Commercial Law | Law Of Agency | Lease

LAWS5136 Commercial Law Semester 2, 2009 Mid-Semester Exam Notes

Angus O’Brien


DRAFTING AND CONSTRUING COMMERCIAL AGREEMENTS ........................................................ 3 AGENCY ........................................................................................................................................................ 8 SALE OF GOODS........................................................................................................................................ 21 BAILMENT .................................................................................................................................................. 45


DRAFTING AND CONSTRUING COMMERCIAL AGREEMENTS This topic concerns: 1. Drafting commercial agreements; and 2. Construing commercial agreements. 1. Drafting Commercial Agreements The basic elements of all commercial agreement drafting are as follows. First, the agreement must have a title. When it is doubtful whether the agreement is a lease, loan agreement, trust deed or other document, it may be titled ‗Agreement‘. Secondly, the agreement must have a date e.g. ‗This Agreement is made the x day of y, 2009.‘ Thirdly, the agreement must outline the parties. This should include the parties‘ full names, addresses and, if applicable, ACN. An abbreviation should also be assigned to each party. This may reflect the nature of the agreement (e.g. licensee, franchisor), although if the nature of the agreement is unclear the abbreviation may be a shortened name or acronym. Fourthly, the agreement should outline the recitals. These are facts which everyone knows, agrees, and which are pre-cursors for the agreement. The final recital will usually state that the parties wish ‗to record their agreement as to x as follows‘. Fifthly, the agreement‘s operative clauses must be set out. These are the terms of the agreement. Importantly, the sentences should be short. It is better to use multiple clauses than subordinate clauses. Finally, there must be provision for execution and attestation. 2. Construing Commercial Agreements (a) Is there an issue of construction? Construction is the process of determining the meaning and effect of the words in the written document. It is the commercial equivalent of statutory interpretation. Indeed, Kirby J has argued extra-judicially for a synthesis of statutory and commercial construction: see SLR 24(2). Construction does not concern whether there is a binding contract. Extrinsic evidence of negotiations between the parties and their subsequent conduct can be admitted for this purpose: ABC v XIVth Games (1998) 18 NSWLR 540; Anaconda Nickel v Tarmoola Aust [2000] WAR 101. Construction also does not concern the identification of the terms of any contract. It therefore is separate from the parole evidence rule or rules concerning the implication of terms: see Codelfa (1982) 149 CLR 337.


(b) How is that issue to be resolved? The law concerning the construction of contracts has recently given rise to a great deal of controversy. That controversy has been primarily concerned with whether a ‗plain meaning‘ or ‗commercial construction‘ approach should be adopted. (i) The traditional view Traditionally, the primary duty of the court in construing an agreement is to discover the intention of the parties from the words of the instrument. In ascertaining the intention, it is permissible to look at the document as a whole and to interpret specific words in that context. However, it is not permissible to consider extrinsic evidence of the factual background or surrounding circumstances of the agreement unless the language of the contract is ambiguous, that is, susceptible of more than one meaning: Codelfa per Mason J; ABC v Australasian Performing Right Association (1973) 129 CLR 99 per Gibbs J. The only exceptions were where: 1. The language had a proven special technical meaning, trade usage or custom; or 2. Application of the plain meaning would lead to manifest absurdity or inconvenience. (ii) Developments in England However, there has recently been a move towards a more ‗contextual‘ or ‗commercial‘ method of construction. This started with two judgments of Lord Wilberforce in the 70‘s: see Prenn v Simmonds [1971] 1 WLR 1361; Reardon Smith v Yngvar Hansen-Tangen [1976] 1 WLR 989, but the principle has been developed and entrenched particularly by Lord Hoffman: see Mannai Investments [1997] AC 749; ICS v West Bromwich [1998] 1 WLR 896. According to Lord Hoffman‘s 5 principles, the task of the court is to ascertain the meaning that the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties. Lord Hoffman‘s approach distinguishes between the meanings of words, and what would be understood as the meaning of a person who uses words. The basis for Lord Hoffman‘s reformulation is therefore that people may use the wrong words or syntax yet at the same time succeed in communicating their meaning. Consequently, the background or matrix of facts surrounding the agreement is always admissible as an aid to interpretation. It does not merely enable the court to choose between the possible meanings of words that are ambiguous. It may enable the court to override a plain meaning if it considers the parties to have simply used the wrong words or syntax. The relevant background includes anything which would have affected the way in which the language of the document would have been understood by a reasonable person. However, it does not include the previous negotiations of the parties or declarations of their subjective intent; the test is therefore still objective.
Mannai Investments [1997] AC 749 Facts:  A lease contained a ‗break clause‘ which gave the tenant, at a specified time, a right to determine the lease.


 Held:  

The tenant was entitled to determine the lease on its third anniversary i.e. 13 January 1995. However, the notice wrongly named the date upon which the tenant proposed to do so as 12 January 1995. The notice was construed to mean 13, not 12, and was therefore valid. A reasonable recipient with of the terms of the lease and of the 3 rd anniversary date would have been left in no doubt that the tenant wished to determine the lease on 13 January 1995, notwithstanding that the lease wrongly described the determination date as 12 January 1995.

(iii) Consideration in Australia Opinion is divided on the status of the reception of Lord Hoffman‘s reformulation in Australia. On one hand, Douglas (2009) ABR assumes that the shift from a strict construction of contracts to a more purposive construction is now an ‗accepted development‘, there having been a number of recent decisions (including of the High Court) which have seemed to apply the ‗commercial approach‘: see Royal Botanic Gardens v South Sydney CC (2002) 76 ALR 436; Ray Brooks v NSW Grains Board [2002] NSWSC 1049 (Palmer J); Pacific Carriers v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) v Alphapharm (2004) 219 CLR 165; Lion Nathan v Coopers (2005) 223 ALR 560 (Finn J), affirmed on appeal in (2006) 236 ALR 561. On the other, McLauchlan (2009) JCL argues that the post-ICS case law is characterised by mixed messages. Whilst McLauchlan recognises the decisions to which Douglas refers, he also points to certain decisions which continue to evidence reluctance to extricate themselves from the ingrained principles of Codelfa: see, e.g., Kooee Communications v Primus [2008] NSWCA 5. McLauchlan therefore suggests that Codelfa is better characterised as superseded, rather than overruled, and may therefore continue to influence construction doctrine in Australia. This is also the characterisation used by Spigelman CJ, writing extrajudicially (2007 ALJ). In the author‘s opinion, McLauchlan and Spigelman CJ‘s view is to be preferred. Although the balance of authority prefers the ‗commercial approach‘ to construction, its application cannot be taken for granted.
Royal Botanic Gardens v South Sydney City Council (2002) 186 ALR 289 Facts:  There was a 50yr lease between two public authorities, the RBG (as lessor) and SSCC (as lessee).  The demise was in respect of a strata of land to allow the construction and operation by the lessee of a large underground parking station.  The lease provided that the rent for the first three years of the lease would be $2000 per annum.  Thereafter, the rent was to be determined in respect of each three year period as provided for in clause 4(b).  Clause 4(b) conferred power upon the lessor to fix rent for the remaining period of the lease (i.e. other than the first 3yrs). In particular, clause 4(b)(iv) provided that the lessor, in setting the price, ‗may have regard to additional costs and expenses which [the lessor] may incur‘ in maintaining the land.  The lessor sought to impose a commercial rent, which the lessee disputed.  The lessee argued that the words ‗may have regard‘ should be read as ‗may and may only have regard‘ i.e. the power to increase the rent payable was simply to cover the cost of maintaining the land.  The lessor argued that ‗may have regard‘ was permissive and did not confine the lessor in fixing the rent to have regard to other factors.  To bolster its arguments, the lessee sought to rely on the lengthy negotiations for the lease which made it relatively clear that the parties did not intend that the lessor would be able to charge commercial rent for the land.


He therefore joined in the orders of the majority. NEAT‘ requested delivery of the Cargo. o The primary purpose of the transaction was to provide a public facility.  Typically. A reasonable reader in the position of Pacific would have understood the document as a bank endorsed absent bills of lading indemnity. not a profit.  As BNP was not part of ‗We‘ in the clause regarding indemnification.  NEAT‘s banker was BNP while Royal‘s banker was SSOE. a letter of indemnity is used in the absence of a bill of lading and is backed by a bank.  The venture was a disaster as the food went off. his Honour did not require an ambiguity before admitting extrinsic evidence. and would have understood that the bank was undertaking liability as an indemnifying party to support the liability undertaken by NEAT. not only of the text of the documents. Kirby J thought that the clause was clearly in the lessor‘s favour. Held:  External evidence admissible. sold a quantity of legumes to Royal.  NOTE: Carter argued that the lease was not ambiguous. Reasoning of Kirby J:  Like Carter. o The parties‘ concern was to protect the lessor from financial disadvantage from the transaction.  In the letter: o ‗We. Reasoning of majority:  There was an ambiguity in the failure to specify expressly whether or not the lessor was limited to take into account the costs and expenses of the kind referred to in clause 4(b)(iv). but also the surrounding circumstances and the purpose and object of the transaction. by nonetheless signing the agreement. NEAT faxed Pacific a letter of indemnity. Held:  BNP had agreed in the indemnity. o The facility was to be constructed under the lessor‘s land and would not interfere with the continues public enjoyment of the land for its primary object. Pacific Carriers v BNP Paribas (2004) 218 CLR 451 Facts:  This case concerned the construction of two letters of indemnity signed by BNP that were sent to Pacific. and o The letter was signed by both NEAT and BNP.  However.  Construction required consideration. Pacific claimed. o The lessee was responsible for the substantial cost of construction of the facility. the vessel on which the cargo was to be carried from Australia to Calcutta. an Australian company. evidence of the negotiations was admissible. but was clearly in the lessor‘s favour. and o The only financial disadvantage to the lessor which the parties identified related to the additional expense which it might incur immediately or in the future. agreed to join in the indemnity. 6 .  In particular. an Indian grain trader operating out of Calcutta.  On 28 January 1999.  Pacific then sued NEAT and BNP pursuant to the letters of indemnity to recover its losses. He argues that the ambiguity was a fiction designed to legitimise the reception of evidence of the surrounding circumstances.  NEAT. The lessor challenged the lessee‘s attempt to rely on this extrinsic evidence. to be entitled to be indemnified by BNP in respect of the losses it suffered by reason of delivering the cargo in question. pursuant to those letters. it was unclear whether BNP.  Therefore.  Pacific was the time charterer of the MV Nelson.  The legumes were to be transported from Australia to Calcutta. recreation. o ‗We‘ agreed to indemnify Pacific. the following factors are in the lessee‘s favour: o The parties to the transaction were two public authorities.  Claims made by SSOE against Pacific went to arbitration and settled on the basis that Pacific paid substantial damages. on Codelfa principles.

such evidence is admissible only to negative the existence of a suggested implied term: Telstra Corp v Australis Media Holdings (1997) per McLelland CJ. for example if rectification or equitable estoppel is pleaded: B & B Constructions (1994) 35 NSWLR 227 (rectification). and 3. such evidence is admissible in courts of equity. Contractual negotiations. although the preferred view is probably that. it is noted that some authority has permitted evidence of deleted words or clauses for construction purposes: Gonigan v Direct Engineering (No. The parties‘ subjective intentions (that is. 2) [2008] WASCA 112. 2. Conduct subsequent to the execution of the contract: Gardiner (2008) 251 ALR 322 (HC). if at all permissible. background material is admissible only for the purpose of ascertaining the parties‘ objective intentions).(iv) But note Even on Lord Hoffman‘s approach. However. However. evidence of the following remains inadmissible: 1. 7 .

AGENCY Agency is the relationship existing between two parties whereby one (the agent) is authorised by the other (the principal) to do. P and A. the trustee acts as principal and does not bring the beneficiaries of the trust into contractual relationships with third parties. a contract for services). on the principal‘s behalf.g. (i) Liability of P The question is: ‗was A the agent of P for the purpose of the particular identified act?‘: Traves. 1. P/A and a TP. a shop assistant is an agent for the purpose of a sale contract. A dispute will be between: 1. Agency overlaps with two other relationships which. Who is the Dispute Between? See facts. namely whether it is: 1. but a domestic servant is not. 2. and/or 2. and 2. a contract of service). Was there an agency relationship? 2. Independent contractor and person with whom contracts – persons who exercise their own discretion as to the manner in which they carry out the work (i. the act must be within the scope of the employment/contract e. Not all employees or independent contractors are agents for their employers. are mutually exclusive: 1. If P/A and a TP The next step is to identify the nature of the potential liability.e. In acting on behalf of the beneficiary. For misrepresentation. though similar. P. To be an agent. 2. (a) If on the contract… It is necessary to separately consider the liability of: 1. certain acts which affect the principal‘s rights and duties in relation to third parties. A. 2. For a wrong. or 3. On the contract. If so. was the act within the scope of the agency? 8 . Employer-employee – persons employed on such terms that they are subject to control regarding the manner in which their work is to be carried out (i. This reduces to 2 Q's: 1. Trustees are not agents.e.

Deed – necessary where the agent is required to execute any instrument under seal on behalf of their principal. a company director. (ii) Holding out/estoppel Where a person. Nonetheless. Word of mouth – a verbal offer followed by acceptance in writing or verbally is sufficient to conclude a contact of agency for most purposes at common law.(a) Was there an agency relationship? The relationship of principal and agent may be created by: 1. 2. as the constitution would have allowed). by words or conduct. Holding out or estoppel. Derham v Amev (1981) 56 FLR 34. 3. Cohabitation. Ratification. and 5. and two others who were nominees of K and H and who played no practical role in running the company. 2. It may be required e. Ratification may be by silence or inaction: Klement v Pencoal [2000] QCA 152 (3yr delay by principal in informing other party that agent‘s authority to sign transfers of land was 9 . 3. No board resolution was passed. it was held that the board had held K out as managing director (although not appointed as such. These are not mutually exclusive. the person will not be allowed to deny the authority of that other to act as his agent. H. a contract of agency may be partly written and partly verbal. in which case the document creating the power is termed a power of attorney. Writing – this is common. The use of the word ‗agency‘ or ‗agent‘ does not of itself create an agency at law (though it may indicate one): International Harvester Co (1958) 100 CLR 644.g. In Freeman & Lockyer [1964] 1 All ER 630. under the Property Agents and Motor Dealers Act 2001 (Qld). who was overseas at all relevant times. Express agreement. The other three directors were. This is a question of fact to be decided upon the circumstances of each particular case: Crabtree-Vickers (1975) 133 CLR 72. (i) Express agreement Agencies may be created expressly by: 1. the person on whose behalf the act is done may render the act as valid and effectual as if it had been done by their duly authorised agent. (iii) Ratification Where one person acts on behalf of another without authority. or partly express and partly implied. where the third person has entered into an agreement with the other on the fact of the representation: Freeman & Lockyer [1964] 2 QB 480. 4. first. leads a TP to believe that another is his agent. Necessity. K. contracted a firm of architects to assist with property development.

an agency relationship may be created where: 1.        (iv) Necessity Per Swaffield (1874) LR 9 Exch 132 (agent put horse in stable overnight to protect). a principal cannot ratify that which is beneficial and reject the remainder: Cox v Mosman [1909] QSR 45. The original contract must not have been void. 10 . The effect of this is that an undisclosed principal cannot ratify a contract made by his or her agent in excess of authority. an inconveniently parked car was not sufficient to create an agency to dispose of it. NOTE that for the ratification to be effective. A person is entrusted with property. The signature must not have been forged (ratification does not make good a forgery). NOTE: in such cases. Ratification must be of the whole contract. Urgent action is objectively required to protect it. and 4. The owner of the horse was liable to pay the stable fees. an agent put a horse in a stable overnight to protect it. whether de facto or de jure. (v) Cohabitation There is a common law presumption of authority to pledge credit for domestic necessaries as between husband and wife. the following principles apply:  The acts must have been done for and on behalf of the supposed principal: Howard Smith v Varawa (1907) 5 CLR 68. But see s 131 CA below re companies. Ratification may occur whether the agent exceeded his/her authority or had no authority at all: Firth v Staines [1897] 2 QB 70. Ratification must be within a reasonable time. The ratification may only be by a principal who was in existence at the time of the making of the contract: Kelner v Baxter (1886) LR 2 CP 174. there will also probably be agency by estoppel (as in Klement).withdrawn). The test of necessity is objective. It is impossible or very difficult to communicate with the owner. Ratification must be with the full knowledge of what has been done: Marsh v Joseph [1897] 1 Ch 213 (rogue concealed fraudulent nature of transactions from principal). In Swaffield (1874) LR 9 Exch 132. not the agent. 3. 2. The person takes bona fide action in interests of principal by necessity. In Munro v Willmott [1949] 1 KB 295. Munro v Willmott [1949] 1 KB 295. The principal must have the capacity to make the contract both at the date of the contract and at the date of ratification.

or 2. Death – the death (or liquidation) of either principal or agent immediately puts an end to the agency: Noonan v Martin (1987) 10 NSWLR 402.e. If the principal dies but the agent continues to act. Agreement. This does not affect any rights or liabilities created between the principal and third party prior to the agreement. This has been abolished by statute in NSW. Of the agent – determines their authority. The agent may have to compensate the principle for any loss occasioned by the renunciation. Performance or completion of agency. 5. It is unlikely a court would enforce it in Qld. SA. 2.g. and 3. undisclosed principal issues cannot arise where authority is ostensible. (b)If so. and  provision of sufficient allowance: Debenham v Mellon (1880) 5 QBD 394.This can be rebutted by:  express warning to third parties. Bankruptcy. One significant difference is that an agent may have actual authority even where the third party does not know of the agency i. 6. In contrast. Special agents – appointed for the performance of some special act or purpose (e. a third party can treat the authority of the agent as subsisting until they receive notice of the insanity. a. which occurs in the following circumstances: 1. Impossibility of performance. Revocation/renunciation – a term that the principal or agent may revoke the relationship at any time is implied into an agency agreement. including for breach of warranty of authority. 7. Universal agents – authority is unlimited to do such things which the principal may do through the 11 . NOTE: a general classification of agents is as follows: 1. the agency must also not have been terminated. to procure a truck for towing). 2. the agent becomes personally liable. (vi) Termination Obviously. particularly where actual authority is implied. Apparent/ostensible. b. unless bankruptcy does not affect their capacity to contract. Married Persons (Equality of Status) Act 1996 (NSW) s7. was the act within the scope of the agency? The authority of an agent may be: 1. Insanity – the contract of agency is immediately terminated once insanity has overtaken either principal or agent: Yonge v Toynbee [1910] 1 KB 215. 4. However. where there is an undisclosed principal. although the agent may do some acts necessary to complete a transaction that was already binding. Actual.g.  express limitation to wife. Of the principal – determines the relationship. the ACT and NT e. regardless of whether the agent knew of the death. General agents – have authority to act for the principal in all matters or in all matters concerning a particular trade or business. 3. as the third party must establish a holding out on the party of the principal. NOTE: there is a significant potential for overlap between actual and apparent authority.

g. A holding out. there are 3 elements: 1. (i) Actual authority An actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. and.g. Showa Shoji v Oceanic Life (1994) 34 NSWLR 548. Freeman & Lockyer.instrumentality of another (e. it is immaterial that there had been an express limitation of authority to the contrary: First Energy (UK) [1993] 2 Lloyd‘s Rep 194. Per Freeman & Lockyer. and in particular the principal‘s conduct. (ii) Ostensible authority A principal who represents either by words or conduct that an agent has authority to contract on the principal‘s behalf is bound by those acts of the agent which fall within that represented authority: Hely-Hutchinson. Express – the express authority of an agent is the authority the principal has expressly given the agent in words or writing (usually in the agreement which gives rise to the agency relationship). Crabtree-Vickers. Actual implied authority in an agent to enter into a particular transaction cannot exist where there are express instructions from P to A to the contrary: Fray v Voules. if the principal is under some legal disability (e. Ostensible authority may exceed actual authority: Hely-Hutchison. and 3. By someone with actual authority. Pacific Carries v BNP Paribas (2004) 218 CLR 451. and ii.e. Reliance. capacity). The actual authority of an agent can be: 1. Its scope is ascertainable by applying the ordinary principles of construction of contracts: Freeman & Lockyer per Diplock LJ. or 2. b. power of attorney). It is essential to closely analyse the facts. (A) Holding out? The holding out may be by either a specific representation or a representation by conduct. An agent cannot have greater powers conferred upon them than the principal possesses. Freeman & Lockyer. 2. to determine the precise extent of A‘s ostensible authority: Derham v AMEV (1981) 56 FLR 34. that particular type of agent (if any) usually has authority to do: HelyHutchinson v Brayhead [1968] 1 QB 549 (MD has implied authority to do all such things as usually fall within the scope of that office). is necessarily incidental to carrying out the principal‘s express instructions i. the powers of the agent are equally limited. An agent has further implied authority to do whatever: i. Implied. 12 . If these are made out. a. to give the agency business efficacy: ANZ v Ateliers [1967] 1 AC 86.

status and facilities and holding out arising from allowing him to act in a certain manner (i. However.e. Solicitors should therefore be careful to use the phrase ‗subject to instructions‘. Individual directors must have either express actual authority. Donellan v Watson (1990) 21 NSWR 335. Crabtree-Vickers (1975) 33 CLR 72 Facts:  The dispute concerned whether an order placed for a printing machine (and related equipment) by the company was binding on it. Pacific Carriers v BNP Paribas (2004) 218 CLR 451 (officer equipped with ‗certain title. but cannot raise finance on the company‘s behalf.  Can provide security over the company‘s assets. 129(3) CA. Likewise the chairperson: see Parry (1990) 2 ACSR 15. (B) By someone with actual authority? The representation must be made by someone with actual authority to make it: CrabtreeVickers. sign documents)‘). Green v Meltzer (1993) MCLR 289.In the latter case. Panorama Dev. Fidelis Furnishing (1971) 2 QB 711 (hire vehicles). v Fidelis Furnishing [1971] 2 QB 711 (company secretary). USUAL AUTHORITY OF SOLICITORS The usual authority of solicitors includes entering a compromise.000 within authority). A managing director. It cannot be by the agent himself: Armagas v Mundogas [1986] AC 717. but $100. but not re internal disputes. the agent will have ostensible authority to deal with third parties in a manner consistent with the functions and duties normally falling within the usual authority of the holder of such a position: Freeman & Lockyer (MD). Individual directors An individual director has no usual authority to bind the company: Northside Developments (1990) 170 CLR at 205. Examples:  Large scale borrowing for capital purpose outside usual authority: Green (1993) MCLR 289 ($9m outside authority.  The company was a closely-held family company. (1993) 11 ACSR 637. Bruce McWilliams Jnr and their respective wives. 201J.  Bruce Snr was the chairman and although no longer a full-time executive director remained fully 13 . see also ss 128. a company secretary may now enter contracts on behalf of the company to deal with administrative matters: Panorama Dev. USUAL AUTHORITY IN COMPANIES Managing directors A managing director has usual authority to deal with everyday matters and supervise the daily running of the company: Entwells (1991) 6 WAR 68. Although originally perceived as mere clerks. A managing director may also have powers delegated under ss 198C. thereby becoming an organ of the company. Donato v Legion Cabs (1966) 2 NSWR 583. Non-executive managers The authority of managers below board level will depend on their particular position: see eg AWA Ltd v Daniels (1992) 7 ACSR 759 per Rogers CJ (dealing with usual authority of money market managers and foreign exchange dealers).  Its four directors were Bruce McWilliam Snr. acting as an agent. or the solicitor mistakenly exceeds the client‘s instructions: Buseka v Sergio (1990) 102 FLR 157. the solicitor may be liable in negligence. or be made a governing director.  Can instruct solicitors to conduct litigation re trading disputes.  An issue of almost 10% of capital and payment of substantial sums in the purchase of business outside authority: Camelot Resources v MacDonald (1994) ACSR 437. Company secretary The company secretary keeps records and ensures the company performs statutory functions: s188. Re Tummon Inv. even where the solicitor‘s actual authority to compromise has been withdrawn: Waugh v HB Clifford [1982] 1 Ch 374. also has authority to appoint further agents: see Crabtree-Vickers (1975) 33 CLR 72.

3. he in fact proceeded to place an order for a machine and related equipment. Peter had no actual authority to make the contract. Bruce Snr knew nothing of these arrangements. followed by the word ‗per‘ and a line for a signature. that the agent does not have actual authority. (i) Agent discloses name of principal Where the agent discloses the name of the principal. Indeed. Bruce Jnr‘s printed name.  However. full management powers had been either reserved to the board as a whole or at least to the three men. discloses the existence of a principal. in which case the agent is liable in damages for breach of warranty of authority: Yonge v Toynbee [1910] 1 KB 215. although he continued to be employed by the company for sales and technical matters. the problem was that the actual authority in this instance required the agreement of all three men. The three men were considering buying a printing machine for the company. NOTE: this case causes disquiet as the company would have been liable if Bruce Jnr had authorised Peter to place the order. Also involved was Peter. by arming Peter with the order form. Bruce Jnr was the company‘s managing director. 2. Thus. The form had. but was not authorised to purchase the machine. The agent contracts outside the scope of their authority.  As to apparent authority. at the bottom. despite the fact that Bruce Jnr had been appointed managing director. (C) Reliance? If the third party knows.        Held:  involved in management decisions. As managing director. but not name. The agent agrees to be liable. Peter was asked to get information and quotes. there is no estoppel. Peter had clearly held out as having authority to place the order. Peter had been a director but resigned when he became bankrupt. it is put on inquiry and failure to make further inquiries will prevent it from enforcing the contract: Northside Developments (1990) 170 CLR 146. discloses the name of the principal. the agent is not liable on the contract except where: 1. Despite this. 2. his authority had been restricted. in an unusual arrangement. the court said that he might properly be described as a ‗governing director‘. or ought to know. Peter signed his name after the word ‗per‘. Bruce‘s brother. or 3.  Here. However. Bruce Jnr had apparent authority to place the order. so authorising Peter would have been an exercise of his apparent authority. it was because he did not have the actual authority required to make a binding representation on behalf of the company that the company was not liable. Bruce Snr knew nothing of the order form. does not disclose the existence of any agency. The agent contracts by deed in their own name.  The third party was accordingly unable to enforce the contract against the company. the HC adopted the principles in Freeman. He had obtained a blank company order form from Bruce Jnr. If the third party has some reason to doubt the agent‘s authority.  Bruce had also. or 14 . The express agreement was for him to obtain information and quotations only. At the trial it was held that. (ii) Liability of A The agent‘s liability towards third parties depends upon whether the agent: 1.

the person purporting to enter the contract on behalf of the company can be released by the promisee signing a release: s 132. if the principal is a company. (iii) Existence of principal not disclosed (the 'undisclosed principle') Where the agent permits the third party to believe he or she is entering into the contract on her or his own account and does not suggest he/she is merely an agent. Maxsted & Co v Durant [1901] AC 240 (agent bought grain at price above that specified in authority). Booker v Andjel [1964] 2 QB 775.f. The principal is in fact non-existent: Kelner v Baxter (1866) LR 2 CP 174 (co. Where the third party discovers the reality of the situation. the third party may elect to sue either the principal or agent. the agent becomes personally liable on the contract: Cooper v Fisken (1912) 33 ALT 231. and has no right of indemnity from the company: s 132(2). The third party is irrevocably bound by its election once judgment is entered (but not merely on the initiation of proceedings): Clarkson. Black v Smallwood (1966) 117 CLR 52 (co. the agent cannot continue any legal action they have commenced – the principal‘s rights prevail: Maynegrain v Compafina Bank [1982] 2 NSWLR 141 per Hope JA. the undisclosed principal may also have rights or liabilities under the contract. The undisclosed principal or the agent can also sue on the contract unless it would be inconsistent with the terms of the contract for the principal to sue on the contract: Sin Yin Kwan v Eastern Insurance [1994] 2 AC 199. If the company does not ratify the decision. once it is registered.  The third party must elect to sue within a reasonable time. On the last point. only in promotional stage) c. and 15 . the legal rights and obligations of the undisclosed principal only arise where the agent had actual authority from the principal to enter into the contract at the time of the transaction: Keighley.4. White v Baycorp Advantage (2006) 200 FLR 125. (ii) Existence but not name disclosed The same rules as where the agent discloses the name of the principal apply: Marsh & McLennan v Stanyers Transport [1994] 2 VR 232. the person purporting to enter the contract on the company‘s behalf is liable in damages: s 131(2). ratifies the decision: s 131(1). existed but became insolvent – directors not liable). Alternatively. although the agent is not liable if in the meantime he/she has paid the principal: Armstrong v Stokes (1872) LR 7 QB 598. If the undisclosed principal sues the third party. NOTE also that for the undisclosed principal‘s rights and liabilities to arise:  There must be evidence to show who is the principal: Humble v Hunter (1848) 12 QB 310: White v Baycorp [2006] NSWSC 441. the company can be bound by a preregistration contract entered by someone on behalf of the putative company if the company.  The contract must not exclude the possibility of an undisclosed principal: Said v Butt [1920] 3 KB 497. Inconsistently with principles of privity of contract. However.

 The agent must have contracted as agent i. The agent was not authorised to do the act. both the agent and principal are liable. and 3.e. If P and A See facts – determine whether advising on: 1. will render the agent liable for the loss suffered by the principal as a result of the breach: Mitor Investments. Where an agent‘s misrepresentation to a third party comprises information provided to the agent by their principal. 16 . Further. Where the agent makes a negligent misrepresentation which was relied on by the purchaser. but the principal is also liable where the agent has acted within the scope of their actual or apparent authority. The act was not within the class of acts an agent in their position is not usually authorised to do. per Armagas v Mundogas [1986] 1 AC 717. Rights of agents. (b) If for misrepresentation… Where an agent is engaged to sell property. whether the tort was committed for the benefit of the principal or agent: Royal Globe Life Assurance v Kovacevic (1979) 22 SASR 78. or 2. These include duties to: 1. the principal is not liable for fraud of an agent where: 1. except where they are illegal. Thompson v Henderson (1990) 58 SASR 548. the principal is liable for representations made by the agent that are untrue in the course of selling that property: Aliotta v Broadmeadows Bus Service (1988) ATPR 40-873. The principal has done nothing to represent that the agent had authority to do the act. have had an intention to contract on P‘s behalf: Sin Yin Kwan. Duties and liabilities of agents. (a) Duties and liabilities of agents Every agent owes certain duties to their principal which vary in degree according to the nature of the agency or according to the express terms of the contract of agency. the agent will be entitled to an indemnity from the principal in the event of the agent being liable to the third party. (c) If for a wrong… An agent is generally liable for their tortious or fraudulent acts. 2. the principal vicariously: Roots v Oentory [1983] 2 Qd R 745. The principal is not liable for act‘s outside the agent‘s authority: Deaton’s v Flew (1949) 79 CLR 370 (barmaid assaulted patron). 3. Follow the principal’s instructions – failure to comply with the principal‘s instructions.

that it might be necessary to act through a sub agent. certain and reasonable': Jones v Canavan [1972] 2 NSWLR 236 (sharebrokers entitled to ‗marry‘ certain selling and buying orders for shares without express reference to the respective clients). Where from the nature of the transaction it is clear that the parties intended.  As part of the business. 17 . Act in good faith – as agents are fiduciaries to their principal. Walden Properties v Beaver Properties [1973] 2 NSWLR 815 (profit accountable to principal). A MD has authority to appoint further agents: see Crabtree-Vickers (1975) 33 CLR 72. Regal v Gulliver [1967] 2 AC 134. they must act in the interests of the principal and must not allow their own interests to conflict with those of the principal: Lintrose Nominees v King [1995] 1 VR 574 (agent retained by both vendor and purchaser of land => purchaser could rescind). d. although this rule has been relaxed in certain circumstances e. an agent may not use information acquired in the course of the agency in a manner prejudicial to the interests of the principal: Robb v Green [1895] 2 QB 315.g. 5. Duty to make full disclosure of personal interests An agent must disclose to the principal all the material circumstances of which they are aware which might influence the principle in entering into any negotiation: Dargusch v Sherley Investments [1970] Qd R 338 (agent retained by both vendor and purchaser of land => not entitled to commission). 4. c. Where unforeseen circumstances arise which necessitate the agent delegating. Where an agent desires to act for both vendor and purchaser and to obtain commission from both. After termination of their employment. Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134. This general principle can be rebutted by a special usage or custom which is 'notorious. the company decided to set up a subsidiary which would take the lease of a number of cinemas. 3. Exercise reasonable care and skill – see below. Where the duties to be performed by the agent are purely ministerial. Make full disclosure of any personal interest – see below.  The parent company did not have sufficient capital to purchase the lease of all the cinemas in question. Facts:  The company owned a cinema. 6. or may be reasonably presumed to have known.: a. and do not involve the exercise of any discretion or skill on the part of the agent in person. see also ss 183. the agent must make full disclosure to each party or her or his intention to act for and receive payment from the other. and must obtain the assent of each party for so acting: Fullwood v Hurley [1928] 1 KB 498. Not to make a secret profit – see below. b. Duty not to make a secret profit An agent must not use their position to make a gain for themselves without the knowledge and assent of the principal: Parker v McKenna (1874) 10 Ch App 96.2. 191 CA (for directors). Act in person – agents generally have no authority to delegate their duties as agents to another.

NOTE what the directors could have done was force the parent company to borrow to capitalize the subsidiary. Duty to exercise reasonable care and skill An agent employed for remuneration must exercise such care. the parties coming together and/or entering a legally binding arrangement).  The directors were liable to account once it is proved that ‗(i) what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors. and profited as shareholders. the directors bought shares in the parent company. (b) Rights of agents Agents have rights to: 1. To preserve confidentiality in all matters coming to their knowledge whilst acting as agent. An agent acting gratuitously is not presumed to have any special knowledge or skill. and 18 . the agency agreement provides for remuneration of the agent for the tasks performed by the agent (e. To keep separate accounts of their dealings on behalf of the principal and have such accounts ready for inspection. but obtained insurance cover excluding flood caused by the sea. In Mitor Investments [1984] WAR 365. Indemnity and reimbursement.‘ (Lord MacMillan). (i) Right to remuneration Agents have a right to remuneration where: 1. skills and diligence as is usual or necessary for the ordinary or proper conduct of the profession or business in which the agent is employed.g. the insurance company was liable in negligence. To progress the transaction. Mitor Investments [1984] WAR 365 (insurance broker). It caused the company to sue the former directors for breach of fiduciary duty. When the client suffered loss as a result of flooding by the sea in a cyclone. all of these shares were sold to a third party. Havas v Cornish [1985] Qd R 353 (real estate agent duty to tell vendor if purchaser avoids contract). Remuneration. 2. further duties include: 1. Failure to do so will make the agent liable to the principal for the loss sustained by the latter: Veljkovic v Vrybergena [1985] VR 419 (insurance agent). To keep all moneys and property of the principal separate from their own. which therefore took control of the board of directors and removed it. The HoL also emphasised that it had been open to the general meeting to ratify the breach of duty. this was not a meritorious claim as the 3rd party purchaser obtained a windfall when the directors had to refund some of the purchase price to the company. As a matter of construction. ss 180. but must still show such care and diligence in performing the undertaking as he/she would in conducting his/her own affairs. Further duties Per Weld-Blundell v Stephens [1920] AC 956. an insurance broker was instructed by a client to obtain unqualified insurance cover against damage caused by storm and flood. 181 CA (for directors). and 3. Held:  Breach of duty.  Eventually. and (ii) that what they did resulted in a profit to themselves.  However. and 3. 2. and then the directors could have provided personal guarantees. A lien.

 Meanwhile. Rasmussen & Russo v Gaviglio [1982] Qd R 571 Facts:  The vendor of land agreed to pay commission to a real estate agent. accordingly.2.  The property was eventually sold by the respondent to Company B. Moneywood v Salamon Nominees (2000) 202 CLR 351. A was not the effective cause of the sale and therefore was not entitled to the commission claimed. who was able to arrange finance for the purchaser from a finance organisation which generally only did business through B. otherwise the transaction would be void. The buyer could not complete the purchase without finance. the purchaser signed another contract for the purchase of the property through a second hand real estate agent. LJ Hooker v WJ Adams Estate (1977) 138 CLR 52 Facts:  The respondent company was the owner of a property in Sydney and engaged the appellant real estate agent to find a purchaser for it. Held (3:2):  The appellant estate agent was not entitled to recover any commission as it had not been an effective cause of the sale to Company B. They only managed to obtain finance due to the efforts of Blacks. ‗if you find a purchaser who enters into a valid and enforceable contract of sale confirmed by me/us for such property and who completes such sale‘. and that upon one of the companies becoming the purchaser. B.  A introduced a purchaser who signed a contract for the purchase of the property subject to obtaining approval for bank finance by a certain date.  The appellant then sued the respondent to recover commission.  The joint venture agreement provided that each company would continue to negotiate upon agreed terms and conditions with the respondent.  Shortly afterwards. Held:  A was not entitled to commission simply because of the purchaser‘s completion of the contract of sale through B.  The sale could not have occurred had it not been for the engagement of F who had been able to arrange the necessary finance. A. claimed commission from the vendor.  The end result was the product of two separate transactions: o The sale to Company B.  The purchaser was unable to obtain bank finance by the date stipulated and. What happened here was that Rasmussen & Russo introduced the buyer. but that contract ultimately fell over and was terminated.  On Companies A and B learning of each other‘s interest in the property.  Accordingly. the respondent was negotiating for the sale of the property to Company B which the appellant had not introduced.  There had been a break in the necessary causal connection between A‘s actions (in introducing a purchaser who had signed a contract for the purchase of the property) and the actual sale which eventually took place through B.  ‗Interpreting this listing authority. they entered into a joint venture agreement for the purpose of avoiding the risk of forcing up the price by competing bids. A. it is not enough for the agent to introduce a purchaser who sometime afterwards entered into and completed a contract. that party would complete the purchase and carry out the redevelopment of the site with the other on an equal basis. and o The JV between Company A and Company B.  The first agent. Therefore the effective cause of the sale was what Blacks did. Rasmussen & Russo v Gaviglio [1982] Qd R 571.  The appellant introduced the property to Company A which made several unsuccessful offers to purchase it. nor of any sale of any interest in the property to Company A. and it rendered anything done by Rasmussen & Russo ineffective‘ (McPherson J) 19 . The agent was the effective cause of the principal and third party coming together and/or entering a legally binding arrangement: LJ Hooker v WJ Adams Estate (1977) 138 CLR 52. the contract of sale was rescinded. This was the only way in which they could obtain finance which would allow them to complete the contract.

140 PAMDA. prima facie. auctioneers. it may be ‗in respect of such transaction‘: Moneywood v Salamon Nominees (2001) 202 CLR 351. Within the scope of his/her authority. 2. Not negligently. Turnbull v Wightman (1945) 45 SR (NSW) 592. Statutory restrictions In Qld. and 3. It does not suffice that a contract was entered: RJ Mabarrack v King (1971) 1 SASR 313.Construction – real estate agents As to the first issue. in the case of real estate agents. it is necessary and sufficient that the purchaser enters into a binding contract to purchase at the vendor‘s price: Gerlach v Pearson [1950] VLR 321. motor dealers and commercial agents cannot sue to enforce their commission unless the agent‘s appointment is in writing and signed by the principal: ss 117. real estate agents. courts will be disposed to impute an intention to the parties that the commission is payable only in the event of an actual sale being completed: Midgley Estates v Hand [1952] 2 QB 432. Lawfully. letting agents. The writing need not make specific reference to the transaction. However. unless the reason for non-completion is the vendor‘s refusal to complete: Rapacioli [1974] QB 781. (iii) Right of lien An agent has a particular lien on such property of the principal as comes into the agent‘s hands for the due payment of all expenses and remuneration lawfully incurred by the agent in transacting the principal‘s affairs. where the agency agreement provides for the payment of the agent for ‗finding a purchaser‘. (ii) Right to indemnity and reimbursement Agents are entitled to be indemnified against all losses and liabilities sustained: 1. 20 .

Who bears the loss where goods are lost or damaged. or partly written and partly oral: s 6(1). 3. Of sale. offer and acceptance. Note that the acceptance requirement can be satisfied when the buyer does any act which recognizes a pre-existing contract. a contract of sale includes both: 1. whether the SGA applies. even if only partial: Deta Nominees v Viscount Plastics [1979] VR 167. This is broader than the usual common law conception of acceptance. Per s 4(1). 2. An agreement to sell becomes a sale when the time has elapsed or the conditions have been fulfilled subject to which the property in the goods is to be transferred: s 4(4). as a threshold issue. It will also be necessary to determine. it will be necessary to assess remedies.SALE OF GOODS There are two distinct issues: 1. or an individual and consumer). hire-purchase agreement). a company and consumer. An agreement to sell – one where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled: s 4(3) (e. 1. which requires acceptance of an offer as is. Issues of capacity are regulated by the general law: s 5(1). For money consideration. and/or 2. 4. For the transfer of property. Whether there has been a breach of k. for example the acceptance or receipt of goods. the contract may be oral. In goods. In each case. A contract. There are no formal requirements for sale of good contracts. 5. written. (a) Contract? The definition presupposes that the ordinary elements of a contract (e. a contract of sale of goods involves: 1. Does the SGA Apply? The Sale of Goods Act 1896 (Qld) applies to all contracts of sale of goods (whether between two companies. 21 .g. which will necessarily be the case where the goods are unascertained: Jansz v GMB Imports [1979] VR 581.g. and 2. A sale – one under which the property in the goods is transferred from the seller to the buyer: s 4(3). (b) Of sale? Per ss 3(1). consideration) must be present. 4.

the SGA implies certain conditions and/or warranties into contracts for the sale of goods relating to: 1. and also includes emblements and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale: s 3(1). the contract is for the sale of goods: Deta Nominees v Viscount Plastics [1979] VR 167. (a) Implied conditions and warranties To ameliorate the sometimes harsh effects of the common law‘s caveat emptor approach. 2. Breaches of Contracts for the Sale of Goods Contracts for the sale of goods may be breached by: 1. the contract is for work and labor and the supply of materials: Robinson v Graves [1935] 1 KB 579 (k commissioning artist to paint portrait). Specific or unascertained (see below).  An agreement for the sale of a computer system comprising three items of computer hardware and two items of software: Toby Constructions v Computer Bar Sales [1983] 2 NSWLR 48. it has also been said that the more satisfactory (and simple) test is whether the contract when carried out would result in the sale of a chattel. 3. Although note it was left undecided whether the sale of computer software is of itself a sale of goods.e. those to be manufactured or acquired by the seller after the making of the contract of sale: s 3(1). if so. Failure to perform the contract in accordance with the SGA. 2. Correspondence with description (see also s 70 TPA).(c) For the transfer of property? It has been said that where the main substance of the agreement is the skill and experience to be displayed by one of the parties in performance and the transfer of title to the materials used is only ancillary. 3. 2. Title (see also s 69 TPA). (e) For money consideration? The SGA does not apply to gifts or the exchange of goods by barter. Existing – i. Breach of the conditions and/or warranties implied into such contracts by the SGA.e. (d) In goods? The term ‗goods‘ includes all chattels personal other than things in action and money. 22 . possessed by the seller at the time of the contract. However. Merchantable quality (see also s 71 TPA). NOTE that the goods which form the subject-matter of a contract of sale may be: 1. Future – i. and/or 2. Examples:  A contract for the removal of a house in its entirety from its original site to another location: Symes v Laurie [1985] 2 Qd R 547.

12(1). the seller can hold the buyer to the contract: Patten v Thomas Motors [1965] NSWR 1457. be in breach of the implied warranty for quiet enjoyment under s. Held:  P Co. where a seller who has no title to goods they purport to sell subsequently acquires a good title before the buyer rescinds the contract. Sale by sample. and 2. Goods are sold ‗by description‘ in all cases where the buyer has not seen the goods but is relying on the description alone: Varley v Whipp [1900] 1 QB 513. That the buyer will have and enjoy quiet possession of the goods. Per s 15(b)-(c). These terms may be excluded by express or implied provision to the contrary: s 56. Grant v Australian Knitting Mills [1936] AC 85. 23 . had applied for a patent for a similar machine in 1966. withheld payment for the machines. and letters patent granted in February 1972. the specification was published in November 1970. sold three road marking machines to D Co.  D Co. were not in breach of their implied condition as to title under s. (i) Title In a contract of sale. goods may also be sold by description where the buyer has seen and examined the goods provided the buyer bought them as corresponding to a description: Beale v Taylor [1967] 1 WLR 1193. If the buyer‘s title is avoided by reason of the fact that the seller had no title to the goods transferred. and 5. Microbeads v Vinhurst Road Markings [1975] 1 All ER 529. Facts:  P Co. However.4.12(2) if the buyers' possession and enjoyment of the machines was disturbed at a date after the sale through publication of the patent specification (ii) Correspondence with description When there is a contract for the sale of goods by description there is an implied condition that the goods shall correspond with the description: s 16.  X Co. the following warranties are also implied: 1. This amounts to an indemnity against the consequences of a defective title and of any disturbance which might result: Microbeads v Vinhurst Road Markings [1975] 1 All ER 529.. However. since they had a right to sell at the date when property passed. the buyer is entitled to a refund from the seller of any money paid to the seller for the goods. there is an implied condition that the seller has a right to sell the goods and.  They would. between January and April 1970. Fitness for purpose. notwithstanding that the buyer may have had temporary use of them: Rowland v Divall [1923] 2 KB 500. however. that they will have a right to sell the goods at the time when the property is to pass: s 15(a). in the case of an agreement to sell. That the goods are free from any charge or encumbrance in favor of any third party not declared or known to the buyer before or at the time when the contract is made.

However. (a) Bought by description? In this context. Henry Kendall v William [1969] 2 AC 31. not that there has been a ‗sale by description‘ in the sense used in other parts of the Act: Ashington Piggeries per Lord Wilberforce. provided the buyer bought them as corresponding to a description: Grant v AKM. description means ‗goods of that kind‘. However. it can be difficult to distinguish between the two: Elder Smith v McBride [1976] 2 NSWLR 631 (breeding bull sterile – issue of identity). The goods are of a description which it is in the course of the seller‘s business to supply (whether the seller is the manufacturer or not). and 2. expressly or by implication. (iv) Fitness for purpose Per s 17(a). The buyer. If it is a sale by description. makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller‘s skill or judgment. there is an implied condition that goods are reasonably fit for purpose where: 1. if the buyer examines the goods before the contract is made. (c) Merchantable quality The goods must be commercially saleable under the description they were sold. Thornett & Fehr v Beers [1919] 1 KB 486 (glue inspected even though barrels not opened). fit for a purpose for which goods of that description are normally used. it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description: s 16. the condition is not implied as regards defects which such examination ought to have revealed: s 17(d). Goods may be bought by description even where the buyer has seen and examined the goods. (iii) Merchantable quality When goods are bought by description from a seller who deals in goods of that description (whether the seller is the manufacturer or not) there is an implied condition that the goods shall be of merchantable quality: s 17(c).Statements relating to the quality of goods. do not form part of their contractual description: Ashington Piggeries v Christopher Hill [1972] AC 441 (contaminated mink food – issue of quality). David Jones v Willis. 24 . as distinct from their identity. that is. this requirement would be satisfied. (b) Seller deals in goods of that description See facts. Further. having regard also to the price paid for the goods and the other circumstances of the sale: Australian Knitting Mills v Grant (itchy underpants). including over the counter: David Jones v Willis (1934) 52 CLR 110 (heel on shoes snapped => broken leg). if the sale is by sample as well as by description.

Similarly. the council was entitled to damages The buyer‘s particular purpose and reliance may be communicated impliedly by a history of dealings: McWilliams Wines v Liaweena (1988) ASC 55-695 (corks contaminated. Resell v Garden City Vinyl (1991) ATPR 41-152 (carpet). Ashford Shire Council v Dependable Motors (1960) 104 CLR 139 (PC) Facts:  A shire council requested its engineer to inspect a tractor and see whether it was suitable for roadwork. Frost v Aylesbury Dairy [1905] 1 KB 608 (milk). it is not necessary that there be any reference to such matters in the contract itself: Ashford Shire Council v Dependable Motors (1960) 104 CLR 139 (PC). it is not necessary that the buyer makes known his/her particular intended purpose: Priest v Last [1903] 2 KB 148 (hot water bottle). reliance on the respondent‘s skill and judgment can be established as an inference from the buyer‘s statement of purpose: Expo Aluminium v WR Pateman (1990) ASC 55-978 (NSWCA). However.  The appellant ordered the windows in turn from the respondent manufacturer who was told: ‗There is nothing between the job and the South Pole‘. he did not however report what had passed between the MD and himself. Facts:  The owner of a house built on a site exposed to the weather requested the appellant manufacturer to supply replacement aluminium windows for wooden ones which leaked.  The engineer reported to the Shire Clerk that the tractor seems to have plenty of horsepower and was big enough to do the work. Where the goods are not being acquired for their ordinary use. many transactions over number of years).  After inspecting the tractor the engineer informed the MD that the tractor was required for roadwork and asked whether it could perform such work which he described. Grant v Australian Knitting Mills (underwear).  The Shire President instructed the Shire Clerk to make the purchase.  The windows supplied were totally unsuited to the site. 25 . had acted on the skill and judgment of the MD of the company. the buyer must bring home to the seller the particular purpose contemplated and that the buyer is relying on the seller: Griffiths v Peter Conway [1939] 1 All ER 685 (failure to disclose skin allergies). which had in turn induced the purchase of the tractor. Held:  The engineer.  As the tractor was unsuitable for roadwork. relying upon the report made by the engineer. having disclosed the proposed purpose for which the tractor was required. the council had in purchasing the tractor relied upon the company's skill and judgment.  The engineer went to the company‘s showroom where he introduced himself to the company‘s managing director as the Shire Engineer of the council and told him that he had been instructed to give a report on the tractor with a view to its purchase. (a) Communication of intended purpose If the intended purpose is the ordinary or sole use of the goods. Expo Aluminium v WR Pateman (1990) ASC 55-978 (NSWCA).  In so far as the assurances of the managing director had induced the engineer's report to the shire clerk.There is also an exception for trade names in s 17(b).

Reliance requires ‗trust to a substantial extent‘: Grant v AKM. the herring meal had become contaminated by a substance produced by a chemical reaction following the use of a preservative.  However. to that effect: s 18(1).  P sued D for the price of the mink food and D counterclaimed for damages. (c) the goods shall be free from any defect. it effectively applies only where the buyer orders the goods under their trade name in such a way as to show that the buyer does not rely on the seller‘s skills and judgment: Baldry v Marshall [1925] 1 KB 260.  One of the ingredients in the formula was herring meal. where a sale is by sample only.  Although D had relied on his own judgment as to the suitability of the compound for mink food. (v) Sale by sample A contract of sale is a contract for sale by sample when there is a term in the contract. which P purchased from a third party. he relied on P to select and acquire good quality ingredients of the kind set out in the formula. a compounder of animal foodstuffs. contracted with the defendant mink farmer to compound and supply to him certain mink food in accordance with a formula supplied by D. 26 . (c) Exception – trade name proviso In the case of a contract for the sale of a specified article under its patent or other trade name. there is an implied condition that: (a) the bulk shall correspond with the sample in quality. It is sufficient that the buyer relies only partially on the skill and judgment of the seller provided that the matters of which the buyer complains are matters in respect of which the buyer relied on the seller: Ashington Piggeries v Christopher Hill [1972] AC 441. there is no implied condition as to its fitness for any particular purpose: s 17(b). (b) Course of seller’s business See facts. Ashington Piggeries v Christopher Hill [1972] AC 441 Facts:  P. This may be so even if the buyer has researched the product: Cargo v Multiquip [1998] ATPR 41-620. Held:  The third party supplier of the herring meal was liable to P for breach of the implied condition. rendering them unmerchantable.  D suffered heavy losses on feeding his mink with the compound. This provision has a narrow operation. Per s 18(2). express or implied. (b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample. which would not be apparent on reasonable examination of the sample.Held:   The appellant had made known to the respondent the particular purpose for which the windows were required. Reliance on the respondent‘s skill and judgment was established as an inference from the appellant‘s statement of purpose.

delivery of the goods and payment of the price are concurrent conditions: s 30. If the seller agrees to deliver goods to the buyer‘s premises and. 3. and the goods are lost or damaged in course of transit. Unless otherwise agreed. (i) Rules as to delivery General rules S 31 SGA sets out the following general rules as to delivery of goods under a contract of sale: 1. However. for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer: s 34(1). but no time for sending them is fixed. 2. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour: s 31(4). delivers them there to a person apparently authorised to receive them and the person receiving them misappropriates them. When. When the goods at the time of sale are in the possession of a third person.(b) Performance of the contract It is the duty of the seller to deliver the goods. if the seller has one. the loss must fall on the buyer and not on the seller: Galbraith & Grant v Block [1922] 2 KB 155. or may hold the seller responsible in damages: s 34(2A). the buyer may decline to treat the delivery to the carrier as a delivery to himself or herself. under circumstances in which it is usual to insure. the place of delivery is the seller‘s place of business. If the seller omits so to do. What is a reasonable hour is a question of fact: s 31(4A). the seller must give such notice to the buyer as may enable the buyer to insure them during their 27 . Unless otherwise authorised by the buyer. the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller: s 31(5). whether named by the buyer or not. the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case: s 34(2). there is no delivery by the seller to the buyer unless and until such third person acknowledges to the buyer that the third person holds the goods on the buyer‘s behalf: s 31(3). express or implied. In the absence of contractual stipulation. if the contract is for the sale of specific goods which to the knowledge of the parties when the contract is made are in some other place. 3. 4. then that place is the place of delivery: s 31(1B). the seller is bound to send them within a reasonable time: s 31(2). without negligence. When under the contract of sale the seller is bound to send the goods to the buyer. in pursuance of a contract of sale. Unless otherwise agreed. the seller is authorised or required to send the goods to the buyer. 4. delivery of the goods to a carrier. 6. the seller‘s residence: s 31(1A). and of the buyer to accept and pay for them. and if not. when goods are sent by the seller to the buyer by a route involving sea transit. There are rules governing the methods of delivery and payment. Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract. between the parties: s 31(1). Unless otherwise agreed. 2. Delivery to carrier S 34 sets out the following rules regarding delivery to carrier: 1. 5. in accordance with the terms of the contract of sale: s 29.

sea transit. When the seller delivers to the buyer the goods which the seller contracted to sell mixed with goods of a different description not included in the contract.000 yoyos delivered in a number of separate consignments were found to be effective. When there is a contract of sale to be delivered by instalments. Where goods have been quoted FOB.000 yoyos to a buyer to be used in an advertising campaign and approximately 80% of 85. it is a question in each whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation: s 33(2). the goods are deemed to be at the seller‘s risk during such sea transit: s 34(3). Hammer and Barrow v Coca-Cola [1962] NZLR 723. but if the buyer accepts the goods so delivered the buyer must pay for them at the contract rate: s 32(1)-(2A). the degree of probability or improbability that such a breach will be repeated: Maple Flock v Universal Furniture [1934] 1 KB 148. such as a bill of lading. the buyer being responsible for subsequent charges such as freight and insurance. a manufacturer agreed to supply 200. first. In Hammer and Barrow v Coca-Cola [1962] NZLR 723. the buyer may reject them. It is therefore the duty of the seller to notify the buyer of the shipment to enable the buyer to insure. the buyer of goods is not bound to accept delivery of them by instalments: s 33(1). London Plywood v Nasic Oak [1939] 2 KB 343. FOB and CIF Contracts FOB ‗FOB‘ refers to ‗free on board‘. HELD: the buyer was entitled to rescind the contract so far as future deliveries were concerned rather than submit to the risk of being sent further unsatisfactory consignments. the ratio quantitatively which the breach bears to the contract as a whole and. Delivery is complete once the goods have been put aboard ship. The test is to consider. secondly. 28 . or the buyer neglects or refuses to take delivery of or pay for 1 or more instalments. it is the seller‘s duty to put the goods on board the ship at the port of shipment and to pay all expenses incurred in doing so. and the seller makes defective deliveries in respect of 1 or more instalments. and if the seller fails to do so. the buyer may accept the goods which are in accordance with the contract and reject the rest. Constructive or symbolical delivery Delivery may also be effected constructively where the seller subjects the goods to the immediate control of the person to whom delivery has to be made e. Delivery of wrong quantity or mixed goods When the seller delivers to the buyer a quantity of goods greater or less than the seller contracted to sell.g. by delivery of documents of title. or the buyer may reject the whole: s 32(3). which are to be separately paid for. Instalment deliveries Unless otherwise agreed. S 34(3) (above) applies to a contract for the sale of goods FOB: Wimble v Rosenberg [1913] 3 KB 743. otherwise the goods are at the seller‘s risk.

CIF ‗CIF‘ refers to ‗cost. When the goods have been quoted CIF. When.  The ship arrived and the buyers took up the shipping documents on March 20. Thus. where the buyer has not previously examined the goods. after the lapse of a reasonable time. upon examination. before the buyer has had an opportunity of examining them. within a reasonable time after shipment. and on March 23 before a reasonable time for the examination of the goods had expired they gave the sellers notice of rejection. they are not in conformity with the contract: Kwei Tek Chao v British Traders and Shippers [1954] 2 QB 459. on presentation of the documents.f. the buyer has no right of refusal: Hardy v Hillerns and Fowler [1923] 2 KB 490. it is conditional property. the buyer may have done an act inconsistent with the ownership of the seller in. and the buyer does any act in relation to them which is inconsistent with the ownership of the seller. the buyer still has the right to reject the documents when they are tendered if they do not describe the goods in accordance with the contract. policy of insurance and invoice) to the buyer. 3. contract to be shipped from a foreign port to this country. the seller is not obliged to effect actual physical delivery of the goods.  It was contended by the buyers that before the date of the sub-sales the property in the wheat had 29 . To make arrangements for the transport of the goods. the shipping documents (bill of lading. There is a possibility of conflict between s 36 and the circumstances in which the buyer is deemed to have accepted the goods in 2 above: that is.  On the same day they resold and dispatched to sub-purchasers a portion of the wheat so delivered to them. insurance and freight‘.i. the buyer is entitled to a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract before the buyer is deemed to have accepted them: s 36. However. for example re-selling the goods. The buyer intimates to the seller that the buyer has accepted them. To ship the goods paying the costs thereof. the buyer is bound to pay the price. (ii) Rules as to acceptance and payment Per s 37. the buyer retains the goods without intimating to the seller that the buyer has rejected them. Hardy v Hillerns and Fowler [1923] 2 KB 490 Facts:  Wheat was sold under a c. and 4. or 3. The buyer also has the right to accept the documents but reject the goods if.  They subsequently discovered that it was not in accordance with the contract. Although the property in the goods passes when the documents are handed over. the seller‘s duties are: 1. To tender. even if they have been lost at sea: Manbre Saccharine v Corn Products [1919] 1 KB 198. Delivery is effected when the buyer gets the documents. When the goods have been delivered to the buyer. the buyer is deemed to have accepted the goods when: 1. 2. To effect upon the terms current in the trade an insurance of the goods and to pay the premium.  On March 21 she commenced to discharge the wheat and the buyers took delivery. 2. However. In such a case.

(b) If an agreement to sell… Ownership has not yet passed to the buyer. Sale. (c) If a sale… The SGA sets up a regime which distinguishes between the transfer of property in goods which are: 1. or inconsistent with the ownership revested in them by rejection in the other. to return them to the seller. Agreement to sell. (i) Has the property transferred? This depends on whether there is a: 1. and 2. (a) Is there a sale or agreement to sell? See definitions above. 30 . Whether any exceptions apply. Specific/ascertained – those identified and agreed upon at the time the contract of sale is made: s 3(1). or 2. unless otherwise agreed. the risk lies with the title-holder: s 23(1). The transfer of possession to the sub-purchasers put an end to the buyers' right of rejection notwithstanding that it took place before a reasonable time for examining the goods had expired  Where the buyer. The general rule. (a) General rule Unless otherwise agreed. refuses to accept the goods. being either inconsistent with their ownership at the time of such transfer of possession in one view of the contract. in accordance with his/her rights. retention of title clauses are an exception. so that the sellers had no ownership with which the sub-sales could be inconsistent Held:  The transfer of the possession to the sub-purchasers was an act inconsistent with the ownership of the sellers. 3. 2. Unascertained – those sold under description where no particular goods were identified and agreed upon. it is sufficient if the buyer intimates to the seller that he or she refuses to accept them: s 38. Allocation of Risk for Loss Consider: 1.passed to them. the buyer is not bound. Allied Mills v Gwyder Valley Oilseeds [1978] 2 NSWLR. However.

In Bodilingo v Webb Projects (1990) ASC 56-001. and the fifth to unascertained goods. (A) Rule 1 – unconditional contract for sale of specific goods When there is an unconditional contract for the sale of specific goods in a deliverable state. is or are postponed: Rule 1. the property does not pass until such thing is done and the buyer has notice thereof: Rule 2. (B) Rule 2 – specific goods in undeliverable state When 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. no property in the goods is transferred to the buyer unless and until the goods are ascertained: s 19. or does any other act adopting the transaction. Goods are said to be in a deliverable state when they are in such a state that the buyer is bound under the contract to take delivery of them. test. or both. computers and other equipment provided for the purchase price to be paid by a deposit of $10k and the balance of $360k by ten monthly instalments. (D) Rule 4 – goods delivered on approval Per Rule 4(1). regard is to be had to the terms of the contract. and the circumstances of the case: s 20(2). If the goods are ascertained. Accordingly. and 2. Tarling v Baxter [1827] 6 B&C 360. and it is immaterial whether the time of payment or the time of delivery. Bodilingo v Webb Projects (1990) ASC 56-001. The first three rules apply to contracts for specific goods. the property in them is transferred to the buyer at such time as the parties to the contract intended it to be transferred: s 20(1). or do some other act or thing with reference to the goods for the purpose of ascertaining the price. the fourth to specific or unascertained goods. The NSWCA held that. the property in the goods passes to the buyer when the contract is made. the property does not pass until such act or thing is done and the buyer has notice thereof: Rule 3. since there was no contrary intention in the contract. Unless a different intention appears. measure. For the purpose of ascertaining the intention.There are two key rules: 1. s 21 establishes 5 rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. (C) Rule 3 – specific but unpriced goods When there is a contract for the sale of specific goods in a deliverable state. a contract for the sale of office furniture. the conduct of the parties. If the goods are unascertained. the seller was not entitled to recover the goods when the buyer became insolvent after payment of the fifth instalment and thereby unable to pay the balance of the purchase price in full. property passes to the buyer under Rule 1 at the time when the contract was made. 31 . but the seller is bound to weigh. when goods are delivered to the buyer on approval or ‗on sale or return‘ or other similar terms the property therein passes to the buyer— (a) when the buyer signifies the buyer‘s approval or acceptance to the seller.

 The plaintiff sued for damages for breach of the implied condition of merchantable quality and the defendant counterclaimed for the price of the kidneys.  Around 11am the carrier noticed that some of the cartons on the pavement were dripping.e. and does not reserve the right of disposal.  Accordingly. Held:  Property in the cartons of kidneys. the seller may. What is a reasonable time is a question of fact: Rule 4(2). Such assent may be express or implied.  The carrier handed over the delivery note and loading commenced but was not completed until 12 noon. Wardar’s (Import & Export) v W Norwood [1968] 2 QB 663 Facts:  The plaintiff wholesaler agreed to buy 600 cartons of frozen ox kidneys from the defendant importer.  Cooling of the lorry was not effective until 1pm  The carrier delivered the cartons to Scotland where the kidneys were found to be unfit for human consumption. the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer. if a time has been fixed for the return of the goods. In such case. the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled: s 22(1A). notwithstanding the delivery of the goods to the buyer or to a carrier. if no time has been fixed. on the expiration of a reasonable time. the property in the goods passes to the buyer when goods of that description and in a deliverable state are unconditionally appropriated to the contract. by the terms of the contract or appropriation (i. either by the seller with the assent of the buyer. When. a Romalpa/retention of title clause). and may be given either before or after the appropriation is made: Rule 5(1A). and therefore the risk of their deterioration. (d) Exception – reservation of right of disposal In a contract for the sale of specific goods or a later appropriation of unascertained goods to the contract. the seller is deemed to have unconditionally appropriated the goods to the contract: Rule 5(2).  When the plaintiff‘s carrier arrived at the cold store at 8am he found the cartons stacked on the pavement outside. on the expiration of such time. passed to P on the carrier handing over the delivery note at the cold store. and. reserve the right of disposal of the goods until certain conditions are fulfilled: s 22(1).  The carrier did not turn on the refrigeration unit in his lorry until 10am. 32 . then. in pursuance of the contract.  The cartons were held in a cold store. or by the buyer with the assent of the seller: Rule 5(1). P‘s action failed and P was liable for the price of the kidneys.(b) if the buyer does not signify the buyer‘s approval or acceptance to the seller but retains the goods without giving notice of rejection. (E) Rule 5 – contract for unascertained goods by description When there is a contract for the sale of unascertained or future goods by description.

in breach of the clause. and was thus not rendered void against the liquidator by s 266. 33 .  One of Tasman's customers was Eaglehawk Inn (Eaglehawk).  That was not the case. did not put the proceeds into the trust account.269. but until the purchase price was paid.  S 266 of the CA provided that an unregistered charge was void against the liquidator or administrator of a company.An appropriately worded retention of title clause enables the seller to recover the goods (or the proceeds of any resale) in the event of the buyer‘s insolvency by preventing the goods from becoming part of the property or assets of the buyer available for distribution among the buyer‘s other creditors: Romalpa Aluminium [1976] 1 WLR 676. Hardy Wine v Tasman Liquor Traders (2006) 95 SASR 21. Rondo Building Services v Casaron [2003] 2 Qd R 558. the clause was not activated and the guarantor‘s obligation was not discharged. Hardy Wine v Tasman Liquor Traders (2006) 95 SASR 21 Facts:  Hardy supplied wines and other liquor to Tasman. the buyer acted as agent for the seller when selling the goods. and that there was therefore nothing to guarantee.  Therefore. Such part shall be deemed to equal… the amount owing by the [buyer] to the [seller] at the time of the receipt of such proceeds‘. Associated Alloys (2000) 202 CLR 588 Facts:  A Romalpa clause in a contract of sale provided as follows: ‗In the event that the [buyer] uses the goods… in some manufacturing… process… then the [buyer] shall hold such part of the proceeds of such manufacturing… process… as relates to the goods… in trust for the [seller]. and Tasman would invoice Eaglehawk.  Hardy included a delivery docket with each dispatch of goods to Eaglehawk.  The debt owing by the buyer was guaranteed by the respondent (who was not the buyer). The Romalpa clause could be effective to create a trust over the proceeds in the amount owing to the seller. Held:  The buyer‘s obligation to pay the purchase price would not be discharged until the full price was held in that separate account. Associated Alloys (2000) 202 CLR 588. on the facts.  However.  The terms of trade as set out in the 1997 credit application and invoices rendered included a clause providing that property did not pass from Hardy to Tasman until payment.  The court also indicated that it was an implied term of the contract that the buyer‘s debt to the seller would be discharged by the constitution of a trust under the Romalpa clause.  The buyer. and arrangements between Hardy and Tasman were changed in 1999 or 2000 such that Hardy would deliver goods directly to Eaglehawk.75. Rondo Building Services v Casaron [2003] 2 Qd R 558 Facts:  A Romalpa clause provided that the buyer of goods was permitted to sell them.  The guarantor argued that the clause discharged the debt. an essential precondition for the creation of the trust under the Romalpa clause. each delivery docket including a retention of title clause in favour of Hardy.  Under the arrangement Hardy would invoice Tasman.  As at the date that Tasman was placed in administration there were eight unpaid invoices for goods delivered by Hardy to Eaglehawk totalling $282.  Tasman's invoices to Eaglehawk also contained a retention of title clause.  The clause also provided that the proceeds of sale would be held in a separate account in trust for the buyer. Held:  The trust created by the Romalpa clause did not constitute an unregistered charge. the seller had not established that the buyer had received the ‗proceeds‘ of the manufacturing process.

34 .     (b) Exceptions? There are 3 exceptions: 1. the invoices and the delivery dockets should be given full effect. without the knowledge of the seller. in its invoices to Tasman. the agreement is avoided: s 10. The change in arrangements in 1999 or 2000 did not lead to a change to the terms of retention of title clause. 2. Alternatively. there is no ground for avoidance of the agreement and the seller would be required to find other goods to tender in the performance of the contract. Indivisible contracts. and in the delivery dockets accompanying the goods delivered to Eaglehawk. Tasman was the bailee of the Eaglehawk Goods and liable to account as bailee. Hardy intended and Tasman accepted that Hardy retained title as against Tasman to the Eaglehawk Goods until payment. Eaglehawk was accordingly on notice that Hardy claimed that it retained property in the goods until payment was received by Hardy. Fault. Specific. and 3. In the circumstances the retention of title clause was operative. If necessary the court would conclude that there was an implied term to the credit agreement and to the Eaglehawk Agreement that the change of delivery arrangement did not adversely affect the Hardy retention of title clause. the contract is void: s 9. NOTE: if the stock from which a seller intended to fulfil a contract of sale of unascertained goods has perished at the time of the contract of sale. Hardy was acting for Tasman as agent in delivering direct to the sub-purchaser. Hardy acted as the agent of Tasman in effecting delivery to Tasman's sub-purchaser. Appeal allowed. perished goods When there is a contract for the sale of specific goods and the goods. perish before the risk passes to the buyer. (i) Non-delivery at fault of either party When delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault: s 23(2).constructive possession was sufficient. When there is an agreement to sell specific goods and subsequently the goods. The express terms of the retention of title clause as set out in the credit agreement. perished goods. It did so as a term of the credit agreement with Tasman. have perished at the time when the contract is made. Held:   Hardy appealed against the trial judge's refusal to make declarations that title to the goods remained with Hardy. Tasman obtained constructive possession of the Eaglehawk Goods and made constructive delivery to Eaglehawk. without any fault on the part of the seller or buyer. Allied Mills v Gwydir Valley Oilseeds [1978] 2 NSWLR 26. There is no reason to suppose that the change of place of delivery from Tasman's premises to Eaglehawk's premises meant that the parties changed their express agreement as set out in the credit agreement and the invoices. (ii) Specific. The delivery into the physical possession of Tasman was not necessary -. Hardy gave notice through its documentation that it retained title to the Eaglehawk Goods until payment in full had been made.

 The borrower purported to sell the vehicle to the appellant motor dealers. 2. the financier wrote a letter to the borrower stating that the loan had been finalized and that the financier no longer had an interest in the vehicle. even carelessly.  The financier sued the motor dealers in conversion for the value of the vehicle. expressly or impliedly.  The appellant motor dealers therefore acquired a good title to the vehicle. Estoppel. Sales by a seller or buyer in possession after the sale. Title of Transferee Generally.  The latter. However. and 4. Lane & Ballard v Phillip Phillips & Co [1929] 1 KB 574 (591 of 700 bags of nuts delivered.  In fact.(iii) Indivisible contracts A contract for the sale and delivery of an indivisible parcel of goods may be avoided if part of the goods is not forthcoming: Barrow. there are 4 exceptions: 1. only two of 48 payments had been paid in reduction of the loan. estopped) by its conduct from denying the borrower‘s authority to sell the vehicle. An estoppel may operate where the owner permits the goods to go into the possession of a person in circumstances which make it appear that such person has authority to sell the goods: Big Rock v Esanda Finance (1992) 10 WAR 259. by a search of the Register of Encumbered Motor Vehicles established under WA legislation. Sales by persons having voidable title. Merely parting with possession of goods. Big Rock v Esanda Finance (1992) 10 WAR 259 Facts:  The respondent financier lent money to a borrower on the security of a mortgage over a motor vehicle. the transferee of goods cannot obtain a better title to such goods than that of the transferor (nemo dat): s 24(1). Sales by a mercantile agent or under special powers of sale. 3. k indivisible). there must have been conduct which. amounts to an unambiguous representation: Thomas v Marac Finance (1985) 3 NSWLR 452. Held:  The respondent financier was precluded (i. (a) Estoppel The nemo dat principle does not apply where the owner of the goods is by the owner‘s conduct precluded from denying the seller‘s authority to sell: s 24(1). PS suggests that silence would only amount to a representation if it were in the face of a very specific question. ascertained the existence of the financier‘s mortgage but relied on the letter as supporting the borrower‘s claim that the mortgage debt had been paid in full. 35 .  By mistake.e. will not itself raise an estoppel against the true owner. 4.

Sale by buyer in possession. the original seller must be lawfully entitled to sell the goods: Ford Credit Australia v Auto Trade Auction [1982] VR 795 (sale in breach of the agreement). continues or is in possession of the goods (or of the documents of title to the goods) the delivery or transfer by the seller of the goods or documents of title under any disposition to a person receiving them in good faith and without notice of the previous sale. but the title has not been avoided at the time of the sale. see also Pacific Motor Auctions v Motor Credits (Hire Finance) [1965] AC 867. the bona fide purchaser of goods from a buyer who obtained possession of the goods with the consent of the original seller obtains a good title to them: s 27(2). that is. notwithstanding that the principal may have revoked the agent‘s authority to sell. Sale by seller in possession. such person obtains good title to the goods. 36 . the original purchaser: s 27(1). This would apply to title gained by fraud. (d) Sale by seller or buyer in possession after sale Distinguish between: 1. the buyer acquires good title to the goods provided he or she buys them in good faith and without notice of the seller‘s defect of title: s 25. and 2. (ii) By buyer Similarly. However.g. Sales made under any special common law or statutory power of sale (e. having sold goods. (i) By seller When a seller. sheriffs enforcing a judgment.(b) Mercantile agent or special power When goods are sold by a mercantile agent to a person who takes them bona fide. Notice here means actual. but not in the case of outright theft: Phillips v Brooks Ltd [1919] 2 KB 243 (fraud). see also Gamer’s Motor Centre v Natwest (1987) 163 CLR 236. The purchaser bears the burden of proving that he/she does not have notice of the rights or the original seller. has the same effect as if the transaction was authorised by the owner. unless there was something so obviously suspicious such as to put the purchaser on inquiry: Robinson Motors v Fowler [1982] Qd R 374. innkeepers and landlords) also pass the title to the buyer. not constructive notice. (c) Sale under voidable title Where the seller of goods has a voidable title.

the unpaid seller may exercise the right of retention on the remainder. The buyer. 4. Per s 42(1). the seller of goods is deemed to be an unpaid seller where: 1. (a) Lien An unpaid seller has a right to retain the goods for the price while the unpaid seller is in possession of them: s 41(1)(a). (a) Unpaid seller Per s 40. Per s 44(1). 37 . Stoppage of goods. The bill of exchange or other negotiable instrument has been received as conditional payment. Remedies for Breach of the Contract The SGA deals separately with the remedies of the: 1. Buyer. and/or (c) when the buyer becomes insolvent. the unpaid seller of goods loses the right of retention— (a) when the unpaid seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods. → determine whom you are advising. Unpaid seller. The seller may exercise the right of retention notwithstanding that the seller is in possession of the goods as agent or bailee for the buyer: s 42(2). Withholding delivery. or 2. 3. A lien. unless such part delivery has been made under such circumstances as to show an agreement to waive that right: s 43. the unpaid seller may exercise their lien where: (a) when the goods have been sold without any stipulation as to credit.5. and 2. 2. (i) The goods The unpaid seller may have any one of the following rights against the goods: 1. and 2. The goods. (b) when the goods have been sold on credit. Resale. but the term of credit has expired. When an unpaid seller has made part delivery of the goods. and the condition has not been fulfilled by reason of the dishonor of the instrument or otherwise. The unpaid seller has remedies against: 1. The whole of the price has not been paid or tendered.

unless such part delivery has been made under such circumstances as to show an agreement to give up possession of the whole of the goods.(b) when the buyer or the buyer‘s agent lawfully obtains possession of the goods. the transit is deemed to be at an end. 45. until the buyer. or the buyer‘s agent in that behalf. (5) When goods are delivered to a ship chartered by the buyer it is a question depending on the circumstances of the particular case. or the buyer‘s agent. (c) Stoppage in transit When the buyer of goods becomes insolvent. whether they are in the possession of the master as a carrier or as agent to the buyer. the carrier or other bailee acknowledges to the buyer. in addition to the unpaid seller‘s other remedies. (7) When part delivery of the goods has been made to the buyer. a right of withholding delivery similar to and coextensive with the unpaid seller‘s rights of retention and stoppage in transitu when the property has passed to the buyer: 41(2). 38 . and/or (c) by waiver thereof. the unpaid seller has. (2) If the buyer or the buyer‘s agent in that behalf obtains delivery of the goods before their arrival at the appointed destination. must be in the course of transit). takes delivery of them from such carrier or other bailee. (ii) Are the goods in transit? Per s 46: (1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier by land or water. (i) Has the unpaid seller parted possession? See facts. the transit is at an end. (3) If. for the purpose of transmission to the buyer. and it is immaterial that a further destination for the goods may have been indicated by the buyer. that the carrier or other bailee holds the goods on the buyer‘s behalf and continues in possession of them as bailee for the buyer or the buyer‘s agent. (b) Withholding delivery When the property in goods has not passed to the buyer.e. This is typically used where the seller hears about the insolvency of the buyer after he has passed possession to a carrier. This right is similar to and equally extensive with the unpaid seller‘s right of lien in cases where the ownership has passed to the buyer. or other bailee. the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit (i. even if the seller has refused to receive them back. the transit is not deemed to be at an end. or the buyer‘s agent in that behalf. and retaining them until payment or tender of the price: ss 41(1)(b). after the arrival of the goods at the appointed destination. resuming possession. the remainder of the goods may be stopped in transitu. (4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them. (6) When the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or the buyer‘s agent in that behalf. the transit is at an end.

then: 1. Conversely.g. and 2. The seller exercises the right of lien or stoppage in transitu and gives notice to the buyer of their intention to resell. The exercise of the right of resale in the first two cases has the effect of rescinding the contract of sale and the seller is entitled to recover damages from the original buyer for any loss occasioned by the latter‘s breach of contract: RV Ward v Bignall [1967] 1 QB 534. the unpaid seller has a right of resale of the goods where: 1. and the price is not paid or tendered within a reasonable time. may communicate it to the principal‘s servant or agent in time to prevent a delivery to the buyer. (1B) In the latter case the notice. must be given at such time and under such circumstances that the principal. However. unless the seller has assented thereto: s 48(1). 2. (d) Resale Per s 49. the seller would not have to account to the original purchaser for any profit made on the resale. or according to the directions of. to be effectual. or by giving notice of the unpaid seller‘s claim to the carrier or other bailee in whose possession the goods are. by the exercise of reasonable diligence. if such last mentioned transfer was by way of sale – the unpaid seller‘s right of retention or stoppage in transitu is defeated. per s 48(2). (1A) Such notice may be given either to the person in actual possession of the goods or to the person‘s principal. or other bailee in possession of the goods. the seller. if such last mentioned transfer was by way of pledge or other disposition for value – the unpaid seller‘s right of retention or stoppage in transitu can only be exercised subject to the rights of the transferee. (iv) Defeat of stoppage in transitu The unpaid seller‘s right of retention or stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made. (2) When notice of stoppage in transitu is given by the seller to the carrier. 39 . (3) The expenses of such re-delivery must be borne by the seller. termination (for breach of condition) and re-sale without notice: Wherry v Watson (1991) ASC 56-048. The goods are of a perishable nature. the carrier or other bailee must re-deliver the goods to.(iii) Effection of stoppage in transitu Per s 47: (1) The unpaid seller may exercise the right of stoppage in transitu either by taking actual possession of the goods. The seller has expressly reserved a right of re-sale in case the buyer should make a default. The unpaid seller‘s right of resale is additional to other general contractual remedies e. where a document of title to goods has been lawfully transferred to any person as buyer or owner of the goods. and that person transfers the document to a person who takes the document in good faith and for valuable consideration. if the sale realizes more than the original contract price. or 3.

prima facie. (ii) The buyer The unpaid seller also has rights against the buyer for: 1. the difference between the contract price and the market or current price at the time the goods ought to have been accepted: s 50(3).  Dishonour entitled the defendant to terminate the contract and sell the vehicle to P2. The expression contemplates a continuous market for a commodity by always subject to fluctuation according to the rise and fall of the market: Eclipse Motors v Nixon [1940] VLR 49. 000. Held:  Due payment of the deposit by P1‘s cheque being met was an essential term of the contract. D agreed to sell the vehicle to P2 for $37. (a) Price Recall that delivery of the goods and payment of the price are ordinarily concurrent conditions. and 2. Where the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods. the seller may sue the buyer for the price: s 50(1). Price.  Both Ps claimed an order for specific performance of their respective contracts for the purchase of the vintage car. 40 . 000 and gave D a cheque for $3000 as a deposit. Eclipse Motors v Nixon [1940] VLR 49.  The cheque was dishonoured because of an administrative error on the part of P1‘s bank. when the price is payable on a certain day irrespective of delivery. (b) Damages On a buyer‘s non-acceptance of the goods.Wherry v Watson (1991) ASC 56-048 Facts:  P1 agreed to buy D‘s 1963 Bentley for $35.  A day after dishonor. the seller cannot sue for the price of the goods: Colley v Overseas Exporters [1921] 3 KB 302. and the buyer wrongfully neglects or refuses to pay such price. (ii) If yes… Where there is an available market for the goods in question the measure of damages is. (i) Is there an available market for the goods? An available market is one that is available from day to day in which the goods might be sold at a then current price or at the will of the vendor. Further. Where there is no special agreement as to the payment of the price and the property in the goods has not passed to the buyer. the seller may maintain an action for the price. although the property in the goods has not passed: s 50(2). the seller may recover the estimated loss directly and naturally resulting in the ordinary course of events from the buyer‘s breach of contract: s 51(1)-(2). Damages.

The contract is for specific goods and the property in them has passed to the buyer: s 14(3). 3. See above re acceptance and transfer of title. 2. 830. Repudiation.  However. The buyer has waived the breach of condition or elected to treat it only as a breach of warranty: s 14(1). However.  The question arose whether K was entitled to recover from M $90 (the difference between the original contract price with M and the resale price) or the full loss of profit of nearly $870 on the basis that K could have sold two hay-balers instead of one. the seller is generally entitled to damages in the amount of their loss of bargain: W L Thompson v Robinson [1955] Ch 177 (profit would have made). 41 . 2. (b) Remedies of the buyer The buyer‘s remedies are: 1. The right of repudiation may be lost to the buyer where: 1.  K sold it to another customer for $4. where it appears that the seller did not have a replacement for the particular goods sold to the buyer. Damages. the difference (if any) between the price agreed to be paid by the original buyer and the price at which the goods were resold: Kargotich v Mustica [1973] WAR 167. (i) Repudiation The buyer is entitled to rescind the contract and reject the goods where there is a breach of a condition: Koompahtoo v Sanpine (2007) 233 CLR 115. The contract of sale is not severable and the buyer has accepted the goods or part of them: s 14(3). the seller is only entitled to recover for the loss which they suffer on the resale of the goods. Specific performance. Chao v British Traders [1954] 1 All ER 779. that is. or 3. NOTE: that there is a duty to mitigate loss. even though had used). The buyer can also recover the purchase price paid if there has been a total failure of consideration: Rowland v Divall [1923] 2 KB 500 (TFC where buyer of car in fact had no title. Lazenby Garages v Wright [1976] 1 WLR 459 (2nd hand car).(iii) If no… Where there is no available market. 290. Held:  K was only entitled to recover $90 since he had not shown that he could have obtained a second hay-baler and hence made a second sale. M refused to accept the machine.  K‘s profits on the sale would have been nearly $870. Kargotich v Mustica [1973] WAR 167 Facts:  M agreed to buy a new hay-baling machine from K for $4.

Bostock v Nicholson [1904] 1 KB 725. not where the claim is for damage caused by the goods.(ii) Damages Damages may be appropriate where: 1. where such purpose was made known to the sellers at the time of the 42 . in the ordinary course of events. However. However. o The value of the other materials spoilt in the manufacture of the glucose. The measure of damages for breach of warranty is the estimated loss directly and naturally resulting. and o The damages they were liable to pay to the brewers. Non-delivery. with the result that the beer made by the brewers who had purchased the glucose from the Ps poisoned a large number of people.  Consequently. Bostock v Nicholson [1904] 1 KB 725 Facts:  Ds contracted to sell Ps sulphuric acid commercially free from arsenic. o The damages which had to be paid to the brewers – as the special circumstances surrounding the purpose of the contract had not been communicated to D. the sulphuric acid contained arsenic. Held:  Ps were only entitled to recover for: o The price paid for the acid. the damages were not within the contemplation of the parties within the meaning of the rule in Hadley v Baxendale. to treat a breach of a condition on the part of the seller as a breach of warranty. from the breach of warranty: s 54(2). or (b) maintain an action against the seller for damages for the breach of warranty. (a) Breach of warranty of quality When there is a breach of warranty by the seller. this is only appropriate where the buyer‘s claims is in respect of the actual defect in the goods. o Loss of goodwill. namely.  Ps in turn claimed damages from Ds as follows: o The price paid for the acid. and o The value of the goods rendered useless by being mixed with the poisonous acid. the buyer may: (a) set up against the seller the breach of warranty in diminution or extinction of the price.  In breach of the implied condition of correspondence with description in the contract. The chain of contracting parties may in some cases be followed in order to calculate the damages for breach of warranty in supplying goods not fit for the purpose for which they were sold.  Ps were not entitled to damages for: o The loss of goodwill – this did not arise directly from the act of the defendants but arose from the act of the Ps in selling the poisonous glucose to the brewers. Ps were liable to pay damages to the brewers.  Ps used the acid in the manufacture of glucose which was sold to brewers. or when the buyer elects. or is compelled. the buyer is not by reason only of such breach of warranty entitled to reject the goods: s 54(1). and/or 2. Such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value which they would have had if they had answered to the warranty: s 54(3). There is a breach of warranty of quality. per s 54(1).

It is the duty of the buyer to mitigate their loss where possible. (b)Non-delivery When the seller wrongfully neglects or refuses to deliver the goods to the buyer the buyer may maintain an action against the seller for the estimated loss directly and naturally resulting. sold to C. in the ordinary course of events. if it thinks fit. on the application of the plaintiff. Hydraulic Engineering v McHaffie (1879) 4 QBD 670. then at the time of the refusal to deliver: s 52(3). 43 . From this was deducted any amount obtained on the sale of the rejected machine. In Hydraulic Engineering v McHaffie (1879) 4 QBD 670. D to E and E had one attached to a coat and sold it to F who wore the coat with the fur attached.  E claimed the amount he paid F together with his costs from D. The third party refused to take delivery because of unreasonable delay and. without giving the defendant the option of retaining the goods on payment of damages: s 53(1). from the seller‘s breach of contract: s 52(1)-(2). the buyer notified the seller that he or she required a particular ‗gun‘ for a pile driver that had to be delivered to a third party within a specified period. having made the collars. and there is no available market for the goods in question: Hadley v Baxendale (1854) 9 Exch 341.  F developed dermatitis caused by the presence of antimony in the dyed skin and sued E for damages and was successful with costs. o The costs of both sides of that action. if no time was fixed. and the manufacturers were aware of these circumstances. When there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered. as the gun was useless to anyone else except as iron. (iii) Specific performance In an action for breach of contract to deliver specific or ascertained goods the court may. and o A sum in respect of the costs incurred by B. and knew that B intended making them into fur collars. by its judgment direct that the contract shall be performed specifically. If there are special circumstances exacerbating the damage. but only if those circumstances were known to both parties. Kasler & Cohen v Slavouski [1928] 1 KB 78 Facts:  A sold some dyed rabbit skins to B.contract and it was within the contemplation of the parties that if there was a breach of contract damages would be claimed by parties separated by several contractual steps: Kasler & Cohen v Slavouski [1928] 1 KB 78. Held:  It was held that B was entitled to recover from A: o The damages awarded in the original action to F. a wholesale furrier. C and D respectively in connection with the claims against them.  C claimed from B and by this time the original £67 damages awarded to F had arisen to £699 by reason of successive costs.  B. their liability was the expenses incurred and the profit which would have been made upon the contract with the third party. the seller may be liable for those. who in turn claimed this amount plus his costs from C. C resold to D. or.

and the application by the plaintiff may be made at any time before judgment: s 53(2). payment of the price.The court will generally not do so unless the chattels are of a special kind: Dougan v Ley (1946) 71 CLR 142 (taxicab had a valuable privilege (taxicab licence) annexed to it). or upon such terms and conditions as to damages. The judgment may be unconditional. as to the court may seem just. and otherwise. 44 .

P found his locker to be empty. ‗Wheatsheaf: Covered Yard and Garage‘. Held:  The council was not a bailee since possession of the clothes had not passed to the council and had always remained with P.  P sued the council contending it was a bailee of his clothes and as such. Facts:  P paid a fee to hire a locker in the D-council‘s dressing sheds at Bondi Beach.BAILMENT A bailment is a delivery of goods from one person (the bailor) to another (the bailee) on a condition.  The council merely let the locker to P and this did not give rise to a duty of care. Distinction between bailment and licence The requirement that there be a transfer of possession distinguishes the relationship of bailor and bailee from that of licensor and licensee. Ashby v Tolhurst [1937] 2 KB 242.  On returning from the Beach. Greenwood v Council of the Municipality of Waverly (1928) 28 SR (NSW) 219. 45 . the goods will be returned to the bailor or delivered according to their instructions. Zweeres v Thibault (1942) 138 ALR 1131. However.  The area was approached through double gates which were standing open at the time but could be closed and locked. that when the purpose for which the goods were bailed has been fulfilled.  P put his clothes in the locker and ensured it was locked. but 2. Parking lots The English courts have tended to regard the leaving of a car in an attended parking station as merely creating a relationship of licensee and licensor: BG Transport v Marston Motor Co [1970] 1 Lloyd‘s Rep 371. Is There a Bailment? To constitute a bailment there must be: 1. Facts:  P called in for a drink at the D‘s public house. leaving his motorcycle in the adjacent yard. NOTE: money cannot usually be the subject of a bailment as the transferor does not intend to receive the exact same money back. A bailment may be more readily implied where the land-owner initiates the transfer of possession: Ultzyen v Nichols [1894] 1 QB 92 (waiter took P‘s coat to hang up). Tinsley v Dudley [1951] 2 KB 18. it may be where there is such an intention: Brambles Security v Bi-Lo (1992) Aust Torts Reports 81-161 (security firm used to deliver exact money to bank). 1. owed him a duty of reasonable care. No intention by the bailor to transfer ownership.  Across them were painted the words. A mere licence or permission to use particular premises or facilities for the purpose of temporarily leaving or storing goods does not involve a transfer of possession: Greenwood v Council of the Municipality of Waverly (1928) 28 SR (NSW) 219. A transfer of possession of goods. either express or implied. Tinsley v Dudley [1951] 2 KB 18.

. No attendant. of itself. In Ashby v Tolhurst [1937] 2 KB 242. a bailee may become so involuntarily or subconsciously: AUX v EGM Solders (1982. Sub-bailment A sub-bailment arises whenever a bailee transfers possession to a third party for a limited period or a specific purpose. A defendant who imposes stringent security precautions to prevent the evasion of charges is more likely to find himself responsible for the vehicles on his premises than the operator who lacks such a system and works on a more haphazard basis. Unreported. 46 . P was separated from his motorcycle for nearly two hours. Subconscious bailment As the relevant intention is that of the bailor. which he had received on entry. be of particular relevance. Held (Asprey JA):  ‗The steps to be taken to enable the plaintiff to regain physical possession of its motor car from the defendant‘s building involved more than its removal by simply driving it away.  The method of restoring control to the owner: Walton Stores v SCC (1968) 88 WN (NSW) 153. Each case will be determined on its facts. The layout and security of a car-park or other premises may be a relevant factor: Ashby v Tolhurst [1937] 2 KB 242 (Crt attached some importance to the fact that the site was open and accessible on two sides).. Just a bare block of land. no security.‘   Fee and charges – that P is charged for leaving his chattel on D‘s premises will not. D not liable for the theft of the machine. HELD: mere licence. on the understanding (express or implied) that his own position as bailee is to persist throughout the subsidiary disposition: Palmer (1991). Straughton J). It had never been delivered into D‘s possession. It may be that the defendant did not have a lien at common law upon the vehicle for parking charges.g. before the car would be released. It is not the effectiveness of the procedures so much as the intention behind them. See below re duties. Some relevant factors the courts have taken into account include:  Transfer of the means of access to or control over the chattel e. where the keys have been left in the ignition or handed over to an attendant the courts have found a bailment to exist: Shorter’s Parking Station v Johnson [1963] NZLR 135. Facts:  The case involved a car parked in a multi-storey car park. the owner of a car left it on another‘s land and paid one shilling. Walton Stores Ltd v Sydney City Council (1968) 88 WN (NSW) 153. no exchange of keys. and for some of that time was not drinking at the inn. Australian courts are more disposed to find that there is a transfer of possession. Its removal required a bilateral transaction in the terms of the document.  P was required to produce a ticket. not a ―car park‖ in the usual sense.  Held:   There was no fee to be paid and no attendant on duty. but the contract which regulated the legal relationship of the parties plainly evinced their intention that the holder of the card or ticket had either to pay or tender payment of the amount of the charges for the storage of the vehicle before he was entitled to demand possession of it. However.

the Carriage of Goods by Land (Carrier’s Liabilities) Act 1967 (Qld) effectively abolished the special status and responsibilities of a common carrier by road within the state. Re Jones (1947) 64 WN (NSW) 215. 47 .  The Civil Aviation (Carriers’ Liability) Act 1959 (Cth) gives effect to the Warsaw convention. a lodger is one who arranges for accommodation for a definite period at an agreed rate. Daniel v Hotel Pacific Pty Ltd [1953] VLR 447. However. whilst liability is strict. A motel is such a common inn: Turner v Qld Motels [1968] Qd R 189. (a) Common carriers A common carrier of goods is one whose business it is and who holds themselves out as willing to carry goods from place to place for anyone who thinks fit to employ the carrier: James v Cth (1939) 62 CLR 339. common carriers have particular duties and liabilities as bailees.2. tort and contract. (b) Innkeepers An innkeeper is a person who holds themself out as providing accommodation for travellers in the course of their journeys. Is There a Special Type of Bailment? There are two relevant types of special bailment: 1. Although the usual rules about bailee liability (below) apply. the strict liability of an innkeeper for the goods of a guest does not apply in respect of the goods of a lodger or boarder: Ex parte Coulson. At common law. Daniel v Hotel Pacific Pty Ltd [1953] VLR 447: Facts:  The plaintiff booked accommodation in advance at the defendant‘s hotel at a holiday resort. Irving v Heferen [1995] 1 Qd R 255. However. At common law innkeepers are insurers of the goods of their guests and may be liable for loss even in the absence of negligence on their part: Williams v Linnitt [1951] 1 KB 565.  s 72 Australian National Railways Commission Act 1983 (Qld): Commission is not a common carrier.  Carriage of Goods by Sea Act 1991 (Cth). the innkeeper is liable only for damage to the goods of a guest where such damage was caused by negligence on the part of the innkeeper or the inkeeper‘s employees: Winkworth v Raven [1931] 1 KB 652. Although this was repealed in 1993. Innkeepers. Common carriers. the preferred position remains that the liability of bailment will be determined by the general principles of bailment. NOTE also the following statutory interventions regarding common carriers:  s 137 Transport Infrastructure Act 1994 (Qld): the State railway authority is not a common carrier.  P subsequently arrived at the hotel where he claimed the accommodation on the terms of the prior booking. and 2. Whereas a person who stays at an inn or hotel who retains the character of a traveller is a guest.

During the night. P. the relevant limitation of liability is $50. As the law of bailment is residual. any contract will govern the relationship to the extent it covers the issue in dispute. Further.000: s 14. An innkeeper can still be strictly liable. Where there is no contract. and statutory obligations regarding consumers. the residual law of bailment applies: Brambles Security v Bi-Lo (1992) Aust Torts Reports 81-161. The hotel. but only to an amount of $250 per room per day: s 12. (iii) If k n/a → residual law of bailment. The lien attaches to the goods of a traveller or guest which are situated in the inn and gives the innkeeper the right to take to goods peaceably into their possession and retain them until the debt is paid. The Traveller Accommodation Providers (Liability) Act 2001 (Qld) modifies the common law position. The bailee. Actions Against the Bailee(s) It is relevant to consider actions against: 1. or the contract does not apply to the matters in dispute. (a) Duties of bailee (i) Is there a k between the parties? A contract is not necessary to create a bailment. 48 . as a bailee. It is also necessary to consider: exemption of liabilities.    Held:   Without the booking. but parties in a relationship of bailment will frequently be in a contractual relationship. Any sub-bailee. P was not a guest but a lodger and therefore the hotel was not strictly liable for the loss of P‘s money. However. and 2. in the case of property accepted for deposit in safe custody. Lord Holt‘s 7 categories of bailment in Coggs v Bernard (1703) 2 Ld Raym 909 reflected a traditional distinction between the duties of a gratuitous bailee and a bailee for reward. thieves entered the hotel and stole the safe. Note that at common law an innkeeper has a lien on the goods of a traveller or guest upon a debt for accommodation or services being incurred by the guest. (ii) If k governs Apply contract. at the invitation of the defendant‘s employee. this limitation does not apply if loss is caused by fault of the accommodation provider or if various conditions relating to notice to guests of the statutory limitation of liability are breached: s 13(2). put his money in the hotel safe. 3. The safe was kept locked in the hotel office which was locked at night. P would not have been received at the hotel except in the event of a cancellation. owed P a duty to take reasonable care of goods entrusted to it but it was held that on the facts there had been no breach of duty.

Held:  The bailee was liable for breach of his duty to take reasonable care of the wool when it was destroyed in a fire deliberately lit by an intruder who had gained access to the wool store through the inadequate fencing. (b) If for reward It is well-established that there are three primary duties: 1. In Port Swettenham Authority v TW Wu & Co [1971] AC 580. the fencing around which was clearly inadequate to keep out intruders. As a bailee is not an insurer. Tottenham Investments v Carburettor Services (1994) Aust Torts Reports.  The keys were left in the ignition. HELD: a reasonable owner would have inspected more frequently and obtained veterinary assistance. Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994) Aust Torts Reports 81-292.  Following the break in D took steps to secure the premises. leaving the keys in the ignition did not of itself constitute a failure to take reasonable care.(a) Is the bailment gratuitous or for reward? See facts. (i) Care A bailee for reward has a duty to take such care as a careful and vigilant person would exercise in the custody of their own property: Nibali v Sweeting & Denney (WA) (1989) Aust Torts Reports 80-258. 49 . There was evidence that he did not do this for his own. In Cowper v JG Goldner (1986) 40 SASR 457. Held:  D was liable to P for the loss of the vehicle since they had failed to discharge the onus of establishing that they had taken reasonable care appropriate in the circumstances. Nightingdale v Tildsley. and 3. To take reasonable care of the property. In Nightingdale v Tildsley. Facts:  P left a valuable car with Ds for repair. Where the bailment is for work. the onus is upon the bailee to prove that such loss or damage was not the result of their failure to take reasonable care: Pitt Son & Badgery v Proulefco SA (1984) 153 CLR 644. that the bailee has the skill to do the work. 2. a failure to turn over a bailed motor vehicle caused it damage.  The precautions taken subsequent to the break in should have been in place earlier. a carrier allowed a mare to die of travel sickness. the bailee was liable despite good evidence of its general security systems as it did not prove that the specific goods were adequately cared for.  However. Re-delivery of the goods. Once the bailor proves a bailment relationship and that the goods were damaged. Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644. HELD: the bailee was not required to ‗turn over‘ the vehicle.  Overnight thieves entered D‘s premises and stole the car. the duty is not to take every conceivable or possible precaution to prevent the loss of goods. Cowper v JG Goldner (1986) 40 SASR 457. Port Swettenham Authority v TW Wu & Co [1971] AC 580. Facts:  The bailee stored bales of wool in an old timber building.

a motor dealer. which had been left with her for some 8 months.  In the end she was persuaded to allow the three strangers to tow the caravan away from her sales yard. even if they themselves were not negligent: Makower. Held:  Since she failed to deliver the goods and could not show that they had been lost without negligence or default on her part she was held liable for their value. Held:  Liable for misdelivery even if not negligent. watch repairer.  The appellant made some effort to communicate with the respondent by telephone but that attempt was unsuccessful. the bailee warrants that he or she possesses the technical skill and ability to do the work e.  As a gratuitous bailee.g. (b) If gratuitous Despite the traditional distinction.  The respondent sued the appellant to recover the value of the caravan and judgment was given in her favour. Graham v Voigt (1989) 89 ACTR 11. Graham v Voigt (1989) 89 ACTR 11.  The appellant was subsequently approached by three strangers who produced a copy of the document signed by the respondent when she delivered the caravan to the appellant and who claimed to be acting on the instructions of the respondent to remove the caravan. Facts:  This case was based on a claim that a landlady was liable for failing to return a former boarder‘s possessions. the landlady was bound to take reasonable care of the goods and to deliver them up on an unequivocal demand for their return being made. both in respect of:  the duty of care: WGH Nominees v Tomblin (1985) 39 SASR 117. a number of valuable stamp albums. McBeath & Co v Dalgety & Co [1921] VLR 365. on consignment. if the work is of the type which the bailee holds herself or himself out as skilled to do. (iii) Skilful completion of work In the case of delivery of a chattel for work to be done upon it for reward. McComb v Martin Box Marine (1992) 8 SR (WA) 193. the bailee will be liable for their loss. 50 . and  the duty to re-deliver the goods: Mitchell v Ealing London Borough Council [1979] QB 1.A bailee for reward is also vicariously liable for the negligence of their employees. A bailee for reward is also vicariously liable for an employee or agent who sells the goods entrusted to the bailee: Rick Cobby Haulage v Simsmetal (1986) 43 SASR 533. If the bailee delivers the goods to a third person other than in accordance with the bailor‘s express authority or mandate. Jackson v Cochrane [1989] 2 Qd R 23 Facts:  The respondent delivered her caravan to the appellant. the modern trend is for the courts to apply the same basic principle to both a bailment for reward and a gratuitous bailment. incl. (ii) Re-delivery A bailee‘s primary duty is to redeliver the goods to the bailor or as the bailor may direct. even in the absence of negligence: Jackson v Cochrane [1989] 2 Qd R 23.

be said to look remotely like solder spheres". by any stretch of imagination. the plaintiff and the second defendant entered into a contract under which the second defendant agreed to arrange for the transport of the machine from the plaintiff's premises to West Island.  The second defendant made a further contract with the first defendant. the plaintiffs returned 21 boxes of capacitors which were as the judge said "finished goods which could not. it cannot simply dispose of or otherwise destroy the goods: AUX v EGM Solders (1982. Unreported.  The defendants set about scrapping the capacitors in the mistaken belief that they were their own property and mixed them with the rejected solder spheres so that it became uneconomic to retrieve them. a sub-bailee owes to the bailor all the duties of the bailee: Palmer (1991). While in D‘s possession. 51 . for the first defendant to carry the machine from the Malaysian port. as well as returning the defective solder in one box. However.  B explained that he did not provide this service and. Facts:  The plaintiff carried on business as an importer and distributor of heavy earthmoving equipment and machinery. Straughton J). Held:  The sub-bailee was liable to the bailor for the unauthorised theft of the mink by their employee.  Title to the machine was not to pass until the machine had been delivered to the department. forwarded the mink to the D drycleaners who accordingly become sub-bailees. in Marcq v Christie Manson & Woods [2004] QB 286. although Ds had not themselves been negligent either in failing to take proper steps to safeguard the mink or in employing the particular employee. Westrac Equipment Pty Ltd v Owners of the Ship ‘Asset Venture’ (2002) 192 ALR 277. They therefore did not consider the case authority ‗for the proposition that an agent who receives goods from someone who is their apparent owner and later returns them to him owes any duty to their true owner to investigate title in the absence of anything to put him on inquiry. with P‘s consent. the mink was stolen by the employee entrusted with cleaning it. the English Court of Appeal suggested that the defendants in EGM Solders were negligent absent any relationship of bailment as they were put on inquiry that the goods might belong to someone else. Facts:  P sent her mink stole to a furrier for cleaning. Held:  Ds were liable as unconscious bailees whose duty before dealing with the goods was to "use what is in all the circumstances of the case a sufficient standard of care to ascertain that they truly" were their own goods. the bailee owes a duty to inquire as to the true owner.  By mistake. Morrise v CW Martin & Sons [1996] 1 QB 716.‘ (b) Duties of sub-bailees Notwithstanding the absence of contractual relationship between a sub-bailee and bailor. Port Kelang to Cocos. Westrac Equipment v Owners of the Ship ‘Asset Venture’ (2002) 192 ALR 277.Subconscious bailments In such cases. Unreported.  In October 1999. Morrise v CW Martin & Sons Ltd [1996] 1 QB 716. AUX v EGM Solders (1982. Straughton J) Facts:  The defendants had agreed to the return of defective spheres of solder which they had manufactured for the plaintiffs.  It contracted to supply a bulldozer to the Commonwealth Department of Transport at West Island in the Cocos (Keeling) Islands.

the sub-bailee can rely as against the owner on the terms of the contract between the bailee and the subbailee if the owner has expressly or impliedly consented to the bailee making a sub-bailment containing such terms. that the exemption clause was brought to the notice of the other party before or at the time the contract was made. 52 .(or sub-) bailee was under the same duty as that of a direct bailee and was liable to the plaintiff for the loss of the machine unless it could establish that it had taken reasonable care of the machine or that its failure to do so was not a cause of the loss. In the absence of a signed document. in bailment and in negligence.  During the course of the voyage the crew of the vessel of the first defendant noticed that the machine was no longer on board the vessel. Claims against the second defendant:  The second defendant contracted personally and as a principal with the plaintiff for carriage of the machine and not as an agent of the plaintiff authorised to enter contracts with sub-contractors on the plaintiff's behalf. a quasi. Causer v Browne [1952] VLR 1 (dry cleaning docket). However. Thus. An exemption clause may also be included by showing that the parties had intended to contract on the same basis as the terms used in a previous course of dealing which had included an exemption clause: Kendall v Lillico [1969] 2 AC 41.  Therefore. (i) Is the exemption clause incorporated into the k? If the clause was included in a contract signed by the other party the clause will be binding. In these circumstances.  The first defendant did not establish that it had exercised reasonable care in the carriage of the machine on the vessel and accordingly was liable to the plaintiff in bailment for the loss of the plaintiff's machine. (c) Exclusion of liability by bailees (or sub-bailees) A bailee may seek to limit or exempt their liability for negligence in a contract of bailment: Thomas National Transport v May & Baker (Aust) (1966) 115 CLR 353. and in negligence.(or sub-) bailment arises.  The first defendant as quasi. and against the second defendant for breach of contract. Thornton v Shoe Lane Parking [1971] 2 QB 163 (lengthy terms on back of ticket). in the absence of fraud or misrepresentation: Toll (FGCT) v Alphapharm (2004) 219 CLR 165. and 2. it was an implied term of the contract that the second defendant would exercise reasonable care of the plaintiff's goods in carrying out the contract and that negligence of a subcontractor would constitute a breach of that term. Held: Claims against the first defendant:  The first defendant had knowledge of the plaintiff's interest in the machine in the sense that it had notice that the second defendant was arranging carriage of the machine for a third party and was not the owner of the machine. the exemption clause must: 1. Cover the liability purported to be exempted. In an action by the owner of goods against a sub-bailee for loss of the goods. the first defendant was in breach of its duty of care to the plaintiff in negligence and that breach caused loss to the plaintiff. The plaintiff claimed damages for the loss of the machine against the first defendant in bailment. The question is whether steps were taken which were reasonably sufficient in the circumstances to give notice of the exemption clause to the other contracting party: Baltic Shipping Co v Dillon (1991) 22 NSWLR 1. Be incorporated into the contract. but not otherwise: Pioneer Container [1994] 2 AC 324.

000. they will not normally be construed as doing so in the absence of clear words to that effect: Canada Steamship Lines v The King. (d) Statutory obligations regarding consumers There is implied into every contract for the supply by a corporation of services to a consumer a warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied: s 74(1) TPA. An exemption clause will not protect a party that strays outside the four corners of the contract by doing something neither authorised nor permitted by the contract. (i. 53 . (a) Construction Exemption clauses are construed strictly and any ambiguity resolved against the person seeking to rely upon it (contra proferentum) rule: Wallis. Per s 4B(1)-(2). a ‗consumer‘ is someone acquiring goods where: 1.e. Son & Wells v Pratt & Haynes [1911] AC 394 (exclusion of liability for breach of warranty will not exclude liability for breach of condition). or 2. or 2. An appropriately worded exemption clause can exclude a party from liability for negligence. where it was never within the contemplation of the parties that the exclusion clause would apply to these circumstances): Sydney City Council v West (1965) 114 CLR 481 (car park attendant gave car to wrong person). Where that price is exceeded – the goods were of a kind ordinarily acquired for personal. it does not cover the alleged liability. ‗Fundamental breach‘ is no longer the basis for reasoning by the High Court which prefers to use a more sophisticated approach which looks at the meaning of the clause in the context of the contract as a whole. However. However. The price of the goods does not exceed $40. As a matter of construction. does it operate to exempt liability? An incorporated exclusion clause will not operate where: 1. the production of an absurd result may result in a reading down of the clause. domestic or household use or consumption or the goods consisted of a commercial road vehicle. (b) Fundamental breach It has been held that if the exclusion goes to the very heart of the bailment contract then it will be ineffective: Spurling-v-Bradshaw [1956] 2 All ER 121 (relied on exclusion clause to exempt liability where orange juice spoiled as a result of plainly negligent storage). There is a fundamental breach.(ii) If yes. TNT (Melbourne) v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353.

conversion. the bailor warned the bailee not to allow children near it. However. Actions Against Bailor There are two main duties of a bailor: 1. the bailee operated the machine assisted by a 13-year-old boy whose hand became caught in the machine and was mutilated. the bailor may be liable to the bailee for trespass. (c) Hire of goods Common law The common law implies in the contract of hire a condition that the goods are reasonably fit for the particular purpose made know to the bailor / lessor for which they are being hired: Cottee v Franklins Self-Serve [1977] 1 Qd R 469. Held:  The bailor was not liable since he had sufficiently discharged his duty to warn of dangers that might arise from the operation of the machine by the directions he had given to the bailee. In contrast. (a) Interference with possession Where a bailment for reward is for a fixed term.Provisions purporting to contract out of s 74 are void: s 68.  It was further held that the bailee was liable in negligence for the injuries suffered by the boy. If the bailor retakes possession of the goods during the term of the bailment. or breach of contract.  However. Where the bailee accepts possession of the goods after being sufficiently warned of their dangerous qualities. Derbyshire Building Co v Becker (1962) 107 CLR 633. There are also specific issues relating to hire of goods. Not to interfere with possession. Pivovaroff v Chernabaeff (1978) 21 SASR 1 Facts:  A market gardener gratuitously lent an onion-sorting machine to a fellow market gardener. and 2. the bailor will not be liable for subsequent loss of damage suffered by the bailee: Pivovaroff v Chernabaeff (1978) 21 SASR 1. they are not void to the extent that they purport to limit the liability of the corporation to the supplying of the services again or the payment of the cost of having the services supplied again: s 68A(1). the bailor is under a duty not to interfere with the bailee‘s possession of the goods until the expiry of the period of the bailment. To inform of dangers in goods. unless this would be unfair or unreasonable: s 68A(2).  While giving directors to the bailee on how to use the machine. a gratuitous bailment is revocable at the will of the bailor: Parastatidis v Kotaridis [1978] VR 449. 54 . 4. The onus is on the supplier to show that the hirer had assumed the risk as to the good‘s suitability: Star Express Merchandising Co v V G McGrath [1959] VR 443. (b) To inform of dangers in goods The bailor must inform the bailee of dangers in the goods of which the bailor is aware. whether the bailment is gratuitous or for reward: Coughlin v Gillison [1899] 1 QB 145.

Facts:  The plaintiff was injured when she attempted to prevent a laden shopping trolley from toppling over when one it its wheels collapsed. and will remain free until the time when the property passes. the supplier has a right to sell the goods.  The plaintiff was awarded damages for the injuries suffered as a result of the breach of the implied term.  Marcrossan CJ expressed the view that since the trolley had been supplied to the plaintiff at the checkout counter. and. there is an implied condition that the goods will correspond with the description. (b) Supply by description Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer by description. (c) Implied undertakings as to quality or fitness Per s 71(1). in the case of an agreement to sell or a hire-purchase agreement. This condition can be excluded by an appropriately drafted exclusion clause. from any charge or encumbrance not disclosed or known to the consumer before the contract is made. Note also that ss 68. where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business. and (c) in the case of a contract for the supply of goods under which the property is to pass or may pass to the consumer—an implied warranty that the goods are free.  The trolley had been supplied to the plaintiff by an employee of the defendant supermarket. Held:  There was a contract of hire between the plaintiff and the defendant supermarket. See s 4B above for a definition of ‗consumer‘. in the case of a supply by way of sale. there is an implied condition that the goods supplied under the contract for the supply of the goods are of merchantable quality. and. there was a contract for hire for reward between the plaintiff and the supermarket. if the supply is by reference to a sample as well as by description. the consideration for the contract being the plaintiff‘s payment of the price for her selected goods at the checkout. the supplier will have a right to sell the goods at the time when the property is to pass. it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description: s 70(1). except that there is no such condition by virtue only of this section: 55 . (b) an implied warranty that the consumer will enjoy quiet possession of the goods except so far as it may lawfully be disturbed by the supplier or by another person who is entitled to the benefit of any charge or encumbrance disclosed or known to the consumer before the contract is made. Statute There now exist provisions in the TPA to protect consumers in respect of hire / lease of goods from a corporation. (a) Implied undertakings as to title. encumbrances and quiet possession Per s 69(1) TPA. in every contract for the supply of goods by a corporation to a consumer. there is: (a) an implied condition that.  Implied in that contract was a term that the trolley would be reasonably fit for its contemplated purpose or use.Cottee v Franklins Self-Serve Pty Ltd [1977] 1 Qd R 469. 68A concerning excludability apply to the below provisions.

A bailee is also entitled to bring an action against a tortfeasor who has negligently caused damage to the bailed chattel while the chattel was in the bailee‘s possession. if the bailor does so. Termination of Bailment Bailments terminate: 1. makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired. By demand of a gratuitous bailee. Where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business and the consumer. he or she will have an immediate right to possession of the goods enabling the bailor to sue not only the bailee but also the third party in an action for conversion. Where the bailee wrongfully disposes of the chattel. and 4. the bailor has the right to sue the third party in tort for damages for conversion if the bailment is a bailment at will. 2. Rights Against Third Parties If a third party commits a wrongful act against the chattel bailed. except where the circumstances show that the consumer does not rely. expressly or by implication. for example where goods are destroyed or permanently damaged so that they will not be returned to the bailor in good order at the expiry of the bailment. By wrongful act of bailee. By expiry of term. as regards defects which that examination ought to reveal. By destruction of the subject matter. However.(a) as regards defects specifically drawn to the consumer‘s attention before the contract is made. such act entitles the bailor to terminate the bailment. the bailor may bring an action against the third party: Penfolds Wines v Elliot (1964) 74 CLR 204. 6. Such an independant action arises because the bailee‘s possession is good against any tortfeasor: Goodwin v Ron Heath Tyre Service (1999) 74 SASR 508 Where the bailment is for reward. the bailor‘s right to possession of the goods is suspended. 56 . or that it is unreasonable for him or her to rely. if the interference with the goods adversely affect the bailor‘s reversionary interest. whether or not that is a purpose for which such goods are commonly supplied. 3. there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose. 5. and accordingly only the bailee can sue the third party for the wrongful interference. or (b) if the consumer examines the goods before the contract is made. on the skill or judgment of the corporation or of that person: s 71(2). for example wrongfully takes possession of it.

Held:  A repudiation of a simple bailment terminates the bailment. the bailment may be determined at any time by the bailor: Parastatidis v Kotaridis [1978] VR 449. (c) Wrongful act of bailee Where the bailee commits a wrongful act of such a nature as to jeopardise the title of the bailor to the goods or to otherwise amount to a repudiation of the transaction. such as purporting to sell the goods. or by reason of some change in its nature becomes incapable of use for the purpose of the bailment.  The car yard argued that Anderson had committed a fundamental breach of the hire purchase agreement and thus had no right to sue in bailment. where there is a bailment within a contract a bailee does not forfeit their right to immediate possession by any dealing that is unwarranted by the bailment. the bailment may be terminated at the election of the bailor: Anderson Group v Tynan Motors (2006) 65 NSWLR 400.  A term that allows termination by notice of breach of any term of the bailment will not be construed to have the effect of terminating the bailee‘s right of possession. Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400. In the former case. or at will.  However.  A term providing for the way in which the bailee‘s right of possession could be terminated would need to be expressed in the ‗clearest express terms‘.  An act would need to be ‗very serious‘ to justify termination of the bailment.  Anderson thus had a right to immediate possession of the vehicle and had standing to sue the car yard in bailment.  Esanda then sought to repossess the vehicle. (d) Destruction of subject-matter A bailment is terminated when the subject matter of the bailment is lost or destroyed.(a) Expiry of term Bailment may be for a term. ‗virtually a disclaimer of the contract of bailment‘. Facts:  Anderson hired a valuable car under a hire purchase agreement with finance company Esanda. from which it was stolen. In the latter case.  The agreement provided that Anderson would not part with possession of the car unless Esanda gave prior written consent.  Anderson bought the vehicle to a car yard.  Here there was a bailment of the vehicle to Anderson under a contract (the hire purchase agreement).  Anderson told Esanda that it had decided to sell the car and was given a payout figure by Esanda. (b) Demand of gratuitous bailee In the case of gratuitous bailments.  Conversion was not necessarily sufficient to justify termination. it expires after a reasonable period.  Here there was no attempt to defraud Esanda. it will terminate when the period for which the goods were bailed expires.  Esanda did not give its prior written consent to the sale. 57 .  Anderson sued the car yard for breach of its duty as a bailee. or the purpose for which the bailment was created has been fulfilled.

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