship and courts will not override the will of
the parties.

Coles v Enock (1939) 2 ALL ER 327

 The agent will be paid according to the terms of the contract.

Alpha Trading Ltd v Danshaw-Pattern (1981) QB 290, 1ALLER 482-A had found
a purchaser for the sellers of cement (agent of sellers). The sellers entered into a contract
with the purchaser but becoz of the breach of contract by failing to supply the cement,
the sellers were never paid the purchase price. A was not paid his commission and sued.
Held that P(the sellers) has the duty to pay the agreed remuneration and compensation,
if any, and not to prevent A from being able to earn the agreed remuneration. Thus, P was
in breach of an implied term of agency contract to the effect that he would not breach the
sale contract with the 3rd party so as to deprive agents of their remuneration under the
agency contract.

Loxor (Eastbourne) Ltd v Cooper (1941) AC 1, 1 ALL ER 33

2. Right to indemnity

 Agent is entitled to be reimbursed for the expenses and indemnified against

all losses and liabilities incurred by him.

 However, the expenses must be incurred in relation to the work an agent is

supposed to do i.e. must not be a frolic of his own. He must incur the
expenses whilst acting within the scope of his authority

 If he performs acts which he knows are illegal or unlawful, his indemnity is

forfeited.

Re Parker (1882) 21 Ch 408-A candidate in an election employed an election agent

to campaign on his behalf. The agent’s subagent made a number of illegal payments to
canvassers contrary to legislation. Court held that the subagent could not claim an
indemnity for these expenses.

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 If he is unaware of the unlawful character of his actions, he may still claim
an indemnity

Admson v Javis(1827)

3. Right to a lien

A Lien is a right to retain property by way of security until some debt is paid.
I.e. he can hold on the goods of Principal until his money is paid.

Two types of lien

a. General- in which case it extends to a general balance of the account. A

person entitled to general lien is entitled to retain any property belonging
to debtor until money is paid.

b. Specific/particular – this is limited to moneys outstanding in a particular

transaction. A person entitled to specific lien is entitled to retain property
until debts related to that item or similar item is discharged.

 A Lien depends on possession and agent must have possession to claim a

lien under the property.

Taylor v Robinson – Agent bought goods from T on behalf of Principal. It was agreed
that the goods should remain on the premises of T. Subsequently, and without the authority
of Principal, agent removed the goods on to his own premises. Principal became bankrupt
and agent claimed a lien. Held, he wasn’t entitled to it because the goods had all times
remained in possession of Principal.

 If he voluntarily loses possession, his right to a lien is also lost in process.

27
 A change in character of possession may also have the same result as
voluntarily parting with possession.

Barrett v Gough-Thomas(1951) 2ALLER 48

 No lien can be claimed if the contract excludes it nor if the goods are
delivered for a special purpose inconsistent with the alleged lien.

 A lien is lost if A waives it.

 A lien is also lost if P pays or tenders the sum due and A releases the goods
taken from P

The Alliakmon (1986) AC 785, 2ALLER 145

c. Right to stoppage in transitu

DUTIES OF AN AGENT TOWARDS HIS PRINCIPAL

1. Duty to obey Instructions

 An agent has to obey instructions of his Principal

 Failure to do so may negate his rights to remuneration and this may be a
breach of the contract

 He is only obliged to obey instructions in relation to legal actions and not

illegal.

Matupe vs Walube11MLR 493

2. Duty to take reasonable care

 Agents owe principals a duty of care

Midland banktrust co ltd v Hett-Stubss and Kemp (1979) ch 344, (1978) 3 ALL
ER 571

28
 The standard of care is an objective one, being ‘that which may reasonably
be expected of him in all circumstances of the case.’

Chaudhry v prabhakar (1988) 3 ALL ER 718

Mchawa vs National Bank 14 MLR 266

3. Duty for Personal performance

 Agency relationship is a personal one and the law requires an agent to

perform personally.

 Thus, as a general rule, an agent may not delegate performance of his

duties unless delegation is authorized by Principal.

 This is often expressed in Latin maxim ‘delegatus non potest delegare’

 Agent is in principle prohibited from delegating his authority to another

person or even appointing a sub agent to do some of the acts which he
himself has to do, except in some circumstances eg where delegation is
authorized by Principal.

De Bussche v Alt (1878) 8 Ch 286. Agent was appointed by Principal to sell a ship in
China. Agent was unable to do that and obtained Principal’s permission for the
appointment by agent of sub agent to sell the ship in Japan. It was held that there was no
breach of duty to act personally because delegation was expressly agreed.

Allam and Co. v Europa Poster Services Ltd (1968) 1 ALL ER 826-wherever the
act delegated is purely ministerial and one which doesn’t require or involve confidence or
discretion, there is no violation of the maxim delegatus non potest delegare’

Morris v CW Martin and Sons (1966)1QB 716, (1965) 2ALLER 725

29
Balsamo v Medici (1984) 2 ALL ER 304-P(Italian) asked his friend A to sell his car in
England and give the proceeds to Mrs Zecchi (P’s mother in law) who was in England. A
successfully did that but he had to return to Italy before the completion of the sale. Without
authority, A appointed sub A to collect and transmit the money to Mrs Zecchi. Sub A had no
knowledge of P and did not know that Mrs Zecchi was P’s mother in law. Sub A was duped by an
impostor who pretended to be Mrs Zecchi’s representative and received the money and
disappeared. A was insolvent and P sued the sub A to seek remedy. It was held that although A
was liable to account to P, sub A was not liable to account and also was not liable in negligence.

4. Fiduciary duties of an agent

An agent is in a fiduciary relationship with his principal and therefore has the
following fiduciary duties towards his principal:

a. Duty to avoid conflict of duty and interest

Aberdeen Railway Co v Blaikie Bros(1854)-Per Lord Cranworth LC, “it is a
rule of universal application, that no one, having such duties to discharge, shall be
allowed to enter into engagements in which he has, or can have, a personal interest
conflicting, or which possibly may conflict, with the interests of those whom he is bound
to protect”

Kimber v Barber (1872) 8 ch AC 56-A became aware that B wanted to obtain

shares in a certain co and told B that he could procure them at £3/share. B agreed
and paid A. The shares were then transferred but later it was learnt that A was in fact
the owner of the shares at the time of transfer, having just bought them himself at
£2/share.

The court held that A must pay B the difference of £1 on each share bought.

Mcpherson v Watt (1877) 3 AC 354 – A solicitor acted as an agent for two ladies
who wished to sell certain houses. The solicitor himself purchased the property though
bought in the name of his brother. The House of Lords refused to grant the solicitor
specific performance of the contract of sale.

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Mac Master vs Byrne 1952 1ALLER 1362

b. Duty not to make secret profits

Phipps v Boardman (1964)1WLR 993, (1966)3 ALL ER 721 Per Lord

Denning, “it is clear that if an agent uses property, with which he has been entrusted
by his principal, so as to make a profit for himself out of it, without his principal’s consent,
then he is accountable for it to his principal…likewise, with information or Knowledge
which he has been employed by his principal to collect or discover, or which he has
otherwise acquired for use of his principal, then if he turns it to his own use, so as to
make a profit by means of it for himself, he is accountable.”

Regal (Hastings) Ltd v Gulliver (1942) 1 ALL ER 378 per Lord Russel

Peterpan Manufacturing Corpn v Corsets Silhouette Ltd (1963)3ALLER

402-The agent is also liable to account to his principal for any profits he has made by
using confidential information acquired in the course of his agency.

Industrial development consultants ltd v Cooley (1972) 1 WLR 443, 2

ALLER 162

Nordisk Insulin Laboratorium v Gorgate Products Ltd (1953) Ch 430, 1

ALLER 968

Faccenda Chicken Ltd v Fowler and others (1985) 1 ALLER 724, 1986 1
ALLER 617

c. Duty not to receive bribes

 This is a particular form of duty not to make secret profit.

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 Where Principal knows of the bribe, he may dismiss agent or even recover
the bribe or rescind the contract with third party and pay charges for cause
of deceit.

Lister and Co V Stabbs (1890) 45 Ch 1, (1886-90) ALLER Rep 797

AG’s Reference No. 1 of 1985 (1986) QB 491

Logicrose Ltd v Southend United Football Club (1988) 1 WLR 1256

Mahesan v Malaysia Govt Officers’ Co-operative housing society (1979) AC
374 (1978) 2 ALLER 405.

TERMINATION OF AGENCY

 Just like contract by mutual consent or either party unilaterally drawing the
consent.

 Where it is by mutual consent, no move issues raised unlike in unilateral

termination.

1. Termination by agreement

 It specific time agreed or specific task, and once the task is completed or
time elapsed agency comes to an end.

 Both parties may also agree even if specific time is not elapsed.
 The real issues arise when one party unilaterally terminates before expiry of
time.

Walford Meadowns(Malawi) ltd vs Lorgat t/a Migowi Emporium 1994 MLR

373

2. Unilateral Termination

 If it happens, without any reasonable grounds it leads to branch of contract

and the party will be liable for damages.
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 Or if A breaches one of the duties, P may unilaterally terminate the agency
Boston deep sea fishing and ice co v Ansell (1888) 13 Ch 33-Due to breach of
contract, it was unilaterally terminated by P

Rhodes v Forwood (1876) AC 256

Cf Turner v Goldsmith (1891) 1 QB 544

 If agent also terminates prior to termination will also be liable in damages

to principal.

 If agency relationship is for an undefined period, any party may terminate

but must give reasonable notice to the other party i.e. depending on nature
of tasking one month or three months notice.

 If one thinks no need to give notice, one can pay in lieu of notice.
Martin-Baker Aircraft Ltd v Canadian Flight equipment ltd (1955) 2 QB 556,
2 ALLER 722

3. Termination by operation of law

 Certain events will terminate agency relationship automatically

 Examples of these events are death, frustration, illegality, insanity and
bankruptcy

a. Frustration

 When there is frustration this will terminate the agency relationship e.g
illegality

b. Death of either party will also terminate agency relationship.

 If agent was performing a particularly transaction and principal dies before
concluding the contract, if agent had no notice, will be taken as acting in

33
good faith and cannot be said to have no authority, but if he had notice,
he will be liable.

Campanari v woodburn (1854) 15 CB 400-Before A succeeded n selling the

picture, his P died. A knowing nothing of the death, affected a sale and sought to recover
his commission from P’s personal representative. Although the court granted A
compensation on quantum meruit for services he had rendered, it was held that he was
not entitled to recover commission under the contract which had automatically
terminated on P’s death. But A may recover where P’s executors subsequently ratify his
acts (Foster vs Bates)

Friend vs Young 1897 2 CH 421

c. Insanity is another event is another event under operation of law.

 Unless the agency is irrevocable, the supervening insanity of either P or A
automatically terminates the agreement. Insanity of A means he is
incapable of acting any longer, whilst Principal’s insanity is held to bring
agency to an end because where such a change occurs to the principal
that he can no longer at for himself, A whom he has appointed can no
longer act for him.
Drew vs Nunn (1879) 4 QBD 661-Wife was appointed by D as agent to purchase
goods from P. later D became insane but wife cont’d to purchase goods on behalf of D
from P who was not aware of D’s insanity. When he regained his sanity, he refused to pay
for the goods ordered by wife when he was in the asylum. It was held that P was entitled
to recover because although the authority was put to an end by the D’s insanity, but D
whilst he was sane made representations and he had no notice of the insanity.

Yonge v Toynbee.

d. Bankruptcy

 Applies to both parties

 If either of then is bankrupt, the agency relationship automatically
terminates since bankruptcy amounts to a legal incapacity. Drew vs Nunn
(obiter)

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 The effect of termination is that agent ceases to have authority to act on
behalf of principal.

 If this happens, a public notice should be given to the effect that A is no

longer agent and is not authorized to transact with third parties.

 Agency involves tripartite relationship and as far as third parties are

concerned, agent may in certain circumstances still be able to bind his
principal to contracts entered into with them even after termination of his
mandate.

Drew v Nunn (1879) 4 QB 661

TYPES OF AGENTS

1. General or special

General agent has general instructions to carry out general transactions in

the area of trade or business.

Michael Bakhona Chirwa vs Mark Sydney Soza Ndaferankhande, civil

cause No 95 of 2011

Eg managing director of a company, partner in the business

35
Have authority to make wide range of instructions
Special agents- have special instructions for a specific transaction

2. Del credere agents

Common in international transactions where P and 3rd party do not know

each other. Principal wants to get assured and agent undertakes to
indemnify in cases where the transaction does not materialize. Morris vs
Cleasby. He has contingent pecuniary liability

3. Mercantile agents eg brokers and factors

Primary distinction between brokers and factors is possession in the sense

that factors will usually be in possession of the goods they are dealing with
whereas brokers usually do not have possession. Because factors are in
possession, they can sell them in their own name whereas brokers usually
cannot. They only facilitate the transaction

Baring vs Corrie

4. Estate agent –

In landlord tenant agreement, they facilitate the transaction

Like brokers, they cannot conclude or enter into a transaction in their own
name because usually, they don’t have possession of the property

Kelly vs copper

Garnac vs fairclough(1967)2ALLER 353

Matupe vs Walube 11MLR 493-Estate agents only have obligation to find a buyer
but not to sign a contract

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TOPIC THREE: THE SALE OF GOODS

 The main statute governing contracts of sale of goods is the SGA (cap 48:01
of the laws of Malawi) and this only applies to contract of sale of goods as
defined in the Act. Similar to the English SGA 1979 though the latter has
been amended several times.

 A contract of sale of goods is defined under section 3(1) of the SGA as a

contract where a seller transfers or agrees to transfer the property in goods
to the buyer for the money consideration, called the price.

 The formation of a contract of sale is governed by the general law of

contract and all elements required for the formation of a valid contract
must be present.

 The question of money consideration was considered by the HL in Esso

Petroleum Ltd v commissioners for Customs and Excise (1976) 1 ALL ER 117

in which motorists(buyers of petrol) were given gold (World cup) coins after buying four
gallons of petrol. The defendants claimed that this was a sale of goods but failed because
consideration was not money but buying of fuel. The coins were held not to be sold to
them.

There was no contract of sale requiring money consideration.

 Just take under any contract, contract of sale has no formalities as to how
it should be; it can be oral or written but it is prudent to be reduced in writing
for easy proof if squabbles arise.

British Steel Corporation v Cleveland Bridge and Engineering Co Ltd. (1984)1

ALL ER 504

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 The contract of sale may be absolute or subject to conditions precedent or
subsequent Section 3 (3).

PARTIES TO A CONTRACT OF SALE

Seller and buyer

 The two must have capacity to enter into the contract

 Goods are often delivered on sale or return basis i.e. if goods are supplied,
the sale occurs when he accepts. He can return them if they do not meet
his (seller’s) conditions

 The supplying does not necessarily conclude the contract.

Weiner v Harris (1910) 1 KB 285-A retail received jewellery on ‘sale or return’

but had no power to buy himself. It was held to be a contract of agency.

 It must involve the transfer of property i.e. seller must agree to transfer the
property. If does not transfer the property, it won’t suffice as sale of goods.

 Section 2 (1) defines property as the general prosperity in goods and not
merely a special property

 Effect – if seller sells property to buyer which he did not have ownership,
then buyer is entitled to reclaim his money for lack of consideration.

 Rowland v Divall (1923) 2KB 500, ALLER REP 270- Lord Atkin emphasized the fact
that the object of the sale is to pass property and if not passed, the transaction is not a sale
at all. In this case, P bought a car from the D which, unknown to both had been stolen. P
used the car for 4 months before it was seized by the police. P then sued the D for the
return of the purchase price. Held that buyer was entitled to return of price even after using

38
it for some time, he had not obtained what he bargained for, namely the ownership of the
car.

The Act recognizes 2 types of contracts

1. Contract of sale and

2. A contract of an agreement to sell

 Under Section 3 (4) where under a contract of sale the property in the
goods is transferred from seller to a buyer, the contract is called a sale; but
where the transfer of the property in the goods is to take place at a future
time or subject to some condition therefore to be fulfilled, the contract is
called an agreement to sell.

 Under Section 3(5) an agreement to sell becomes a sale when the time
elapses or the conditions subject to which the property in the goods is to be
transferred are fulfilled

Money consideration (price)

 A contract will only be one of sale if property in goods is transferred to buyer

in exchanged for the money consideration.

 According to Mann ‘legal aspects of money’ money is defined as ‘chattels

issued by the authority of the law and denominated with reference to a unit of
account to serve as a universal means of exchange in the state of issues’.

 Batter trade will not suffice as a contract of sale due to lack of money
consideration. Only money will qualify it a contract of sale.

39
 Sett off –consideration can be paid in different modes e.g. if supplier
already owes you money, the right of set off will work and is recognized in
contract of sale.

 The same thing applies to credit cards i.e. you borrow money from the bank
and the bank pays for you and you later give back to the bank through
credit card.

 Previously it wasn’t taken as consideration because it was thought that

where goods or services are paid the card bears signature on the sales
voucher operates to give supplier a right to claim money payment from
Credit Card Company and buyer is not liable to the price if Credit Card
Company fails to pay.
 These days they are recognized as money consideration because is mode
of payment and not consideration itself.

Davies v Customs and excise commissioners(1975)1 ALL ER 309-It was held

that there was a sale of goods by the draper to the customers and that ‘the customer who
presents the provident cheque is paying cash and not consideration other than cash.

Accordingly VAT was payable on the cash price paid by the customer.

 Generally the amount will be agreed by parties.

If they fail to agree, Section 10 (1) and (2) are applicable
 If the price is not fixed/indeterminate, the buyer must pay a reasonable
price(this is an implied term)

 However, there must be a contract being agreed by the parties.

May and butcher Ltd v The King (1934) 2 KB 17-The HL held that an agreement
for sale of goods at a price to be later fixed by the parties was not in the circumstances of

40
the case, a concluded contract. It has been argued that as the fixing of the price has
broken down, a reasonable price must be assumed…

 Foley v Classique Coaches Ltd (1934) 2 KB1, ALLER rep 88-The CA held that an
agreement to supply petrol ‘at a price to be agreed by the parties’ was binding contract
as the parties had clearly evidenced an intention to be bound and the contract
contained arbitration clause under which a reasonable price could be fixed in the event
of disagreement.

 Sometimes, parties may agree that the price will be fixed after a valuation
depending on the market price. Section 11 (1) and (2)

 Where they agree that the price will be fixed after an evaluation, neither
party may say there was no price.

British steel Corporation v Cleveland Bridge and Engineering Co. Ltd (1984)

 Parties will agree who is to valuate and if they did not, the court may
appoint a valuer.
Sudbrook Trading Estate v Eggleton (1983) AC 444, (1981)1ALLER 105-Lease
gave a tenant an option to purchase land at a price not less than £12,000 as may be
agreed upon by two valuers to be appointed, one by each party. The tenant exercised the
option to purchase but the landlord refused to appoint a valuer. The court held that this was a
good contract of sale of land at a fair and reasonable price which was to be reached by
objective standards.

Goods
 This is the subject matter of the sale contract under the SGA
 The Sale of Goods Act only applies to a contract of sale of Goods as
defined by the Act. If it is not a sale of Goods, the Act does not apply.

41
 Section 2(1) of the SGA defines goods in an inclusive way. It provides that
Goods include all chattels personal other than things in action and money,
and all emblements, industrial growing crops and things attached to or
forming part of the land which are agreed to be severed before sale or
under the contract of sale.

 According to the definition, a contract to sell freehold or leasehold land is

not contract for the sale or goods.

 However, crops and structures amounting to fixtures may be sold as goods

provided they can be severed before sale eg trees, water, oil, gases.

 What about electricity, is it goods?

 Domestic animals are goods, but wild animals are not, why?
 Buildings are not goods, but if they are demolished and sold, the constituent
parts then become goods.

Two categories of crops according to the definition

(i) Emblements: these are annual crops grown by the agricultural labour
as opposed to naturally growing plants whereas

(ii) Industrial growing crops are cultivated as opposed to natural crops

but are not expected to mature in one year
 Naturally growing crops are included within the structures and other
features in the expression ‘things attached to or forming part of the land’

Morgan vs Russel 1909 1 KB 357-It was held that the sale of slag and cinders which
lay on the ground and were not in definite or detached heaps resting on the ground, was
not a sale of goods, but an interest in the land and therefore the SGA did not apply.

42
 A contract for sale of money is not a contract of sale of goods but a
contract to sell a note or coin as a curio as opposed to item of currency is
a contract of sale of goods

Moss vs Hancock (1899) 2QB111-It was held that money can sufficiently change its
character and become goods so that it can be bought and sold within the SGA: A coin,
for example, might thus be sold as goods where it has curiosity value or is a collector’s item
or has ceased to be a legal tender.

 The definition of goods also excludes things or choses in action and these
are intangible things eg shares, securities, patents or intellectual property
rights

 The rights to such kind of things cannot be claimed by taking physical

possession of goods but may be ascertained by legal action and therefore
contracts for sale of such items are not contract for sale of goods.

 With regard to Computer software –courts have given different opinion

 The supreme court of New South Wales in Toby constructions products
property limited vs Computer Bar property limited (1983) held that a sale of
the entire computer system comprising of hardware and software was a sale of
goods but the court did not sate the status of the soft ware supplied alone.

 In Rural Dynamics Ltd vs General Automation Ltd (1983), the court held that
physical disc on which software is supplied should be regarded as goods but
whether the intellectual information contained on the disc should be regarded as
goods was not decided.

 Human body parts also cause problems as to whether they should be

classified as goods or not. In Perlmutter vs Beth David Hospital (1955), P was

43
given a blood transfusion in D’s hospital. The blood was contaminated with jaundice viruses
and P suffered injury in consequence. P was a paying patient and he was charged a
separate sum for cost of the blood itself. P claimed that the blood had been sold to him
and that the Ds were therefore liable for defects on the basis of implied warranties. The
court held P could not hold the hospital liable for the condition of blood because the
contract was essentially one for services and not a contract for the sale. The supply of the

blood was merely incidental to those services.

Classification of goods

 The SGA classify goods in two ways:

1. Existing and future goods

2. Specific and unascertained goods

 Section 7(1) SGA provides that the goods which form the subject of contract of sale
may either be existing goods owned or possessed by the seller or goods to be
manufactured or acquired by the seller after making the contract

 Existing goods are goods are actually in existence. They are owned,
possessed and capable of being transferred by the seller at the time of
contract of sale

 Future goods are goods which are not in existence at the time of the
contract. They are to be manufactured or acquired by the seller after the
making of the contract. Therefore, there cannot be a sale of them at the
time of making a contract but only an agreement to sell when the goods
are actually in existence(see section 7(3) SGA)

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 Goods that fall into this category may have to be manufactured before
they become specific or they may have to be grown. A contract to sell next
year’s burley tobacco from a particular field is an agreement to sell the
tobacco when it has been grown

 An agreement to sell future goods is, of course, a contract like any other,
and if the seller fails to produce the goods at the proper time, he will be in
breach.

Sainsbury Ltd vs Street 1972 3ALLER 1127-There was an agreement to buy 275 tons
of barley crops at £20 a ton but the harvest was poor and the seller produced 140 tons
only. The seller (D) sold the crop to other merchants at a higher price. His argument was
that because the agreement was for 275 tons, he was not obliged to deliver what he had
harvested to the seller. The court held that the contract obliged the seller to deliver what
he had actually harvested if the buyer was willing to accept it.

What is the difference between specific and existing goods?

 Specific goods are not only existing goods but are essentially the actual
goods which will pass under the contract.

 Eg if you want to buy six eggs, you can go to METRO and take from a shelf
a sealed tray containing six eggs. These are specific goods. Alternatively,
you can be given a tray containing 30 eggs. They do not become specific
until the six you are actually buying have been counted out.

 Ascertained goods are goods identified by both parties eg two of these

bottles of port. In the Act, they are treated as specific goods.

 Unascertained goods are in existence (usually), but which have not been
specifically identified as the goods forming part of the subject matter of the
sale. When they have been so identified, they become ascertained.

45
 In Sainsbury Ltd vs Street 1972 3ALLER 1127, it was held that a contract to buy a
specified quantity of produce to be grown in a particular field was a contract for
unascertained goods.

 Classification is important in ascertaining the time at which property in the

goods passes to the buyer. When goods are not in existence or have not
yet been acquired by the seller at the time the contract is made, parties
cannot intend property in those goods to pass.

Distinction between sale and other contracts

 As we have mentioned ‘a sale of goods’ within the meaning of the Act is
where goods are sold or agreed to be sold for money consideration.
However, there are many other transactions in which property in the goods
passes but which are not sale of goods.

 Where goods are transferred pursuant to an arrangement which does not

satisfy the requirement of Section 3(1) of SGA, the arrangement is not a
contract on sale of goods and the provisions of the Act will not apply

 Distinguishing between sale of goods and other similar transactions may

often involve the drawing of a fine distinction and many arrangements may
be susceptible for more than one interpretation

 However, the law in this area often pays attention to form than to substance
Young and Marten vs Macmanus and child’s ltd 1969 AC 454

 Let us look a these other contracts:

1. Gifts or ‘Free’ promotional offers (eg buy two and get one for free)

 Generally, a free offer is not a contract of sale

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 This is not a contract of sale because there is no price, even if it is under seal
Esso Petroleum Ltd v commissioners for Customs and Excise (1976)1ALLER
117 in which World cup coins supplied to buyers of petrol after buying four gallons of more
were held not to be sold to them. The House of Lords held that there was no contract of
sale. The reason was not clear as to whether it was because of lack of consideration or
there was no money consideration. But for whatever reason, it is not a sale contract

2. Barter or Exchange

 This occurs where the consideration for a sale is not a price in money but
other goods in whole or part.
 Where the deal is wholly goods for goods in return, the position is simple, the
SGA has no application.

 Indeed, it was held in Read vs Hunchinson (1813) that a party to such a

contract who had parted with goods in purported exchange for others
could not sue for the price of them

 However, if the bargain is partly in goods and partly in money, the situation
will be different. Aldridge vs Johnson 1857

 Nowadays the legal position can go either way(either SGA to apply to both
or to one which was in money consideration) depending on the wording of
the contract and circumstances

3. Trading stamps –this is barter

4. Contracts for work and materials

 Sometimes it is difficult to decide whether a particular agreement is a

contract for sale of goods or a contract for performance of work and
services to which the supply of material or some other goods is incidental.

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Eg a case of a builder to erect a house and as part of the contract, he is
required to provide the bricks etc, to which category does it belong?

 To determine whether it is a contract for sale of goods or for performance

of work and services will depend on facts of a particular case.

Dodd vs Wilson & William (1946) 2ALLER 691-The supply of drugs by a veterinary
surgeon when inoculating cattle.

Robinson vs Graves 1935 1KB 579, ALLER Rep 935-Contract to paint a client’s
portrait was not a contract for sale of goods though the client acquired the canvas and
paint.

Lea vs Griffin(1861)

Dixon vs London Small Arms Co. (1876)

5. Bailment –This is not a contract for sale of goods

South Australian insurance Co vs Randell(1869)3P101

Cf Mercer vs Craven Grain storage ltd 1994 common weath Reports 328

6. Pledges –Assignment of receivables. This is not a contract for sale of

goods
7. Hire purchase

 At common law, hire purchase agreement is a contract for hiring goods

under which there is an option to buy the goods conferred on the hirer or
return the goods hired. If you do not pay, repossess and not reimburse the
one already paid

 Thus, this is not a contract of sale of goods because there is no clear transfer
of the goods. Its an optional sale/condition based on the option of the
buyer whether to buy or not

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Duties of the buyer and seller
 Defined under section 28 which provides that it shall the duty of the seller to
deliver the goods and the buyer to accept and pay for them in accordance with
the terms of the contract of sale

 Thus, the seller’s duty is to deliver the goods and the buyer to accept and
pay for them according to the terms of the contract

 Failure of each party to perform these obligations will constitute total failure
to perform the contract

 On the part of the seller, there is also conditional precedent that he has
title to sell

 Section 29 SGA explains the relationship between duties of and a buyer

and a seller. It provides that delivery and payment are concurrent
conditions.

 The seller must be ready to give possession of goods to the buyer in

exchange for the price and the buyer must be ready and willing to pay
the price in exchange for possession of the goods

Anticipatory breach ie saying in advance that one will not be able to fulfill the

obligations

 The normal rule on this is that the innocent party may choose either to treat
the contract as immediately terminated and claim damages or he may
ignore the breach and keep the contract alive ie contract still in force.

 Fercometal vs Mediterranean Shipping Company 1988 2ALLER 742-The

49
charter party for carriage of steel contained a clause under which the charter would
cancel the contract if the vessel was not ready to load on or before 9 th July. On 5th July,
owners telexed charterers that they would not be ready on either 8 th or 9th July. The
charterers sent a cancellation notice on 12th July and the ship-owners action against the
charterers failed as the owners had not accepted charterer’s repudiation and had
continued with the contract.

The House of Lords held that the two choices were available to the innocent party

 Remedies of a seller-in case where the buyer communicates to seller that

he will not accept goods when delivered,

(i) Seller may accept the breach and treat the contract as repudiated
and is entitled to claim damages and is released from performance
of further duties under the contract.

Berger and company vs Duffus 1984 AC 382, 1ALLER 438-S agreed to sell B 500
tons of beans. 445 tons were discharged and the balance 55 was discharged 12 days
later. B rejected the shipping document for not containing a certificate of quality. S sent
the certificate and documents but B refused it again. S treated this refusal as wrongful
repudiation and didn’t tender the certificate for the remaining 55 tons. It was found that
the goods did not correspond with description. It was held that B’s refusal was a breach
of the contract and as S had elected to treat the contract as repudiated, he was
released from further performance of the contract and was under no duty to deliver the
55 tons. B was therefore liable for non acceptance of the whole 500 tons.

British and Bennington ltd vs NW Cachar Tea Co (1923)AC 48

(ii) Seller may ignore the breach and regard the contract as alive and
if the agreed time elapses, the seller will treat the contract as been
breached and then claim damages.

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The terms of the contract of sale
 Just like any other contract, contract of sale of goods has both express
and implied terms provided by the SGA

 Apart from that, these contracts have also representation(warranties,

conditions and innominate terms)

 The SGA only refers to conditions and warranties

 Representations are within the two
 A warranty is an agreement with reference to goods which are subject of
a contract of sale but collateral to the main purpose of such a contract
the breach of which gives rise to a claim for damages but not a right to
reject the goods and therefore treat the contract as terminated.

 Conditions are fundamental terms of a contract the breach of which will

entitle the innocent party to treat the contract as terminated.

Delivery of Goods

 Seller’s duty to pass property is so fundamental and for all practical

purposes the buyer’s immediate concern is often to get physical
possession of the goods for use or resale.

 Section 2 SGA defines delivery as voluntary transfer of possession from one

person to another

 Seller may deliver the goods by delivering document of title and

sometimes can be symbolic by handing over means of taking control eg
keys of car

Four point garage vs Carter (1985) 3ALLER 12-B1 and B2 agreed to sell each other
a car. B1 didn’t have such car in stock and agreed to buy it from S. B1 told S to deliver
the car direct to B2. B1 went into liquidation before paying S. S argued that there was no

51
delivery by B1. However, the court held that B1 had obtained constructive possession and
S acted as B’s agent in making the delivery and accordingly B2 had obtained a good
title.

 Unless the contract provides otherwise, the place of delivery is normally

seller’s place of business or if he has none, his home or where the contract
is
for sale of specific goods which are in some other place at the time of the
contract, then the place where the goods are situated see section 30(1)
SGA

 If the place of delivery is the seller’s premises, the seller would have fulfilled
his obligations by delivering the goods to a carrier for transport to the buyer
and the carrier is deemed to be the buyer’s agent

 If the place of delivery is the buyer’s premises, the carrier is the seller’s
agent and the seller does not fulfill his obligation to deliver until the goods
reach the buyer’s premises

 If a person had apparent authority, the seller would have fulfilled his
obligation to deliver by handing the goods to the person at the buyer’s
premises who appears to have authority to receive them and provided he
is not negligent, the seller is not liable if the goods are misappropriated and
never reach the buyer. (apparent authority and negligent factors)

Galbraith and Grant Ltd vs Block (1922)2KB155, ALLER Rep443-S sold

champaigne to B and agreed to deliver it to B’s premises. It was delivered at the side
entrance to a man who signed a delivery sheet in B’s name. B said he had not authorized
anyone to take delivery of it and that he had never received it. The court held that S was
entitled to the price of the goods as he had discharged the duty of delivery without any
negligence.

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 For goods that must be manufactured at seller’s place, then notice has to
be given to the buyer for collection. There are no surprises in sale of goods.

 Where the contract is silent as at to time of delivery, the rule says delivery
must take place within a reasonable. What is reasonable will depend on
facts of each case including nature of the goods and the volatility of prices
in the particular market

 If delivery is delayed, that is a breach of contract and damages can be

claimed
 The SGA provides that parties can stipulate in the contract that time is of
essence in the contract. Time being "of the essence" means that it is a
condition and delay is taken a breach of condition hence damages
 Unless a different intention appears from the terms of the contract,
stipulations as to time of payment shall not be deemed of the essence of
a contract of sale section 12(1) SGA

 Section 12(2) is to the effect that whether any stipulation as to time is of

essence of the contract or not depends on the terms of the contract of
sale.

 Courts have said that in ordinary commercial contracts for sale of goods,
time is prima facie essential in commercial transaction with respect to
delivery, even in the absence of any express stipulation to such effect in
the contract

Hartley vs Hymans 1920 3KB 375, ALLER Rep 328

Bunge corpn vs Tradax SA 1981 2 ALLER 513

 Time can only be of essence where the date for delivery has actually been
fixed for certainty in accordance with terms of the contract

53
British and commonwealth holding plc vs Quadrex holdings 1989 3ALLER
492

 Where the seller is delivering the goods, he must deliver the precise
quantity of goods required. Any variation other than a minimal one from
the contracted quantity entitles the buyer the right to reject the whole
delivery section 31 SGA

Re moore and Landauer 1921 2KB 519

Shipton, Anderson and co. vs Weil brothers 1912 1KB 574

 All these rules may be subject to any usage or custom within a particular
trade or course of dealing between the parties section 31(4)

STATUTORY IMPLIED TERMS

 All contracts for supply of goods have implied terms(conditions or

warranties) which require the goods delivered to be of a certain standard
or quality

 The SGA provides for the following implied terms in relation to the supply of
goods which touch on standard and quality:

1. Implied condition of the right to sell the goods (Section 14)

 Section 14(a) of the Act lays down that "there is an implied condition on
the part of the seller that in the case of a sale he has a right to sell the
goods, and in the case of an agreement to sell he will have such a right at

54
the time when the property is to pass". Ie the seller must have and pass
good title

 If the seller has no right to sell the goods, the buyer acquires no title to
them. Ie the effect of breach of this condition is that basically there will be
no contract as there will be total failure of consideration

Rowland v. Divall (1923)2KB 500

Niblett v. Confectioners' Materials Co. Ltd (1921)3KB 387-The sellers had
no right to sell the goods(preserved milk) because their labels infringed the trade mark
of the English company and an injunction was granted to the Co. the seller was guilty
of breach of S.12(1) (similar to 14(a) Malawi SGA) although they had power to transfer
the property in the goods.

Microbeads AG v. Vinhurst Road Markings Ltd (1975)1WLR 218,

1ALLER 529, in which goods were sold which were not at the time subject to any
patent rights. Subsequently a patent specification was published and a patent
granted. The Court of Appeal held that there was no breach of the right to
sell(S.12(1)) as B had obtained good title at the time of sale but B could rely on
breach of warranty to enjoy quiet possession of the goods in future.

These implied conditions under section 14 cannot be excluded or

limited by any contract between the buyer and seller.

2. Freedom from Encumbrance and Quiet Possession

 There is also an implied warranty for the seller to sell the goods free from
any charge or encumbrances and the buyer should enjoy quiet
possession of the goods section 14(b) and (c) SGA

 A charge or encumbrance is a right over the goods possessed by a

person other than the owner. For instance, goods may be charged or
mortgaged as security for a loan. The chargee or mortgagee then
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possesses rights with regard to the goods. The seller therefore warrants
that no such charges exist, or only such as he/she has previously
disclosed.

 "Quiet possession” does not mean absence from noise. It means that it
is warranted by the seller that nobody with any better rights to the goods
will disturb the possession of them by the buyer; nor is the warranty
confined to defects in title existing at the time of the sale.

3. Correspondence with Description. The Section15 of Sale of Goods Act

provides that "Where there is a contract for the sale of goods by description,
there is an implied condition that the goods will correspond with the
description".

Beale v. Taylor (1967)3-A car was advertised for sale as a "Herald Convertible 1961"
model. Actually the car consisted of two parts welded together and only one was a 1961
model. It was held that the description "1961" was a contractual condition and buyer was
entitled to damages for breach of condition implied by statute on sale of goods by
description notwithstanding the fact that both S and B didn’t know.

At common law, the requirement that goods must correspond with the
description was limited to a contract of unascertained goods but the Act
does not specify that. It can be specific, future or ascertained goods.

Varley vs Whipp (1900) 1QB 51-B agreed to buy a 2nd hand reaping machines which
he had never seen but was described as ‘new the previous year’ and having cut 50 to 60
acres. But it was a very old machine which had been mended. It was held that this was a
sale by description such a sale occurring in all cases where a purchaser has not seen the
goods, but is relying on the description alone. S failed to recover the price.

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Grant vs Australian Knitting Mills 1936 AC 85, 1935ALLER Rep 209-B bough a
pair of underpants from a retail shop. The underpants contained an irritant form of excess
surphites and as a result B developed dermatitis which persisted for a year. The sale of
underpants was held to be one by description (merchantable quality) and it was held that
the goods did not meet the required standard of merchantability within the section

Wren vs Holt 1903 1KB 610

 It must be noted that a sale is not necessarily a sale by description so as to

bring implied term under section 15 merely because descriptive words are
used in negotiations or in the contract. The buyer will only succeed if he can
show that the false statement formed part of the description by reference
to which the goods were sold. The crucial question is whether the goods
were sold by reference to the description in question. Mere description does
not suffice.

Harlingdon and Leinster Enterprises Ltd vs Christopher Hull fine Art Ltd

1990 1 ALLER 737-S phoned saying he had paintings by Gabriel Münter for sale. At S’s
gallery, B examined the relevant painting in silence. He bought the paintings at £6000 but
later discovered that it was a forgery that could only be resold between 50 to 100. It was
held that this was not a sale by description as B did not rely upon the description given but
upon his own judgment rather than that of S.

 Further, the description in question must at least identify the commercial

characteristics of the goods to be sold.

 Ashington piggeries Ltd vs Christopher Hill Ltd 1972 AC 441, 1971 1ALLER 847-
Herring meal became contaminated by a chemical reaction when a preservative was
added. It became toxic to mink and other small animals. It was held that it complied with
the description "herring meal".

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 Furthermore, the description must identify the kind of goods to be supplied
rather than simply identify the particular item.

Reardon Smith Line Ltd v. Yngvar Hansen-Tangen (1976)3ALLER 576- The

dispute related to a charter of a tank which was in the course of construction. The charter
party referred to it as one to be built at Osaka with Hull number 354 when in fact it was built
at Oshima with Hull number 004 but it complied with every material respect of its
specifications. At the time of delivery, the charterer sought to reject it contending that the
tanker did not meet its description. It was held that charterers must take the vessel as the
vessel’s number had no legal significance as it complied in all respects with its physical
description in the specifications

 Any discrepancies between the goods and the description other than a
deminimis one will be a breach of contract and will entitle the buyer to
reject the goods even though it causes no loss.

See the comments by Lord Atkin in the case of Arcos vs Ronaasen and sons
1933AC 477, ALLER Rep 646-It concerned a contract of wooded staves of ½ inch
thick cement barrels but only 5% conformed to this. It was held that B could reject all the
goods. Lord Atkin said “A ton does not mean about a ton, or a yard about a yard…still less
does ½ inch mean about half an inch…”

4. There will be no implied warranty or condition as to quality or fitness of the

specified goods subject to the exceptions. Section 16(B) SGA

 The goods must be of merchantable quality if the goods are sold by

description

 This is a question of fact and courts have developed two tests of

dertermining whether the goods are of merchantable quality:

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a. Acceptability test

 This is to the effect that where goods are merchantable, their state must be
such that the reasonable buyer fully aware of all facts including any hidden
defects would buy them without a reduction of the price.

 Grant vs Australian Knitting Mills 1936 AC 85, 1935ALLER Rep 209-B bough a
pair of underpants from a retail shop. The underpants contained an irritant form of excess
surphites and as a result B developed dermatitis which persisted for a year. The sale of
underpants was held to be one by description (merchantable quality) and it was held that
the goods did not meet the required standard of merchantability within the section

Henry Kendal and sons vs William Lillico and sons 1969 2AC 31-B bought
animal feed which poisoned his pheasants but was suitable and edible food for a wide
range of other animals. The food was held to have a requisite standard of merchantable
quality.

b. Usability test

 This provides that goods will be merchantable provided they would be used
by a reasonable buyer for any purpose for which the goods of the contract
could ordinarily be used.

B S Brown and sons Ltd vs Craiks Ltd 1970 1 ALLER 823-Appellants ordered cloth
from respondents. They did not inform respondents of the purpose for which they required
it, which was making dresses. The cloth may have been suitable for industrial purposes but
was not suitable for this purpose. The price of the cloth was higher than would normally
have been paid for industrial fabric, but not unreasonably so. It was established that the
inference that goods are unmerchantable may be justified only if the goods are saleable
at substantially less than the contract price.

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 If goods are capable of being used for various purposes, would it suffice if
they meet one of the purposes? There are different opinions and depends
on case to case

 If it meets ancillary / incidental purposes to the main one, then you can say
it suffices. When buying items, parties have to specify the reason for buying
that particular item.

Henry Kendal and sons vs William Lillico

Sumner, Permain and Co vs Webb and Co. 1922 1KB 55, 1921 ALLER Rep

680-S sold tonic water to B knowing that B intended to ship it in Argentina. The water
contained some acid which made its sale in Argentina illegal though S did not know that
fact. Upon arrival in Argentina, it was seized and condemned unfit for human
consumption. B brought action against S on the ground that the goods were not of
merchantable quality since they could not be sold in Argentina. The action failed. It was
held the that the water could have been seen sold anywhere but in Argentina and it was
therefore merchantable. The fact that the gods were unfit for a particular purpose did not
render them unmerchantable. The term merchantable didn’t mean the goods were
legally saleable.

 The price at which the goods are sold can also tell whether the goods are
merchantable or not. Can indicate that the goods are not of good
quality/expiring state or where you are buying them at a low price, it just
shows of the quality of the item

Rogers vs Parish (Scarborough) Ltd 1987 QB 933, 2ALL ER 232-It was held that a
new Range Rover which had defects in its engine, gear box, oil seals and body work was
unmerchantable even though it was usable and drivable, having driven for 5800 miles in
the last 6 months

Shine vs General Gurantee Corporation 1988 1ALLER 911

Bartlett vs Sydney Marcus Ltd 1965 2 ALLER 753

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 Defective package/unclear instructions on the package as to how it has to
be used

Niblett vs Confectioners’ materials Ltd 1921

Wormell vs RHM Agriculture (East) Ltd 1986 1 ALLER 769

 If thorough examination would show the defects and the buyer had not
done a reasonable examination then the buyer cannot claim because he
had a chance to do a reasonable examination

 Other defects require a more detailed examination and these cannot be

taken as exceptions

Godley vs Perry 1960 1ALLER 36-A plastic catapult, bought in a retail shop was held
to be unfit for its purpose when it snapped in use and B lost an eye.

R and B Customs Brokers Ltd vs United Dominions Trust Co 1988 1ALLER 547

5. Fitness for the Purpose-Section16

 Section 16(a) provides that "Where the seller sells goods in the course of a
business and the buyer, expressly or by implication, makes known: (a) to the
seller any particular purpose for which the goods are being bought, there
is an implied condition that the goods supplied under the contract are
reasonably fit for that purpose,

 Whether or not that is a purpose for which such goods are commonly
supplied, except where the circumstances show that the buyer does not

61
rely, or that it is unreasonable for him to rely, on the skill or judgment of the
seller".

 Satisfactory quality and fitness for the purpose are related, though different.
An article can be of adequate quality without being fit for a particular
purpose, and vice versa.

Note these requirements for one to rely on the implied condition

(a) The first essential to bring the implied condition into play is that the seller
must be in the course of a business dealing with the goods. Whether he is a
producer or not is irrelevant. It is a question of acts and courts would have
to make an examination for the facts.

(b) The second is that the buyer must expressly, or by implication, make known
to the seller the actual purpose for which he requires the goods, and that
he is relying on the seller's knowledge and experience of the goods to
provide something that will do the job.

 Express notice of the purpose is obvious, but implied notice can take various
forms. A propeller ordered for a specific ship under construction was held
to be notice of the purpose in (Cammell Laird & Co. Ltd vs Manganese
Bronze & Brass Co. Ltd (1934)).

 The same result occurred when 500 tons of coal were ordered "for the
steamship Manchester importers" in (Manchester Liners Ltd v. Rea Ltd
(1922)AC 74, ALLER Rep 605)-B bought 500 tons of coal from S for a particular named

62
ship which turned out to be unsuitable for the vessel. The HL held that B had sufficiently
communicated the purpose to S in informing him of the particular ship for which the coal
was required. Thus, S warranted them to be reasonably fit for that purpose. Hence there
was a breach of implied condition of fitness.

Griffiths vs Peter Conway 1939 1ALLER 685-B bought a coat from S but she
developed dermatitis after wearing it due to her abnormally sensitive skin. She argued that
the coat was unfit for its particular purpose viz her personal wearing of it. She failed
because her abnormality wasn’t known to S and the coat wouldn’t have affected a
normal person’s skin detrimentally.

 If the description of what is required points to one use only, then notice of
that purpose is readily implied. In Priest v. Last (1903)2 KB 148 a customer in a
shop asked for "a hot water bottle". When it burst it was held to be unfit for the purpose.

 It often happens that goods can be suitable for a number of different

purposes, in which case the buyer must indicate, expressly or by implication,
which particular purpose he/she requires, in order for the seller to be liable.

(c) The Act does not require goods to be perfect; merely reasonably fit for the
purpose. In Bristol Tramways, etc. Carriage Co. Ltd v. Fiat Motors Ltd

(1910)2KB 831 the bus company ordered buses for heavy passenger work in Bristol. Bristol
is a hilly city, and they were not up to the job. It was held that they were not reasonably fit
for the purpose.

6. Sale by sample (Section 17)

 Goods are, of course, frequently sold by sample. This is where a small piece
or quantity is brought by the seller for the buyer's inspection. The bulk is then
sold on the strength of an examination of the sample.

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 Section 17(1) of the SGA defines a contract for sale by sample as a contract
for sale where there is an express or implied term to that effect in the
contract.

 Under section 17(2), in the case of a contract for sale by sample there is an
implied condition:

(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of comparing the
bulk with the sample;

(c) that the goods will be free from any defect rendering them
unmerchantable which would not be apparent on reasonable
examination of the sample.

Drummond(James) & sons vs EH Van Ingen & Co. Ltd 1887 12AC 284 @ 297-
Lord Macnaghten explained that the purpose of a sample is “to present to the eye the
real meaning and intention of the parties with regard to the subject matter of the contract,
which, owing to the imperfections of language, it may be difficult or impossible to express
in words. The sample speaks for itself”

 Sales by sample are analogous to sales by description in that the sample is

one way of describing the subject matter.

 The first point to notice is that Sub-section (1) provides that a sale is by
sample only if the contract says so, or it can be implied. The mere exhibition
of a sample during negotiations does not of itself make the subsequent sale
one by sample.

 The word "bulk" can include both unascertained and specific goods. It can
also include future goods which have to be manufactured.

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 The bulk must correspond with the sample in quality. The degree of
correspondence is somewhat subjective, and depends to an extent on the
type of goods and the intentions of the parties.

 For example, it is unlikely that the section would be breached if the buyer
treated a sample to tests or analysis not usually employed in the trade, and
then tried to claim that the bulk did not match up to such exhaustive testing.

 On the other hand, if the bulk is not of the quality of the sample, there is a
breach of the section even though a simple process is required to make
them correspond with it. Ie correspondence must be exact subject to the
de minimis variation and if they don’t correspond, it’s no defence that they
could easily be made to correspond.

(E and S Ruben Ltd vs Faire Bros & Co. Ltd (1949)KB 254, 1ALLER 215-A
agreed to buy some rubber material from B and the sample was shown to A. On receiving
the rubber material, A found that the measurement of the rubber material was different
from that of the sample. The court held that measurement of the rubber material was part

of its quality and the goods did not correspond with the sample .

 The buyer must have a reasonable opportunity of comparing the bulk with
the sample.

Lorymer v. Smith (1822) 1 B & C1 – Two parcels of wheat were sold by sample. The
buyer went to examine the wheat a week later. One parcel was shown to him but the
seller refused to show the other parcel as it was not there. The court held that the buyer
was entitled to reject the contract of sale as he was not given reasonable opportunity to
test the bulk with the sample.

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 The goods must be free from any defect, rendering them unsatisfactory,
which would not be apparent on reasonable examination.

 The examination which the buyer makes need not thus be exhaustive. The
extent of it depends on the nature of the goods, the requirements and
practices of the trade, and other relevant circumstances.
Jurgensen v. F E Hookway & Co. Ltd (1951)2 Lloyds Rep 129 A retailer buying
plastic catapults tested one of them by pulling back the elastic. Later, one
of the catapults proved to be of unmerchantable quality (i.e.
"unsatisfactory" quality under the Sale of Goods Act 1979, as amended). It
was held that the examination was reasonable, and the seller liable.

 If a sale is by both sample and description, the bulk of goods must

correspond with both sample and description. So, correspondence with the
sample provided will not be enough if there was a description given in
advance and the goods do not correspond with it.

PASSING OF PROPERTY

 Property must pass from the seller to the buyer for it to be a contract of sale
as seen in its definition(section 2)

 Goods – at least specific goods – are tangible things which you can
physically handle. But the mere fact that I can handle something does not
necessarily mean that I own it. I may have found it abandoned, or have

66
been lent it, or have stolen it. In none of these instances am I the rightful
owner.

 There are then four definitions which are fundamental, and which occur
throughout the subtitle and it is most important not to confuse them.

Property

 The "property" in goods is the ownership of them – the highest right to those
goods that a person can have.

Title

 "Title" to goods is often used as being synonymous with "property". But strictly
it is the "right" to a person's property in goods, or the means whereby the
right
has accrued to someone, and by which it is evidenced. Blackstone defined
it over two centuries ago as: "the means whereby an owner has the just
possession of his property".

Possession

 This is the physical control of the goods, or possession of them. It has no

necessary connection with the property in them. If I steal something, I have
possession of it, but I do not have the property in it, nor any title to it. Indeed,
I do not even have a right to possess, and the right to possess may be
vested in someone else, neither in me nor in the owner.

Risk

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 The "risk" in goods is the responsibility for loss, damage or destruction of those
goods. It is not necessarily coincident with either property in or possession
of those goods.

The Effect of Passing of Property

 The effect of passing the property in goods to the buyer is to transfer to
him/her the title and full legal interest in the goods, subject only to any rights
in the goods retained by the seller or by any third parties.

 It is a condition of the contract that any such retained rights are first
disclosed to the buyer. Before the property has passed, the seller can
dispose of the goods to a third party, albeit in breach of contract with the
buyer, and the third party will thereby acquire a good title to them.

 The reason is that the title is still vested in the seller until the property passes,
hence he/she is at liberty to pass that title to someone other than the buyer.
The disappointed buyer is, of course, entitled to damages for breach of
contract, but not to the goods themselves.

 The exact point in time when the property passes is most important in the
event that either buyer or seller goes bankrupt (or, in the case of a
company, into liquidation or receivership).

 In the event of the seller becoming insolvent while still in possession of the
goods, if the property has passed to the buyer, he/she can, on tendering
the price, demand the goods themselves from the liquidator or trustee in
bankruptcy.

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 If the property has not passed, all what the buyer can do is to seek
damages for breach of contract. If the seller is hopelessly insolvent, this right
may be worthless.

 The Sale of Goods Act provides rules as to when the property in goods sold
passes (Sections 18 to 20)

Unascertained goods
 Section 18, where there is a contract for sale of unascertained goods, no
property shall be transferred to the buyer until the goods are ascertained.

Specific Goods
 The cardinal principle is that the property passes when the parties to the
contract intend it to pass. In the case of specific goods, this is enshrined in
Section19(1) of the Act.

 Sub-section (2) goes on to state: "For the purpose of ascertaining the

intention of the parties regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case".

 In other words, you must first look at the agreement that has been made,
whether it be written or oral, to see if the parties have specifically agreed
as
to when the property in the goods shall pass, and, if not, whether the
intention can reasonably be inferred from the terms or the surrounding
circumstances.

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 However, if this cannot be done, Section 20 sets out the rules for
ascertaining the presumed intention of the parties. The following are the
rules:

Rule 1(S.20(a))-Specific goods in a deliverable state

"Where there is an unconditional contract for the sale of specific goods in a
deliverable state the property in the goods passes to the buyer when the
contract is made, and it is immaterial whether the time of payment or the
time of delivery, or both, be postponed."

 RV Ward Ltd vs Bignall 1967 1QB 534

 So, under this Rule property passes when the contract is made. There is no
necessary requirement for the buyer to have possession, or to have paid
the price.

 The passing of property is quite separate from the buyer's right to get
possession of the goods, or the seller's right to be paid for them.

 This is not as illogical as it sounds, for S.29 states that: "Unless otherwise
agreed, delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller must be ready and willing to give
possession of the goods to the buyer in exchange for the price and the
buyer must be ready and willing to pay the price in exchange for possession
of the goods".

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 The effect, therefore, is that in the ordinary simple transaction of buying
something, Rule 1 and Section 29 taken in conjunction ensure that although
the ownership of the goods may pass to the buyer, he won't get possession
of them until she has paid.

 However, the parties are perfectly free to make whatever arrangements

they like as to credit or time of delivery without necessarily affecting the
time at which the property passes.

 But Rule 1 is not quite as simple as that. In the first place, it is stated to apply
only to an "unconditional contract".

 There is some doubt as to what the Act means by this phrase. Can any
contract be unconditional? The literal meaning of the word is probably not
intended, as S.2(3) of the Act states that "a contract of sale may be
absolute or conditional".

 Hence the learned authors of a leading textbook, Benjamin's Sale of Goods,

suggest that "unconditional" means "not subject to any condition
suspensive of the passing of the property".

 Secondly, the goods must be "specific". S.61(1) defines these: "'specific

goods' means goods identified and agreed on at the time a contract of
sale is made".

In Kinsell v. Timber Operators and Contractors Ltd (1927), it was agreed that all
timber of a given height in a specific Latvian forest be sold. The buyer had 15 years in which
to cut the timber. Shortly after the contract was made, the forest was expropriated by the
state. It was held that the timber sold was not "specific goods" as some of it had not at the
time reached the minimum height, so could not be identified at the date of the contract.
As a result, the property in the timber had not passed under Rule 1.

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 This case shows the difference between ascertained and specific goods.

 Thirdly, the goods must be in a "deliverable state". S.61(5) or s.2(4) defines

this as follows:"Goods are in a deliverable state within the meaning of this
Act when they are in such a state that the buyer would under the contract
be bound to take delivery of them".

Underwood Ltd v. Burgh Castle Brick and Cement Syndicate (1922)1KB 343,
ALLER Rep 515-A stationary engine was contracted to be sold "free on rail" (for) London.
At the time of the contract, the engine was bolted on to a concrete bed at the seller's
premises. During the process of unbolting and dismantling for delivery to the railways, it
was damaged. It was held that the property had not passed at the time of the accident,
as it was not in a "deliverable state".

 However, remember that the presumption in Rule 1 as to when the property

passes is subject to any contrary intention, express or implied, in the
contract (Re Anchor Line (Henderson Bros) Ltd (1937)).

Rule 2 (S. 20(b))-Specific goods not in a deliverable state

"Where there is a contract for the sale of specific goods and the seller is
bound to do something to the goods for the purpose of putting them into a
deliverable state, the property does not pass until the thing is done and the
buyer has notice that it has been done."

 Under this Rule it must be a requirement of the contract that the seller is
bound to do what is necessary. Only if this is the case will the passing of
property be suspended until it is done and the buyer has received notice
of the fact.

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 Notice does not necessarily have to be given by the seller, but any
circumstances under which the buyer can be shown to be aware or have
knowledge that the necessary thing has been duly done will suffice to give
him/her notice.

 Note also that this Rule applies only if the work to be done upon the goods
is to be accomplished before delivery, e.g. it will not apply if a seller agrees
to do certain repairs after delivery.

Rule 3(S. 20(c))-Specific goods in a deliverable state

"Where there is a contract for the sale of specific goods in a deliverable
state but the seller is bound to weigh, measure, test, or do some other act
or thing with reference to the goods for the purpose of ascertaining the
price, the property does not pass until the act or thing is done and the buyer
has notice that it has been done."

 The essential point of this Rule is that the thing to be done must be for the
purposes of ascertaining the price, and it must be an obligation of the seller
to do it.

 This requirement was clearly brought out by the Privy Council in the case of
Nanka-Bruce v. Commonwealth Trust Ltd (1926) in which Cocoa was sold at a

price per 60 lb load. It was known to the seller that the buyer would resell the cocoa to
subbuyers, who would only then weigh it at their premises. It was held that the weighing
by the sub-buyers was not a condition of the contract, and therefore it had no effect on
the passing of property in the goods as between seller and buyer. Lord Shaw said: "To
effect such suspension (on the passing of property) or impose such a condition would
require a clear contract between vendor and vendee to that effect. In this case there was
no contract whatsoever to carry into effect the weighing, which was simply a means to

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satisfy the purchaser that he had what he bargained for and that the full price claimed for
the contract was therefore due.

National coal board vs Gamble 1959-The property in coal was held not to pass
even after loading in the lorry until it had been weighed and weight ticket given and
accepted by buyer

 NB that the rules as to when the property in such goods passes must be
different. Of course, the overriding requirement that it is the intention of the
parties that governs the matter still applies. Only if this cannot be
ascertained, or unless a different intention appears, do the Rules in Section
20 come into effect.

Rule 4 (S. 20(d))-Goods Delivered "on Approval" or "on Sale or

Return"
"Where goods are delivered to the buyer on approval or on sale or return or
other similar terms the property in the goods passes to the buyer:
1. when he signifies his approval or acceptance to the seller or does any
other act adopting the transaction;

2. if he does not signify his approval or acceptance to the seller but retains
the goods without giving notice of rejection then, if a time has been fixed
for the return of the goods, on the expiration of that time, and if no time
has been fixed, on the expiration of a reasonable time."

 The importance of the intention of the parties being the deciding factor,
notwithstanding that the contract is one of "on approval" or "sale or return"
was brought out in Weiner vs Gill (1906). In this case, the written contract stated:

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"On approbation. On sale for cash only or return. Goods had on approbation or on sale or
return remain the property of the seller until such goods are paid for or charged." The buyer
pledged the goods to a third party, and such pledge would ordinarily constitute an act
"adopting" the transaction. It was held that notwithstanding the adoption by the buyer,
the goods remained the property of the seller according to the terms of the contract.

 Again, in Kempler vs Bravingtons (1925) the claimant was a diamond merchant

and he delivered a quantity of diamonds to B "on sale or return". The note which
accompanied the diamonds stated that the claimant would charge B's account with the
price of any diamonds which were not returned within seven days but, until B's account
was charged, the diamonds belonged to the claimant. As soon as he received the goods,
B sold them to the defendant and disappeared with the money. As B's account was not
charged with the price of the diamonds at the time he sold them, it was held that the
property in them still rested with the claimant.

For this reason the claimant was able to recover the diamonds from the defendant.

 That pledging goods on approval or sale or return ordinarily constitutes

adopting the transaction was held in Kirkham v. Attenborough (1897)-
Jewellery was delivered by Kirkham to Winter on “sale or return”. Shortly afterwards, Winter
pledged the goods to Attenborough. The Court of Appeal decided that the property in
goods passed to the (Winter) buyer by virtue of the act of pledge.

 In the event that the buyer neither accepts the transaction nor adopts,
subparagraph above comes into play. A notice of rejection serves to
determine the contract, and give the seller an immediate right to repossess
the goods, notwithstanding that any time limit has not yet expired. If no
notice of rejection is given, what constitutes a "reasonable time" depends
on the facts of the individual case, any prior course of dealing between the
parties, custom of the trade, or other relevant factors.

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 The next problem is what happens if the buyer under such a contract
cannot return the goods. If the buyer has parted with the goods by his own
voluntary act, he will be deemed to have adopted the transaction.

 But in Re Ferrier (1944) Ch 295, goods held on sale or return were seized by the sheriff
in execution of a judgment debt. It was held that they were not "retained by the buyer", so

no property passed, and the seller could recover them.

 If the goods are destroyed or lost without default by the buyer, either before
any fixed time has expired (or if none, before a reasonable time) then, as
the property has not passed, the buyer is not liable for the price.

 In Elphick v. Barnes (1880), a potential buyer took possession of a horse on condition

that he could try it for eight days, and if it was not suitable, he could return it. On the third
day, the horse died through no fault of the buyer. It was held that he was not liable for the
price.

 But if the buyer is unable to return goods held on approval or sale or return
because they have been lost or destroyed through some act or default of
his own, or of those for whom he is responsible, then he will be liable for the
price (Poole v. Smith's Cars (Balham) Ltd (1962)).

 Similar considerations apply if the goods are returned damaged.

Rule 5 (S. 20(e))-Unascertained Goods

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Where there is a contract for the sale of unascertained or future goods by
description, and goods of that description and in a deliverable state are
unconditionally appropriated to the contract, either by the seller with the
assent of the buyer or by the buyer with the assent of the seller, the property
in the goods then passes to the buyer; and the assent may be express or
implied, and may be given either before or after the appropriation is made.

 A contract for the sale of unascertained goods or future goods is not in

reality a contract of sale, but an "agreement to sell". Hence, obviously, no
property in such goods can pass until (in the first instance) the goods have
become specific, or (in the second), they have been produced and also
become specific.

 The point in time at which unascertained goods (and also future goods
which when produced are still unascertained) become specific, and so
capable of having the property in them transferred is often difficult to
ascertain.

 In the first place, the Act requires that the goods must be "appropriated" to
the contract. This can mean either that the seller or the buyer has selected
the particular articles to which the contract will apply, or it is the act of
separating out from bulk goods the actual goods which will be sold.

 Secondly, the appropriation must be unconditional. In National Coal Board

v.
Gamble (1959), the NCB supplied coal under a contract by loading it from a hopper
on to a lorry. The lorry was then driven to a weighbridge to ascertain the precise weight. It

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was held that the property in the coal did not pass until it had been weighed, and a ticket

given to, and accepted by, the buyer.

 The point was that although the coal was appropriated to the contract
when discharged from the hopper into the lorry, it was not "unconditional"
until weighed. The quantity might have been more or less than that
contracted for.

 Furthermore, there can be no appropriation until the actual goods to be

sold are separated from the bulk. In Laurie & Morewood v. John Dudin &
Sons

(1926), a warehouseman was in possession of maize belonging to A. A sold some of it to

B who resold it to C. B did not pay, so A stopped delivery. It was held that as the bulk had
not been severed, property in the maize had not passed to C.

 Again, in Aldridge v. Johnson (1857), Aldridge agreed to buy a quantity of

barley out of a particular parcel that he had inspected. He also sent some sacks
for the purpose. It was held that the property passed as soon as the seller filled the
sacks.

 However, the appropriation must actually have been carried out, not
merely ordered. In Healey v. Howlett & Sons (1917)1KB 337, P was a fish exporter
in

Ireland; D ordered 20 boxes of mackerel, whereupon P sent them with others by rail, and
instructed the railway to earmark 20 boxes for D, and the remainder for other customers.
Before the boxes were actually earmarked the train was delayed, and the fish
deteriorated. It was held that it was still at seller's risk, as the property had not passed to D.

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Cf Wardar’s (Import and Export)Co vs Norwood 1968 2QB 663, 2ALLER 602

 Goods can be ascertained and appropriated to a contract by a process

of exhaustion of the rest of the bulk. If all that finally remains of the bulk is
the amount required under the particular contract, then that remainder
becomes specific (Wait and Janes v. Midland Bank (1926)).

Carlos Federspiel & Co. SA v. Charles Twigg & Co. Ltd (1957)-A manufacturer
of bicycles was contracted to despatch the goods to the buyer in Costa Rica. The goods
were packaged and crated and delivered to the dockside at Liverpool for shipment to
Costa Rica, and labelled with the buyer's name. The contract was stated to be free on
board, a term which implies that the property and risk in the goods transfer when the goods
pass over the ship's rail, and not before unless agreed otherwise. Thus the court decided
that the goods had not been appropriated to the contract in the circumstances of this
case. As Pearson J said in the case: "A mere setting apart or selection by the seller of the
goods which he expects to use in performance of the contract is not enough. If that is all,
he can change his mind and use those goods in performance of some other contract and
use some other goods in performance of this contract. To constitute an appropriation of
the goods to the contract the parties must have had, or be reasonably supposed to have
had, an intention to attach the contract irrevocably to those goods, so that those goods
and no others are the subject of the sale and become the property of the buyer."

 On the other hand, in Hendy Lennox (Industrial Engines) Ltd v. Graham

Puttick Ltd (1984) it was held that generators had been appropriated to the contract
since each buyer had been sent an invoice and a delivery note bearing the number of
the particular generator purchased and also because the seller had earmarked each
generator in accordance with the invoice and delivery note.

RISK

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 It is important to determine who own property at a particular time for the
purpose of determining who bears the risk for the damage, loss or
deterioration of the goods

 If risk falls on the seller for damage, loss or deterioration, it means seller has
not performed the contract and he will have to find replacement. But if risk
falls on the buyer, he will have to pay

 The risk of damage or loss of property falls on the owner is the general rule
expressed in the Latin maxim res perit domino(meaning that the risk of loss
or damage to the goods falls on their owner)

 Section 22 deals with the allocation of loss; it provides as follows: Unless

otherwise agreed, the goods shall remain at the seller’s risk until the property
therein is transferred to the buyer, but when it is transferred, the goods shall
be at the buyer’s risk whether delivery has been made or not.

Inglis vs Stock (1885)10AC 363, 1881 -85 ALL ER Rep 668-B bought an
unascertained part of a large cargo of sugar. The contract vividly provided that the risk
should pass when the cargo was put aboard ship, though, under section 16, ownership
could not pass until the B’s part of the cargo was ascertained. It was held that where goods are
at one party’s risk, he has an insurable interest in them even though he does not have property in
them

Martineau vs Kitching (1872)LR7QB436-There was an express provision that the

goods were to be at the seller’s risk for two months after the contract of sale. When fire
destroyed seller’s premises after expiration of 2 months, it was held that the risk was on the
buyer and therefore he should also bear the loss.

Sterns Ltd vs Vickers Ltd (1923)1 KB 78, (1922) ALLER Rep 126-B agreed to buy
120000 gallons of white spirit from 200000 gallons stored in a tank and received a delivery
order for the goods. It was held that the risk transferred to B even though there was no
separation of the spirit from the bulk and property in the goods had not passed to him. This

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is based on the notion that, where B has delivery order for the goods and complete control
over their delivery, it is apt that risk should transfer to him at that moment

The Julia case (1949)AC 293- Lord Normand said: “It may be conceded that the
parties can agree to some purely artificial allocation of the risk and if they express that
agreement in a suitable language in the contract, it must somehow be given effect”

 The proviso to Section 22 says that where delivery has been delayed
through the fault of either buyer or seller, the goods shall be at the party in
fault as regards any loss which might not have occurred but for such
fault.(note delay in delivery and not passing of property)

 The case on this point is Demby Hamilton and Co. vs Barden(1949)1 ALLER

435-There was a contract to supply apple juice. Deliveries would have been completed
on the agreed time but a buyer asked the seller to stop until further notice. Later when the
delivered juice had gone bad, it was held that the loss fell on the buyer because the
delivery had been delayed through his fault; and the loss would not otherwise occurred.

 Paragraph (b) says that nothing to affect duties or liabilities of a seller or

buyer as bailee. The general rule is that bailee is not liable unless he acts
negligently. However, he has a burden to discharge over proof his duties of
care to the bailor.

 Where it involves transporting, the risk is high and there are rules which deal
with allocation of loss

 Section 33(1), carrier is deemed to be buyer’s agent and goods are at the
buyer’s risk while in transit. This is a prima facie rule which can be rebutted

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 Section 33(2), seller when making contract with a carrier is placed on duty
to make with reasonable care and must make a reasonable contract with
the carrier if he fails to make reasonable contract risk falls on the seller

 Note the opening of section 33(2) ie unless- where there is an argument

with the buyer will bear the risk.

Thomas Young and sons vs Hobson 1949 AC 65

 Section 33(3) essence is that failure on the part of the seller to provide
sufficient information to enable the buyer to insure the goods in transit puts
the risk on the seller

 Allocation of risk assists in determining who has the duty to insure the goods

TRANSFER OF TITLE BY NON-OWNERS

 There are usually conflicts in respect of title to goods in goods transactions

more than land transactions. Land is fixed and the title document fixed and
permanent while goods change hands every time/so many times and a
number of transactions are taking place. In the process property can be
stolen. The question is who should have damages?

 The guiding principle is what lord Denning stated in Bishopsgate Motor

Finance Corporation Ltd v. Transport Brakes Ltd (1949)1K 322, 1 ALLER 37, as
follows: "In the development of our law, two principles have striven for
mastery. The first is for the protection of property: no one can give a better
title than he himself possesses. The second is for the protection of

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commercial transactions: the person who takes in good faith and for value
without notice should get a good title.

 The first principle is what is explained by the Latin maxim "Nemo dat quod
non habet" Literally translated this means "no one may give what he does
not have".

 It is a general maxim of English law that no one can transfer a better title
than he/she possesses and the effect of it is that if the seller has no title to
the goods then he cannot transfer a good title to the buyer

 This is enshrined in section 23 of SGA which provides that where goods are
sold by a person who is not the owner and who does not sell them under
the authority of the owner, the buyer shall acquire no better title to the
goods than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller’s authority to sell.

Exceptions

1. Estoppel
 The last part of Section 23(1) provides statutory force to the common law
principle of estoppel. If a person leads someone to believe a certain fact,
and that person reasonably acts on that belief, and suffers loss as a
consequence, then the representor will be estopped from denying its truth.

In Eastern Distributors Ltd v. Goldring (1957)2QB 600, M owned a van and

wanted to raise money on the security of it. He persuaded a car dealer to
represent to the finance company that M wished to take the van on hire
purchase. M signed all the necessary forms, including one stating that he

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had taken delivery of the van. The effect of this was to enable the dealer
to represent to the finance company that he, the dealer, was the owner of
the van, and had a right to sell it. It was held that M, having consented to
this, was by his conduct estopped from denying the dealer's apparent
ownership. The finance company, therefore, acquired a good title under
S.21(1) of SGA(Eng) similar to Section 23 of SGA(Mw)

Shaw vs Metropolitan Police Commisioners1987 3 ALLER 405

Spiro vs Lintern 1973 3 ALLER 319

Central New bury Car auctions ltd vs Unity Fincance Ltd 1957 1QB 371,

1956 3ALLER 905

 The courts have been reluctant to establish the principle that an estoppel
can arise through negligence. To create such an estoppel the owner of the
goods must have owed a duty of care to the buyer, who was misled into
believing that someone else owned them. The notion was rejected in
Moorgate Mercantile Co. Ltd v. Twitchings (1976). Here the prospective
buyer of a car checked with H P Information Ltd, a company that keeps
details of all hire purchase agreements registered with it, to establish
whether the car was subject to any hire purchase. No agreement had been
registered and so the buyer bought the car. In fact, the car was subject to
hire purchase in favour of M Ltd, but it had not been registered. M Ltd
repossessed the car. It was held that M Ltd could repossess the car. They
owed no duty to T to register the hire-purchase agreement and the
statement by H P Information Ltd that no agreement was registered could
not constitute an estoppel. Registration was voluntary, not compulsory.

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 Also section 23(2)(a) says that the rule may be exempted if an enabling Act
is passed under this section

2. Sale under a Voidable Title

 A "voidable title" is one whereby a person who is in possession of goods and
is the apparent owner of them in fact does not possess a good title. The true
owner can assert his better right to goods, and "avoid" the possessor's title.

 Section 24 SGA gives protection to a person who buys in good faith and
without notice of the seller's defective title, by providing that the buyer in
such circumstances acquires a good title to the goods, provided the true
owner has not at the time of sale avoided the seller's title.

 Car and Universal Finance Co. Ltd v. Caldwell (1965)-Caldwell was fraudulently
induced by N to sell him a car, which N paid for by cheque. The cheque was later
dishonoured, whereupon Caldwell notified both the police and the AA. Neither of these
were able to contact N. Meanwhile N sold the car to the finance company who acquired
it in good faith and without notice of N's defective title. It was held that Caldwell, having
done all that was possible to avoid N's title, had effectively done so. Hence he retained

title to the car.

3. Seller in Possession of Goods

 Section 26(1) of the SGA provides another exception to the "nemo dat" rule.
This section reads as follows: "Where a person having sold goods continues or is
in possession of the goods, or of the documents of title to the goods, the delivery
or transfer by that person, or by a mercantile agent acting for him, of the goods
or documents of title under any sale, pledge, or other disposition thereof, to any
person receiving the same in good faith and without notice of the previous sale,
has the same effect as if the person making the delivery or transfer were expressly
authorised by the owner of the goods to make the same".

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 As we have seen, the usual rule is that the property in goods passes to the
buyer when the contract is made. He/she is therefore the owner of them.
But if after the contract of sale is made, but before delivery to the buyer,
the seller, inadvertently or otherwise, sells the goods a second time, and
delivers them to the new buyer, then that new buyer gets a good title to
them. The seller has no title which he/she can pass, but, notwithstanding,
the second buyer acquires a good title. The original buyer is, of course, left
with a remedy of damages against the seller for breach of contract.

 The essential things to remember are that the seller must remain in
possession of the goods or documents of title to the goods (e.g. a bill of
lading), and he/she must actually transfer the goods or the documents of
title to the second buyer. Only then does the second buyer get a good title.

 In Nicholson v. Harper (1895) a vendor sold wine to Nicholson which was

stored in a warehouseman's cellars. He later pledged the wine with the
same warehouseman as security for a loan. HELD: S.24 of the Act did not
apply, as there had not been any delivery or transfer to the warehouseman
after the sale to Nicholson. The warehouseman did not therefore get any
title, so the pledge was ineffective as security.

Worcester Works Finance Ltd v. Cooden Engineering (1974)-G, a car dealer,

bought a car from C. He later sold it to W under a hire-purchase agreement. Without W's
knowledge or consent he retained possession of it. Meanwhile, since his cheque to C had
bounced, he allowed C to recover possession of the car. W sued C. It was held that the
action should fail. At the time of the car being repossessed by C, the car dealer was a

86
"person having sold goods" for the purposes of S.24 (similar to s.26). The fact that his continued
possession was wrongful and was not known to W was irrelevant.

 The necessary delivery which the seller in possession must make to the third
party could arise where the third party seizes possession of the goods with
the seller's consent.

4. Buyer in Possession of Goods

 Exactly the same result obtains if a buyer has possession of goods with the
seller's consent, and before the property has passed the buyer sells or
disposes of them, or of documents of title, to a sub-buyer. Provided the sub-
buyer acts in good faith without knowledge of any lien of the original seller,
or lack of title of the buyer, then he/she acquires a good title if the goods,
or documents of title to them, are actually transferred to him/her.

 This is provided for by S.26(2) of the SGA. It has effect as if the buyer were a
mercantile agent and S.26(3) defines a mercantile agent

 A good example of where two of the exceptions to the "nemo dat" rule
potentially applied was in Newtons of Wembley Ltd v. Williams (1965)1KB
560, 19643ALLER 532-Newtons agreed to sell a car to A, providing that the property in
it should not pass until it had been paid for. A drew a cheque for the full price, and with
Newtons' consent took possession of the car. The cheque was dishonoured, and Newtons
forthwith purported to rescind the contract. Meanwhile, however, A sold the car to B in
Warren Street car market. B resold it to Williams. It was held (Court of Appeal) that:

1. B acquired a good title under S.25(as S.26(2)), as A was in possession of the car with the
true owner's consent.

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2. Williams had a good title, by virtue of B's title. However, even if B's title was defective,
Williams's title was good, as he had bought in market overt (an established market
where a buyer who purchased in good faith without notice of any defects in title
acquired a good title to the goods). (Note that market overt was abolished by the
English Sale of Goods (Amendment) Act 1994.)

RIGHTS/REMEDIES OF THE UNPAID SELLER

 Should the buyer be in breach of a contract of sale, the seller has various
remedies open to him, depending on the circumstances.

 The types of breach of which a buyer may be guilty are by the nature of a
contract of sale of goods limited to: Failure to pay the price; Failure to take
delivery, either at all or later; Wrongful rejection of the goods.

 The remedies open to the seller depend partially on whether he still has
possession of the goods at the time of the buyer's breach, and whether or
not the property in the goods has passed to the buyer.

 He will always have a right of action for breach of contract, and may also
have a remedy in respect of the goods themselves.

 Before looking at these remedies in detail, we must first establish just who
"the seller" is, and when his primary right to be paid the price is in default.

 S.39(2) of the SGA defines a seller as including "any person who is in the
position of a seller, as, for instance, an agent of the seller to whom the bill
of lading has been endorsed, or a consignor or agent who has himself paid,
or is directly responsible for, the price".

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 The definition is therefore more extensive than that which you would
normally think of as a seller. Anybody who has documents of title to the
goods assigned to him, or who has paid, or has a legal duty to pay, the
original seller or any intermediate seller for the goods, is deemed to be "a
seller" within the meaning of the Act. The definition is also wide enough to
include a surety for the buyer. Until the buyer defaults, the liability of a surety
is only contingent. But once he has been called upon to pay the buyer's
default, then he is subrogated to the rights of the seller – that is to say, he
steps into the seller's shoes as far as enforcing the seller's rights against the
buyer to be paid. He is then a person "who is in the position of a seller".

 As we have said, the primary right of a seller is to be paid the price.

 S.39(1) provides as follows:"The seller of goods is an unpaid seller within the
meaning of this Act:

a. when the whole of the price has not been paid or tendered;
b. when a bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has not been fulfilled by reason of the dishonour of the
instrument or otherwise"

 You should note that a seller is "unpaid" while any part of the price has not
been paid or tendered. "Tendered" refers to the offer of payment in
satisfaction of the price.

 If the seller refuses to accept a tender of payment in accordance with the

contract, then he/she ceases to be an "unpaid seller".

 By the same token if, according to the terms of the contract, payment in
whole or in part is not due, the seller remains an "unpaid seller" (e.g. if the

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contract provides for payment by instalments, or after an agreed period of
credit).

 Payment by means of a negotiable instrument, usually these days a

cheque, is only a conditional payment: conditional, that is, on the
instrument being duly honoured on presentation in accordance with the
terms of its issue. If it is dishonoured (or "bounces"), then the condition is
unfulfilled, and the seller's rights revert.

Remedies Affecting the Goods

 Three specific rights in respect of goods are given to an unpaid seller by
Section 40:

 "(1) Subject to this and any written law in that behalf, notwithstanding that
the property in the goods may have passed to the buyer, the unpaid seller
of goods, as such, has by implication of law:

a. a lien on the goods or a right to retain them for the price while he is
in possession of them;

b. in case of the insolvency of the buyer, a right of stopping the goods

in transitu after he has parted with the possession of them;
c. a right of resale as limited by the Act.

 (2) Where the property in goods has not passed to the buyer, the unpaid
seller has (in addition to his other remedies) a right of withholding delivery
similar to and coextensive with his rights of lien or retention and stoppage in
transitu where the property has passed to the buyer".

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 We will now look at these rights in detail.

1. Lien
 A lien is the right of a person such as a bailee, in possession of goods, to
retain those goods until any claim he/she has on or in respect of them has
been satisfied.

 This is a common law right, and applies to any goods which a person has in
his possession with the consent of the owner. If you leave your car with a
garage for repairs or servicing, the garage has a lien on it, and a right to
retain it until you have paid the bill.

 However, the lien of a seller is special, not general. He/she has no right to
retain the goods until any other debts owed by the buyer are paid, but only
in the precise circumstances allowed by the Act.

 Section 41 sets out the rules:

 (1) Subject to this Act, the unpaid seller of goods who is in possession of
them is entitled to retain possession of them until payment or tender of the
price in the following cases:

(a) where the goods have been sold without any stipulation as to
credit;
(b) where the goods have been sold on credit but the term of
credit has expired;

(c) where the buyer becomes insolvent.

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 (2) The seller may exercise his lien or right of retention notwithstanding that
he is in possession of the goods as agent or bailee or custodier for the
buyer."

 Sub-section (1) is straightforward. Sub-section (2) is spelling out the situation

where the property has passed to the buyer. In order for a lien to exist, the
goods must be owned by someone else. Hence, if this is the case, the seller
is acting as agent or bailee or custodier of the goods for or on behalf of the
owner. Which category she is in will depend on the individual
circumstances. The reason for this sub-section being inserted is because it
changes the common law rule, which was that only a seller in possession
was entitled to a lien. He lost the right if he retained possession only as an
agent or bailee.

 The right of lien given by the Act is, however, only in respect of payment or
tender of the price. It does not subsist in respect of other charges arising out
of the goods – e.g. storage charges (Somes v. British Empire Shipping Co.

(1860)).

 Where the contract provides for delivery by instalments, or where part-

delivery only has been made, Section 42 permits an unpaid seller to
exercise his/her lien in respect of any instalment or part not already
delivered.

 You should note that a lien exists only if the seller is in possession. It does not
entitle him/her to repossess goods from the buyer or from any other party
who is actually in possession. It is therefore different from the right of
stoppage in transitu.

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 The Act makes this clear in Section 43, which covers the termination of the
seller's lien. It states as follows:
(1) The unpaid seller of goods loses his lien or right of retention in respect of
them:

a. when he delivers the goods to a carrier or other bailee or custodier

for the purpose of transmission to the buyer without reserving the right
of disposal of the goods;

b. when the buyer or his agent lawfully obtains possession of the goods;
c. by waiver of the lien or right of retention.
(2) An unpaid seller of goods, having a lien or right of retention thereon shall
not lose his lien his lien or right of retention by reason only that he has
obtained judgment or decree for the price of the goods.

2. Stoppage in Transitu
 The right of "stoppage in transitu" is of ancient origin, and is derived from
mercantile custom. The first reported case was Wiseman v. Vandeputt
(1690), and the doctrine was approved and accepted by the House of
Lords in Lickbarrow v. Mason (1793). It is now, however, governed by the
Sale of Goods Act, Sections.44–46.

 The principle is that normally once a seller delivers goods to a carrier for
transmission to the buyer, he loses his right of lien. Hence if the seller is
unpaid, and during the course of transit the buyer becomes insolvent, then
the unpaid seller can reassert his lien by instructing the carrier not to deliver
the goods to the buyer and instead hold them to the seller's order.

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 It is important to note that the right of stoppage in transitu arises only if the
buyer becomes insolvent. It cannot be exercised merely because he does
not pay, or even merely because he calls a meeting of creditors: it could
be he just needs more capital.

 Section 44 defines the right of stoppage in transitu: "Subject to this Act,

when the buyer of goods becomes insolvent, the unpaid seller who has
parted with possession of the goods has the right of stopping them in
transitu, that is to say, he may resume possession of the goods as long as
they are in course of transit, and may retain them until payment is tendered
of the price".

 So the first thing is that the exercise of the right does not serve to determine
the contract of sale. It is merely a right to repossession of the goods, until
such time as the buyer pays or tenders the price, or until the contract is
rescinded and a right of resale by the seller arises.

 Thus, if the buyer defaults in payment while the goods are in transitu, no
problem of proof of insolvency is likely to arise. Delivery is merely stopped
until he/she pays, or the seller takes steps to assert his/her right of resale.

 If, on the other hand, payment is not due until after the expected date of
delivery to the buyer, then the seller risks having to prove the insolvency in
court if he/she stops the goods in transit.

 The next problem that arises is just when, and in what circumstances, goods
are deemed to be "in transit". Section 45, Sub-sections (1)–(7), gives rules for
determining the duration of transit for the purposes of the seller exercising
his right of stoppage.

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 The essential thing is that during transit the goods must be in the possession
of a third party or "intermediary" who is neither the buyer, the seller, nor the
exclusive agent of either.

 The first and straightforward situation is that goods are deemed to be in

transit from the time they are delivered to a carrier or other bailee, etc. for
the purposes of transmission, until the buyer or his/her agent takes delivery
of items from the carrier or bailee.

 If the buyer or his/her agent gets delivery before the goods arrive at their
appointed destination, the transit is at an end. Unless there are special terms
in the contract of carriage, the consignee is generally entitled to demand
the goods from the carrier at any place en route (Cork Distilleries Co. v. G
S & W Railway (1874)).

 If after the goods have arrived at their appointed destination, the carrier or
bailee acknowledges to the buyer or his agent that he is holding them on
the buyer's behalf (attorns), and he continues in possession as bailee for the
buyer, then the transit is at an end. It is immaterial that the buyer may have
indicated a further destination for the goods. It is essential in this situation
that the carrier or bailee should have expressly consented to hold the
goods as a warehouseperson or bailee for the buyer. Mere silence is not
sufficient.

 In the event that the buyer rejects the goods, and the carrier or bailee
remains in possession, then the transit is not deemed to have ended, even
though the seller has refused to take the goods back.

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 If goods are delivered to a ship which has been chartered by the buyer, it
is a question depending on the particular circumstances whether they are
in the possession of the master of the ship as a carrier or as an agent of the
buyer.

 If the facts show that the master is acting in a capacity as carrier, the transit
will subsist. On the other hand, if he/she is deemed to be an agent of the
buyer, then the transit will end (if indeed it ever began) under Rule (2) when
the goods are loaded.

 In Berndtson v. Strang (1868) it was held that the proper test to apply was
whether the ship's master was a servant of the owner, or of the buyer in his
capacity as charterer.

 It will depend on the terms of the charter as to whether or not the buyer is
deemed "owner" of the ship for the voyage (a demise charter). If he is not,
the master is still a servant of the actual owner, and so a carrier.

 The transit ends if the carrier or bailee wrongfully refuses to deliver the goods
to the buyer or his/her agent.

 Where part-delivery of the goods has been made, the remainder may be
stopped in transit, unless the part-delivery was made in such circumstances
as to show an agreement to give up possession of the whole of the goods.

 Section 46 details the rules as to how a stoppage in transit may be effected.

The unpaid seller can exercise his/her right of stoppage by taking actual
possession of the goods, or by giving notice of his/her claim to the carrier or
bailee in whose possession they are. By the nature of things, the latter

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course is the most likely to arise, unless the unpaid seller has an agent in the
place of destination.

 Notice of the exercise of the right is equally valid if given to the person in
actual possession of the goods, or that person's principal. However, if given
to the principal, it will be ineffective unless given in sufficient time to allow
the principal, by using due diligence, to communicate the notice to his/her
servant in possession to prevent delivery being made.

 When notice of stoppage in transit is given by the seller to the carrier or

bailee, the carrier or bailee is under a duty to redeliver the goods to the
seller, or deal with them in accordance with the directions of the seller.

 The expenses of redelivery or other action must be borne by the seller.

 In this event, of course, the carrier or bailee, being in possession, has a lien
on the goods for payment of freight or other charges in connection with
both the original carriage and the redelivery.

 The question of what happens if the buyer has resold the goods in the
meantime is covered by Section 47. Both the right of lien and the right of
stoppage in transit are unaffected, unless the seller has assented to a resale
or other disposition of the goods by the buyer. Where, however, a
document of title to the goods (e.g. a bill of lading) has been lawfully
transferred to the buyer, and he/she has in turn transferred it by way of sale
to a sub-buyer who takes it in good faith and for valuable consideration,
then the original unpaid seller's rights of lien or stoppage in transit are
defeated.

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 If, however, the transfer of the document to a third party was by way of
pledge not sale, then the original seller's rights can only be exercised
subject to the rights of the pledgee.

 Note that stoppage is appropriate where property has not passed. You
cannot have a lien on your own goods

3. Resale
 A lien on goods, or a right of stoppage in transitu, would be of only limited
value to an unpaid seller if he/she did not also have a right to resell the
goods.

 The difficulty is that the contract of sale is not rescinded by the exercise of
a lien or stoppage in transitu by the seller. This common law rule is
specifically spelled out by Section 48(1).

 Hence, unless a power of resale is given, the unpaid seller would be in

breach of contract if the property in the goods had passed to the buyer. If
it had, he/she could not pass a good title to the sub-buyer.

 Section 48(2) therefore provides that on a resale after exercise of lien or

stoppage in transitu, a sub-buyer acquires a good title as against the
original buyer.

 Section 48(3) lays down the rules under which the unpaid seller may resell
the goods: "Where the goods are of perishable nature, or where the unpaid
seller gives notice to the buyer of his intention to resell, and the buyer does
not within a reasonable time pay or tender the price, the unpaid seller may

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resell the goods and recover from the original buyer damages for any loss
occasioned by his breach of contract".

 For obvious reasons, perishable goods may be sold at once. But in the case
of nonperishable goods, the unpaid seller is first required to give notice, and
a reasonable time for the buyer to remedy his/her breach of contract and
pay the price. Failure to do so constitutes a repudiation of the contract by
the buyer. However, even if the unpaid seller wrongfully resells, whether or
not given the necessary notice, or too short a period of notice, by Section
48(2) the sub-buyer gets a good title. The unpaid seller may be liable to the
buyer for damages.

 One problem with Section 48(3) which the courts have not clearly solved is
whether the resale rescinds the contract – in which case all the seller can
do is to claim damages for non-acceptance, having returned the buyer's
deposit or any other payment – or whether the resale is simply affirming the
contract, in which case the seller can claim for any loss he/she suffers on
the resale. Such problems do not affect lien or stoppage since they do not
rescind the contract of sale.

 In R V Ward Ltd v. Bignall (1967) the Court of Appeal held that a resale rescinds
the original contract. Hence, the seller could only claim damages for non-
acceptance.

Having made a loss on the resale, he could not recover that loss from the buyer.

 But in Clough Mill Ltd v. Martin (1984) the Court of Appeal felt that it was

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possible for the unpaid seller to recover any shortfall in the original price where he
had been forced to resell by reason of the buyer's default. Nevertheless, the Court
pointed out that the buyer must be credited with any deposit or part-payment.

 Finally, Section 48(4) states that if the seller has expressly reserved a right of
resale in the event of default by the buyer, and he/she duly exercises this
right, then the original contract of sale is rescinded, but without prejudice
to any claim for damages the seller may have.

Other Remedies of the Seller

 Rights in respect of the goods – i.e. lien, stoppage in transit, and resale –
are, of course, not the only rights an unpaid seller possesses. These can
apply only if he/she, or a carrier, is in possession of the goods. They are
called "real" remedies, because they are applicable to things. The other
remedies are "personal" because they are applicable to the defaulting
buyer him-/herself, and are quite irrespective of the actual goods. Personal
remedies can

 be sought either in addition to, or in substitution for, the real remedies.

1. Claim for the Price

 Section 49 states: "(1) Where, under a contract of sale, the property in the
goods has passed to the buyer and he wrongfully neglects or refuses to pay
for the goods according to the terms of the contract, the seller may
maintain an action against him for the price of the goods.

 Where, under a contract of sale, the price is payable on a day certain

irrespective of delivery and the buyer wrongfully neglects or refuses to pay

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such price, the seller may maintain an action for the price, although the
property in the goods has not passed and the goods have not been
appropriated to the contract."

 An action for the price is distinct from a claim for damages. The price is an
amount fixed by the contract, and is a debt owing from the buyer to the
seller. Damages, on the other hand, are the loss suffered by the seller in
respect of the buyer's breach of contract. The amount of loss has to be
proved, and it may be more or less than the price.

 Under Sub-section (1), if the property has passed, the seller can forthwith
sue for the price as soon as the due day of payment has passed. This
presents few problems. Should the seller still be in possession, his/her lien on
the goods will ensure that the defaulting buyer does not get delivery until
the judgment debt for the price is paid.

 But if the property has not passed, it is more difficult. In the first place,
payment of the price must be due by the contract of sale on "a day
certain". In Shell Mex Ltd v. Elton Corporation Dyeing Co. Ltd (1928), it was
held that this was "a time specified in the contract not depending on a
future or contingent event". In other words, it is a time which is fixed
independent of any action by either party. If the property has not passed,
and the price is not payable on a day certain, then the seller's only remedy
is for damages.

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 It follows, of course, that when the price is received, whether voluntarily or
as a result of a judgment, the seller will be bound to pass the property in the
goods, and if applicable, give possession of them to the buyer.

2. Damages

 The alternative remedy where the buyer wrongfully neglects or refuses to

accept the goods, or wrongfully rejects them, is an action for damages for
"non-acceptance".

 By the nature of it, the seller is necessarily repossessed of the goods, and if
they are of a type for which there is a market he/she can resell them;
Section 50 provides for this remedy.

 Firstly, "the measure of damages is the estimated loss directly and naturally
resulting, in the ordinary course of events, from the buyer's breach of
contract".

 It was held in Hadley v. Baxendale (1854) that the quantum of damage

does not depend only on the buyer's actual knowledge of any special
circumstances likely to cause loss, but firstly on "imputed" knowledge – that
is, "what reasonable businessmen must be taken to have contemplated as
the natural and probable result if the contract was broken. As reasonable
businessmen, each must be taken to understand the ordinary practices
and exigencies of the other's trade or business" (Lord Wright in Monarch
Steamship Co. Ltd v. Karlshamns Oljefabriker A/B (1949)).

 Secondly, it depends on actual knowledge of any special circumstances

likely to cause loss.

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 The second available measure of damages is as stated in Section 50(3):
"Where there is an available market for the goods in question, the measure
of damages is prima facie be ascertained by the difference between the
contract price and the market or current price at the time or times when
the goods ought to have been accepted or (if no time was fixed for
acceptance) at the time of the refusal to accept".

 The test for an "available market" is either some actual market or exchange
where the goods can be sold (Dunkirk Colliery Co. Ltd v. Lever (1878)); or
"a particular level of trade in a particular locality" (Heskell v. Continental
Express Ltd (1950)).

 The market or current price for an aggrieved seller is the actual selling price
of the commodity in the market or locality.

 The rule is, of course, easier to apply to new goods. Where the goods are
secondhand, the courts are more likely to calculate the damages on the
basis of lost profit. In Lazenby Garages v. Wright (1976) the buyer of a
secondhand BMW defaulted on the purchase. The dealers were able to sell
the car at the same price. The dealers claimed damages. The court refused
to apply the market rule, pointing out that in such a case it was no help,
and instead decided the issue on the basis of lost profit. Since the dealers
had suffered no loss, they could get nominal damages only.

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 You should note that the damages are not necessarily the price the seller
actually gets on resale; they are the current price pertaining on the day the
buyer ought to have accepted the goods, or when he/she actually refused
to accept them, as the case may be. Inevitably, the actual sale will be later,
so the seller may recover more or less, depending on the fluctuations in the
market. It is only in the case of anticipatory breach that the seller might be
in a position to sell earlier.

 The seller will also be able to recover any expenses reasonably incurred in
making the sale.

4. Miscellaneous Remedies

 There are various additional remedies which may be available to the seller.
They do not specifically appear in the Sale of Goods Act, but are part of
the general law.

 For instance:
1. Recovery of possession of the goods under a specific
term of the contract;

2. Damages for the tort of "conversion" for wrongful

interference with goods;

3. Forfeiture by the buyer of deposits or pre-payments;

4. An order for specific performance of the contract.

REMEDIES OF THE BUYER

1. Damages

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 For obvious reasons, the "real" remedies of lien and stoppage in transit
(remedies attached to the thing, or res) are not possible for a buyer in the
event of breach of contract by the seller.

 His/her principal remedies are damages for the various types of breach
which the seller may make.

a. Damages for Non-delivery

 These are covered by Section 51 and are effectively exactly the same as
those available to a seller in the event of non-acceptance. The "market
price" is, of course, the buying price in the market or locality, either at the
time when the goods should have been delivered according to the
contract, or the time when the seller refused to deliver.

 Complications can, however, arise in the event that the buyer had
contracted to resell the goods to a sub-buyer before the seller's failure or
neglect to deliver became known. The market price in such a situation
would not necessarily be a fair measure of the buyer's loss if he were unable
to complete his contract with his sub-buyer. Even if there is an available
market in which the buyer can purchase in order to fulfil his contract of sub-
sale, he may well have contracted to sell at a very different price from that
pertaining in the market at the time in question.

 Due to the wording of the Act – that damages are prima facie the
difference between the contract price to the buyer and the market or
current price – the actual price the buyer has to pay in order to complete
his sub-sale contract is ordinarily irrelevant.

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 However, in certain circumstances, his loss of profit on the sub-sale may be
recoverable. These circumstances are akin to those mentioned under the
ruling in Hadley v. Baxendale – namely, the seller must have either actual
or imputed knowledge that the buyer was, or was likely to be, reselling the
goods in question.

 The leading case is Hall v. Pim (1928). Here an unascertained cargo of 7,000
tons of Australian wheat was purchased on c.i.f. terms, and the contract
specifically recognised that the buyers might resell during the voyage. In
the event, the buyers did resell at a higher price than the contract price.
On the ship's arrival, the sellers failed to deliver. The market price had by
then dropped. The buyers claimed the difference between the contract
price, and the price at which they resold to their sub-buyer. It was held
(House of Lords):That the terms of the contract contemplated that the
cargo might be resold, and anyway it was the custom in the trade to resell
cargoes on the high seas.The liability of the seller would be limited to the
loss of normal profits under a resale made on the terms usual in the trade.
-However, he would also be liable for the damages incurred by the buyer
in the event that due to his failure to deliver, the buyer was unable to make
delivery to his sub-buyer.

b. Damages for Delay in Delivery

 Delay, as opposed to non-delivery, is not specifically mentioned in the Act.

It is, of course, a breach of contract, and entitles the buyer to damages for
loss suffered as a result.

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 This must be dependent partially on whether the buyer is a trader, buying
the goods for resale, or whether she is buying for her own use. In the former
event, the market price is relevant only to the extent that the buyer will
have to purchase in the market goods to fulfil any contract she has with a
sub-buyer.

 Alternatively, if she has not resold the goods prior to actual delivery, she will
do so as soon as they are delivered. On the authority of Koufos v.
Czarnikow (1969) it appears that in this event the measure of damages is
the difference between the market price at the time the goods should
have been delivered, and the price when they were in fact delivered. In
general, however, as in the case of non-delivery, the effects of sub-sales
are ignored unless the contract actually contemplates a sub-sale, and the
erring seller has either actual or imputed knowledge of it.

 A controversial case on this subject was Wertheim v. Chicoutimi Pulp Co.

Ltd (1911). Here the seller was late in delivering goods. The market price
when the goods should have been delivered was 70 s (£3.50) a ton. When
they were actually delivered it had dropped to 42 s 6 d (£2.13) a ton.
However, the buyer was able to resell at 65 s (£3.25) a ton. HELD (Privy
Council): The buyer was entitled only to the difference between 70 s (£3.50)
and 65 s (£3.25) a ton.

 This decision has been criticised as it appears to go against the normal rule
of ignoring sub-contracts. The defaulting seller benefited solely because
the buyer chose not to buy alternative goods in the market immediately

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after the default. If the goods are not bought for resale, but are profit-
making articles, the buyer may recover damages for loss of use during the
period of delayed delivery, but not loss of profits in respect of an unusual
or exceptional use.

Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd (1949)-The buyers

purchased a new boiler for their laundry business. Unbeknown to the sellers,
they had secured a highly lucrative dyeing contract with the Ministry of
Supply. The sellers were late in delivering the boiler. HELD (Court of Appeal):
The buyers were entitled to recover for the loss of business and profits from
normal and foreseeable usage of the boiler, but not for loss of profit on the
dyeing contract, which was not reasonably foreseeable.

c. Damages for Defective Quality

 Quality of goods may be either a condition or a warranty of the contract.
If the seller is in the course of a business, the quality and fitness for the
purpose are implied conditions (S.16 and 17). Hence the buyer has an
option. He/she can reject defective goods, and sue for damages for
breach of condition. The damages will then be equivalent to those where
the seller has failed to deliver.

 Alternatively, he/she can treat (or be compelled to treat) the breach as

merely a breach of warranty.

 In this event, Section 53 provides:

 "(1) The buyer may

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a. set up against the seller the breach of warranty in
diminution(decrease or reduction) or extinction(loss or
disappearance) of the price, or

b. maintain an action against the seller for the breach of warranty.

 (2) The measure of damages for breach of warranty is the estimated loss
directly and naturally resulting, in the ordinary course of events, from the
breach of warranty."

 This applies to all breaches of warranty by the seller. However, Sub-section

(3) goes on to state: "In the case of breach of warranty of quality such loss
is prima facie the difference between the value of the goods at the time
of delivery to the buyer, and the value they would have had if they had
fulfilled the warranty"

.
 So the damages are assessed on the assumption that the defective goods
have a value in that state, and amount to the difference between that
value and the value of goods of the correct quality. If the buyer chooses
to retain them (if possible), then the cost of so doing is irrelevant, unless they
are such that there is no market value for them. In this event only, the
measure of damages will be the cost of putting them into the contractual
state.

d. Repayment or Diminution of the Price

 For any breach of warranty, the buyer may claim repayment or diminution
of the price (Section 53(1)), and such action does not prevent him/her from
claiming damages in addition if he/she has suffered further loss (Section
53(4)).

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e. Other Remedies
 The principal additional remedy in the case only of specific or ascertained
goods is an order for specific performance. This option is given by Section
52(1) which, as for all equitable remedies, is granted only if the court thinks
fit.

 However, the section authorizes the court to order specific performance

"without giving the defendant the option of retaining the goods on
payment of damages".

TOPIC FOUR: INTERNATIONAL SALES

 Sources of these sale transactions are international conventions or treaties

 Examples are COMESA, SADC, WTO, GATT(general agreement on tariffs
and trade), CISG(UN Convention on contracts of International sale of
goods).

 In addition, there are INCOTERMS (international commercial terms)(Set of

international rules for the interpretation of the most commonly used foreign
trade terms)

 The CISG was developed by the United Nations Commission on

International Trade Law (UNCITRAL), and was signed in Vienna in 1980.

 As of September 2013, it has been ratified by 80 countries that account for

a significant proportion of world trade, making it one of the most successful
international uniform laws.

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 The contract of sale is the backbone of international trade in all countries,
irrespective of their legal tradition or level of economic development. The
CISG is therefore considered one of the core international trade law
conventions whose universal adoption is desirable

 This aimed to minimize some of the challenges in international trade such

as physical problems, commercial problems, political problems and legal
problems

 Three distinct and independent but largely related elements of

international sale transactions o Sales of goods o Carriage of goods o
Finance mechanisms

 unlike domestic sales, in international sales, the seller and buyer may be in
different jurisdictions

 Key feature of law in the area is a document relating to sale and carriage
of goods have been elevated to great significance, in particular, the Bill of
lading. Bill of lading is a document issued by carrier to a shipper.

 It will contain the particular goods, address to which the goods will be
delivered and terms of the carriage.

 It carries a lot of functions:

 Acts as a receipt-Carrier acknowledges that he has the goods

to deliver at a particular destination.

 Also evidence of condition of goods at the time of shipment

 Normally contains the terms of carriage
 Evidence of contract of freightment

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 Evidence of title and ownership of goods-This why upon
production of a Bill of lading, the carrier can give the goods to
a particular person. Without the bill of lading you cannot
collect the goods

 Bill of lading is document of title and enables owner of the goods to deal
with them eg selling or pledging them even without physical possession of
the goods

 At common law, in order for the document of title to be recognized as

such, it must be such that its transfer is effective to transfer constructive
possession of the goods

Lickbarrow vs Mason 1793 IV Brown 57, (102)ER 119

 When you buy or sell goods across national boundaries, you and the other
party must have a clear understanding of the terms for moving those
goods to their destination.

 In 1936, the International Chamber of Commerce established a system of

13 international commerce terms, or INCOTERMS.

 Each INCOTERM refers to an agreement that governs the shipping

responsibilities of sellers and buyers engaged in international trade.

 The purpose of this system is to facilitate orderly international trade by

providing contract models that are easily identified across language
barriers.

 CIF and FOB are commonly used agreement models for international
shipping.
 Each type of agreement specifies which party is responsible for the goods
and the point at which responsibility transfers from the seller to the buyer.

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 Let us look at some of these common agreement terms in international sale
transactions.

[a] ex works

 Essentially the seller simply makes delivery at or near his own place of
business as he might do to a local buyer and everything else is up to the
buyer.

 Property, possession and risk will normally pass at the point of delivery at
the sellers place of business.

 Normally stated ‘’ex- works chanco ’’ which means place of delivery is

chanco. [b] F.O.B (Free on Board)
 The seller’s duty is to place the goods free on board, a ship to be named
by the buyer. E.g “f.o.b chirunga” means goods have to be loaded at
chirunga.’’

 Carrier is nominated by the buyer, but the seller must load the goods at the
agreed port in the ship nominated by the buyer

 It is the buyer’s business to make all arrangements regarding the shipping

including selecting the date and port, nominating the ship, and giving
notice to the seller and insuring the goods(providing insurance of the
goods)

 Notice to the seller is one of the important duties

Pyrene vs Scindin navigations 1954 2 ALLER 158, 2QB 402

Sterns vs Vickers 1923 1KB 78, 1922 ALLER 126

Mitsuit and Co. Vs Flota Mercante 1989 1ALLER 951

Passing of risk and property in FOB

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 Property and Risk pass on shipment, as soon as the goods cross the ship’s
rail. This is because the seller’s duty is to deliver the goods free on board
and naturally the goods should be at he buyer’s risk.

 However, others argue that crossing of the rail is not enough but the goods
should actually be loaded

Pyrene vs Scindin navigations 1954 2 ALLER 158, 2QB 402

c. C.I.F (Cost, Insurance and Freight)

 Price includes the cost of the goods(C), plus Insurance (I), plus Freight.
 Freight is the money paid by the seller to the carrier
 The contract can be “C.I.F Beira” meaning the place of destination is Beira
not loading as in FOB

Smith and Co Ltd vs Bailey Sons and Co. Ltd 19403ALLER 60-Good definition
of CIF contract

 Some scholars argue that it is a contract of sale of documents rather than

sale of goods. This is so because the seller will only fully perform the contract
if the buyer takes the documents and not actually the goods

 If goods get lost in transit while he has documents, the buyer has remedies
ie he has insurance documents

Obligations of seller in CIF

 Ship the goods

 Insure the goods
 Seller must also make a contract for carriage of the goods
 Seller must tender the documents to the buyer eg invoice(price), Bill of
lading and insurance

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Bunge Corporation vs Tradax 1981 1WLR 711, 2ALLER 513

 If the buyer has documents even without actual possession of the goods,
he can as well sell the goods.

Scottish and Newcastle Ltd vs. Othan ghalanes Ltd 2008 1Lloyds Rep 462-
Best description of a bill of lading. Bill of lading must be transferable, transferable by
endorsement –however, it is not negotiable as bills of exchange

 A bill of lading can help the seller retain the property in the goods when he
doubts the buyer

 It contains consignor and consignee as the seller

Hanson vs Hanel and Harty 1922 2AC 36

Galatia 1980 1WLR 495, 1ALLER 501

Passing of property and risk

 Property also passes according to the intention of the parties. If none, then
on delivery of the documents

Albazero 1977 AC 774, 1976 3ALLER 129

 Risk passes from shipment(load on) NB-the difference with FOB

Mambresaccharine Co Ltd vs Corn Products Ltd 1919 1KB 198
Arnold Kaberg and Co. vs Blythe Green Jourdain and Co 1916 1KB 145

Financing of International Trade

 A situation where parties are in two different jurisdictions. Seller is afraid of

losing goods and buyer is not sure of the person he is paying.

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 This is where letters of credit (documentaries of credit) come in to balance
the interests of the parties-assuring the seller of payment and the buyer of
goods

How do letters of credit works

 Buyer of car in Zomba(holds Standard Bank account)-engages a seller in

China- buyer informs Std Bank of the contract with the seller and wants to
pay only after seeing the car-Std bank(called the issuing bank) will
nominate the bank of the (or seller will nominate another bank called the
confirming bank)-Std bank will deal with the confirming bank and the latter
will only pay upon the seller producing confirming documents

 Letters of credit are the most common method of payment in international

sale
 In the case of Intraco Ltd vs Notis Shipping Corporation 1981 2Lloyds Rep

256, Lord Donaldson said this “letters of credit is the life blood of commerce and
thrombosis will occur if courts intervene and thereby disturb the mercantile
practice of treating rights thereunder as being the equivalent of cash in hand”

Steps
1. Starting point is contract of sale between buyer and seller which
states that payment will be by letters of credit

2. Buyer instructs his bank(the issuing bank that issues letters of credit)
which opens letter of credit for the seller (the ultimate beneficiary)

3. Issuing bank opens letter of credit in favour of the seller with a bank
in the seller’s country (the corresponding/advising/confirming bank)

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4. Buyer instructs the issuing bank that the seller shall only benefit from
letters of credit on presentation to the confirming bank of the documents
showing shipment of goods ie invoice, bill of lading etc

5. Seller will take the documents, show to the bank in his country and
draw from the letters of credit

6. The intermediary bank (in the seller’s country) will transmit the
documents to the issuing bank which has to check the documents in line
with the letters of credit and will pay if all is in order

7. The issuing bank will then claim from the buyer ie deduct from his
account

 Letters of credit balance the interests of parties ie assuring both parties and
they do this by following two principles as follows:

a. Doctrine of strict compliance

 Bank pays only upon production of/complying with conforming

documents. Ie issuing bank can refuse payment in cases where eg the
seller produces fraudulent documents. This is to protect the buyer

 All documents must in legal terms comply with each other

Equitable trust of Newyork vs Dawson Partners Ltd 1927 1Lloyds 49-The seller
tendered documents to the bank that did not conform, at all, to the description. Even the
de minimis was excluded as to the description of the goods.

Moralice (London) Ltd vs ED and F Mann(1954)Lloyds Rep

 Doctrine of strict compliance protects the buyers from fraudulent sellers

b. Doctrine of independence/autonomy of letters of credit

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 Letter of credit is separate from the underlying/main contract. Therefore, it
cannot be affected by mistake, duress, illegality of underlying contract

 This means once the letters of credit are issued, the buyer cannot stop the
bank from payment-assurance of payment to the seller-protects the seller,
he is assured of payment
 Letter of credit or documentary credit is an irrevocable contract
Hamzeh malas and sons vs British Industries Ltd 1958 2QB, 1ALLER 264

United City Merchants (Instruments)Ltd vs Royal Bank of Canada 1983AC

168

Bolivinter oil SA vs Chess Manhattan Bank 1994 1Lloyds 201

 Note that the banks are agents of the parties and they have a duty to see
to it that the documents are strictly conforming. Negligence of the banks
can entitle the buyer to claim from them.

 Once the documents conform, banks have a duty to pay whatever the
state of the goods, that does not bind the banks.

TOPIC FIVE: NEGOTIABLE INSTRUMENTS

 A negotiable instrument is a chose in action in which legal title is

transferable by mere delivery of the instrument with the result that
complete ownership of that instrument and all property which it represents
passes free of equities to the transferee

 Any document is capable of being called a negotiable instrument as long

as the following characteristics/conditions are available:

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1. Title will pass by mere delivery or in case of a bill of
exchange by endorsement or delivery

2. Title passes on negotiation free from any defects in title.

3. Holder of the instrument can sue all prior parties in his
own name

 The term negotiable means transferable and encompasses a wide variety

of documents eg a bank notes, promissory notes, dividend warrants,
exchequer bills, bills of exchange, treasury bills

BILLS OF EXCHANGE

 Section 3 of Bills of Exchange Act defines a Bill of Exchange as an

unconditional order in writing addressed by one person to another, signed
by the person giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time, a sum certain in
money to or to the order of a specified person, or to a bearer.

 Any instruments not in compliance to this section or which orders any act
to be done in addition to the payment of money is not a bill of exchange.

 Let us look at these elements of a bill of exchange

1. An order

 It must be an order as opposed to a mere request

 Common expression used is “Pay” and not “may you pay”

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 Words of politeness such as “I authorize you” will deprive the bill of its order

2. The order must be unconditional between the drawer and drawee

Bavines vs London and Soputh Western Bank (1900)

3. It must be in writing

 Under section 2 of the Bills of Exchange Act, writing includes printing

4. The bill must be addressed by one person to another.

 This means that if a person draws a bill to himself, he will be both drawer
and drawee thereby contradicting section 3(1) of the Bills of Exchange Act.

 Capital and countries Bank vs Gordon 1903 AC 240-Bill drawn from one branch
to

another

5. It must be signed by a person giving it

 An unsigned document by the drawer cannot be a bill of exchange

6. The bill must require payment of a sum certain in money

Martin vs Chauntry 193/93 ER 1175

 A sum will be certain in money even where there is indication of interest to

be paid or payment by installments

 Mere indication of interest to be paid does not make the sum uncertain
See section 9 of the Bills of Exchange

7. It must be payable on demand or at a fixed or a determinable future time

 Just like a cheque, a bill may be payable today or post today

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 May be payable on demand if it is expressed to be so, or at sight, or on
presentation; or in the no time for payment was expressed See Section 10
(1) BEA.

 A bill is payable at a determinable future time with the meaning of the Act
which is expressed to be payable at a fixed period principle date or sight
and on or at a fixed time principal occurrence of specified event which is
certain to happen. Section 11 BEA

Claydon vs Bradley 1987 1ALLER 522

Williamson vs Rider 1962 2ALLER 268

8. It must be payable to or to the order of a specified person or bearer.

 For example “pay James” or “pay to the order of James”

North and South Insurance co. vs National Provincial Bank 1936 1KB 328
Orbit Mining Company vs Westminster Bank

Functions/Uses of Bills of Exchange

1. To raise short term finance for trade and industry

Eg Govt treasury bills are in the form of bills of exchange and you can take
them to a discount bank to get capital at a discount

Capital and country vs Gordon

2. To enable seller or exporter to obtain cash soon after dispatch of

goods.
3. To enable buyer/importer to defer payment at least until he’s in
possession of the goods.

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 In order to effect these payments, the parties will rely on an accepting
house.
 An accepting house is that which is accounting to ultimate reliable on the
bill.
 An accepting house could be a merchant bank specializing in
acceptance of Bills of Exchange or financial institution which has one of its
purpose to accept the bills or specifically for doing that

Types of bills of exchange

 There are three types (section 8 BEA)

1. Non transferable bills (Section 8(1))

 When a bill contains words prohibiting transfer or intention not to be

transferable, it indicates that it is not negotiable

 Such a bill cannot be transferred to third parties

Hiberian Bank vs Gysin and Hanson 1939 1KB 438, 1ALLER 186

 If a bill says “non-negotiable”, then it cannot be transferred to third parties

2. Order bill (section 8(4))

 A bill is payable to order if it is expressed to be payable to order-but does
not words prohibiting transfer or any intention to that effect

2. Bearer bill (section 8(3))

 A bill is payable to a bearer if it is expressed to be so or it is endorsed in
blank

Parties in involved in a bill transaction

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
Drawer is a party that issues or draws a bill
 Drawee is a party to whom bill is addressed (mostly a bank)
 When the drawer draws the bill, he undertakes that it will be accepted and
paid by the drawee

 Further, undertakes that in the event that the bill is dishonoured, he will
compensate holder or any endorser who has been compelled to pay on
the bill.

 Drawee is not liable on the bill unless has signed and accepted it.

 Once the Drawee accepts the bill, he is now acceptor.

 Payee is a person to whom the bill is paid.
 Once delivered to the payee, he becomes the holder
 The technical definition of Holder of a Bill is a person entitled to enforce it
by presenting it for payment and in the event of being dishonoured by
taking enforcement proceedings.

 The acceptor signs across on face of the bill undertaking to pay the
amount indicated in the bill.

 Indorsee is a party to whom the bill is negotiated by the payee.

FACE OF THE BILL

Mangochi,
30 days after sight, pay to Chiyambi company ltd or order the sum of ten
million kwacha for value.

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

Received Signed Chisomo Manufacturers Ltd

To: Mwenya Merchant and Co.
Lilongwe

This is the bill drawn by Chisomo manufacturers Ltd and is drawn to Mweya
merchant and Co in favour of Chiyambi company Ltd

Acceptance of a bill (Section 17 BEA)

 The acceptance of Bill is the signification by the drawee of his assent to the
order of the drawer.

 Acceptance is invalid unless it complies with the following conditions:

1. It must be written on the bill and signed by drawee. The mere
signature of drawee without additional words is sufficient;

2. It must not express that the drawee will perform his promise by any
other means than the payment of money.

Capacity and authority of parties to a bill

 Capacity to incur liability as a party to a bill is co-extensive with capacity

to contract (Section 22 (1) BEA)

 If a minor or an infant or a corporation without capacity or power to incur

liability draws or indorses a bill the bill is voidable but not void ab initio and
such a drawing or indorsement entitles the holder to receive payment of
the bill (Section 21(2) BEA)

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
 Under Section 23, no, person is liable as drawer, indorser or acceptor of a
bill who has not signed it as such provided that where a person signs, the
bill in a trade or assumed name, he is liable on it as if he had signed it in his
own name.

 Further, the signature of the name of the firm is equivalent to the signature
by the person so signing of the names of all persons liable as partners in the
firm.

 If the signature is forged or unauthorized it is wholly inoperative and no right

to retain the bill or give a discharge for it or to enforce payment against
any party to it can be acquired through or under that signature unless the
party against whom it is sought to retain or enforce payment of the bill is
precluded from setting up the forgery or want of authority (Section 24 BEA)
Where bill has been negotiated several times effect of forged endorsement
is to break the chain of title.

Bank of England v Vagliance Bros (1891-4) ALLER 93 AC 107

Clutton v Attenborough (1897) AC 90

 If bill is signed by Agent, it depends on whether the agent had authority or

not or whether he signed it in his own name or the name of Principal. Under
section 26 (1), such a person who signs a bill either as drawer, indorser or
acceptor as an agent or in a representative capacity is not personally
liable on it

CONSIDERATION OF THE BILL

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
 Valuable consideration of bill may be constituted by any consideration
sufficient to support a simple contract or any antecedent debt or liability.

 Where value has at any time been given for a bill, the holder is deemed to
be holder for value as regards the acceptor and all parties to the bill who
became parties prior to such time (section 27 BEA)

Oliver v Davis (1949) 2 KB 727, 2 ALLER 353

Diamond v Granham (1968) 1 WLR 1061

 Holder in due course. This is a holder who has taken a bill, complete and
regular on the face of it under the conditions that he became the holder
of it before it was overdue and without notice that it had been previously
dishonoured; and that he took the bill in good faith and for value and that
at the time the bill was negotiated to him he had not notice of any defect
in the title of the person who negotiated it (Section 29 BEA)

THE NEGOTIATION OF BILLS

 A bill is negotiated when it is transferred from one person to another in such

a manner as to constitute the transferee the holder of the bill (Section 31
(1))
Under sub-sections (2) and (3), there are various ways of negotiation as
follows:-

1. A bill payable to bearer is negotiated by delivery

2. A bill payable to order is negotiated by endorsement of
the holder completed by delivery.

 Where the holder of the bill payable to his order transfers it for value without
endorsing it, the transfer gives transferee such title as the transferor had in

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
the bill, and the transferee in addition acquires the right to have the
indorsement of the transferor.

 For there to be valid indorsement so that it operates as negotiations the

following conditions must be complied with: (section 32 BEA).

1. It must be written on the bill itself and be signed by the

endorser. A simple signature without additional word is
sufficient

2. It must be an endorsement of entire bill. A partial

indorsement does not operate as indorsement.

 Where, in a bill payable to order, payee or indorsee is wrongly designated

or his name is mis-spelt, he may indorse the bill as it describes him, adding;
if he thinks fit, his proper signature.

 Where there are 2 or more indorsements on a bill, each indorsement is

deemed to have been made in the order in which it appears on the bill
until the contrary is proved.

Types of endorsements

 The indorsement can be in blank, special, general, restrictive or qualified

sections 34 – 35.

 When the indorsement is blank, it is by a simple signature of the indorser

without specifying any indorsee. Such a bill becomes a bearer bill and the
person who has in possession of it, bears it and will go on and cash the bill.
Special indorsement will actually specify the indorsee ie specifying the
person to whom the bill is payable. That person may also indorse it if he also
wishes to transfer the bill

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
 Restrictive indorsement prohibits further negotiations of the bill. For
example such an indorsement may say “pay X only”

 Qualified indorsement has an addition of a provision excluding or limiting

the indorser’s own liability

The rights of the holder

 He may sue on the bill in his own name

 Where he is holder in due course, he holds the bill free from any defect of
title of prior parties, as well as from mere personal defences available to
prior parties among themselves, and may enforce pay,ment against all
parties liable on the bill( Section 38 BEA).

Duties of a the holder

 Where the bill is payable after sight, presentiment for acceptable is

necessarily in order to fix the maturity of the instrument (section 39).

 Under section 40, when a bill payable after sight is negotiated, to holder
must either present it for acceptance or negotiate it within a reasonable
time.

 Under section 42 when a bill is duly presented for acceptance and is not
accepted within the customary time, the person presenting it must treat it
as dishonoured by non acceptance.

 Section 43 explains how non acceptable comes about i.e. a bill is

dishonoured by non acceptance firstly where acceptance is refused,
secondly where acceptance can’t be obtained, and thirdly where
acceptance is excused.

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

RULES OF PRESENTMENT

 A bill is duly presented for payment if the following rules are complied with
section 45 BEA.

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1. Where the bill is not payable on demand, presentment
must be made on the day it falls due.

2. Where the bill is payable on demand presentment must

be made within a reasonable time. In determining what
is a reasonable time, regard shall be had to the nature
of the bill, the usage of trade with regard to similar bills,
and facts of a particular case

3. Presentment must be made by holder or his agent at a

reasonable hour on business day at the proper place of
the drawee or his agent. The place can be specified in
the bill or if not, just look at the address of drawee and
present it there or the drawer’s place of business or
otherwise his ordinary residence.

 When the bill has been dishonoured, a right of recourse to drawer accrues
to the holder and it’s important that the notice of disowner must be given
to the drawer sections 48 and 49.

DISCHARGE OF THE BILL

 Bill can be discharged by payment and also by cancellation

 Sections 59 to 63 deal with payment and cancellation of the bill.

CHEQUES

 Section 73 (1) provides that a cheque is a bill of exchange drawn on a

banker and payable on demand.

 A cheque, like any BE, can be used to finance a series of transactions each
transferor in his turn taking consideration.

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131