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identify the legal relations between the parties;
identify the transactions engaged in by the parties;
what are the obligations (rights and duties) of the parties?
what are the issues?
what causes of action are available?
what remedies are the parties seeking?
An agent is one that can create legal relationships between the principal and third
parties: International Harvester v Carrigans Hazeldene Pastoral Co.
principal must have capacity to do the act which the agent performs on the
principals behalf.
agent is not required to have legal capacity.
The nature and extent of an Agents authority

express grant by B
relationship between B and A is such that A impliedly has Bs authority
representations made by B to a third party that A has Bs authority
operation of law
operation of statute

General agency issues:

what forms of authority are at issue?
check which of actual express, actual implied, ostensible agency or agency by
ratification are applicable for each relevant legal actor. Ensure that you
understand the differences between them.
how has the agency relationship involving A been created?
is there more than one form of agency at issue here?
Look for form of Authority1
In answering a question always go through all the forms of authority:
1. Did this person actually have express authority to enter into this act or

actual authority
ostensible authority
Actual Authority
They will be hold to have consented if they have agreed to what amounts in law
to such a relationship - even if they dont recognize it themselves and even if
they profess to disclaim it.
The consent must have been gien by each of them - the principal and agent.
It can be expressly given or by implication from their words or conduct.
Primarily one looks to what the parties said and did at the time of the alleged
creation of the agency (or act or transaction): Garnac Grain v HMF Faure and
Actual Implied Authority
incidental authority
usual authority
customary authority
authority implied from the course of dealing in the circumstances of the case
This type of authority stems from the circumstances of the case and the conduct
of the parties: Equiticorp.
An agency agreement can be implied when each has conducted himself in
relation to the other that it is reasonable for the other to infer consent to the
agency relationship.
There are no particular agency laws applicable here - that is semply recognition
of the fact that contracts are not always express and can be inferred by the
court from the circumstances -> the promises are expressed partly or wholly by
conduct rather than by words.
Ostensible Authority
other two forms consentual
transaction - look at employment contract between that person and the sale of
whatever (in questions there will usually be some limiting written agreement that
will limit the agents authority).

can exist without consent/authority or where principal has forbidden agent to

do something or agent has exceeded authority
Elements of ostensible authority or Agency by representation
representation by words or conduct by the principal (not the agent) to the third
party that the agent acts for him
reliance by the third party on the representation
alteration of the third partys position resulting from such reliance: Rama
Corporation v Proved Tin & General Investments
Ostensible authority: Reliance can not be claimed where:
it is an unusual transaction: Rama Corporation.
the third party knows or had the power to know the truth: Hely Hutchinson
the articles of association do not allow for delegation of the relevant power on
the particular agent: Northside Developments
a person with ostensible authority cannot confer ostensible authority on
another: Crabtree Vickers
Freeman Lockyer v Buckhurst Park Properties
usual transaction
can rely on power in articles without knowing of it
where principle appoints an agent to a particular position or entrusts agent with
some responsibility
a course of delaings between a third party and a principal through an agent
where principal stands by mute where someone deals with a third party apparently
on behalf of the principal
Rama Corporation v Proved Tin & General Investments
unusual transaction
cannot rely on power in articles unless aware of it
First Sport Ltd v Barclays Bank
- applied above principles
The elements are:

the agent whose act is to be ratified must have purported to have acted for the
at the time that the act was done, the agent must have had a competent
at the time of ratification, the principal must be legally capable of doing the
act: Firth v Staines; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd.
the principal must be disclosed or identifiable (Trident General Insurance Co
Ltd v McNiece Bros as well as competent to do the act personally: Black v
Smallwood (1966).
the principal must have full knowledge of all material facts relating to the act
to be ratified: Taylor v Smith.
ratification must take place within a reasonable time of the agents act unless
the contract stipulates another, more specific timeframe: see Life Savers
Australasia Ltd v Frigmobile Pty Ltd.
Time for Ratification:
has ratification occurred within a reasonable time?
The time for ratification by the principal of the agents act depends on the
circumstances of the case. If the particular contract specifies a timeframe
within which ratification must take place the that timeframe must be
observed. If there is not timeframe specified, then ratification must take
place within a reasonable period of time: Life Savers Australasia v Frigmobile.
NOTE: A limit on ratification appears in the rule that ratification cannot be
made which divests persons not parties to the ratified contract of their rights
or to affect prejudicially those rights where those rights have vested before
the act of purported ratification: A-G v Wilde
will ratification cause an injustice to the third party?
has the principal dealt with the third party in a manner suggesting that the
contract has gone off?
Ratification Issues
Who may ratify?
Only person able to ratifiy is the person:
in whose name the act was purported to be done
which person must be in existence at the time the act was done
competent at that time to be the principal of the person doing the act
not necessarily known, personally or by name, to the third party
Howard Smith

ratification between principal and agent only

agent must disclose at time of contracting that he is acting on behalf of a
principal need not be named but must be capable of identification: Kelly
Maxstead v Durrant.
When can a principal ratify?
see above.
What constitutes ratification?
Ratification may take a variety of forms to be effective at general law:
(1) Express - this requires clear and unequivocal acts: Petersen v Maloney.
(2) Implied - by conduct (such as a putative principal commencing legal
proceedings on the contract concluded by the agent: Cox v Isles, Love & Co.
The act of adoption must be accompanied by full nowledge of all the essential
facts: Taylor v Smith.
The assignment by the principal of the benefit of a contract entered into by an
agent without authority is a ratification of the contract: Thompson v Hickman.
It is also necessary for the entirety of the third party transaction to be
ratified - it is not possible to adopt in part and disclaim in part: Howard Smith.
When courts will not invoke the doctrine of ratification:
ratification occurs after performance of the contract
where there is a time stipulation in which the contract is to be accepted
where there has been a breach or loss under the contract before ratification
where ratification occurs after withdrawal of the offer
will not be effective when it will unfairly prejudice a third party
What happens if:
A makes offer to B
Unauthorized acceptance by B
A withdraws offer
Bs principal ratifies
Bolton Partners v Lambert Facts - Doctrine in pure form contract would be fine
from an unauthorized acceptance. Held - Ratification was effective not
withstanding that the third party had given notice to the principle of his

withdrawal from it. Ratification dated back to the time of the acceptance
rendering the withdrawal of the offer inoperative. A was ordered to specifically
perform the contract.
Concerned an action for specific performance of a contract to take a lease.
The defendant lessee wrote the plaintiff lessor offering to take a lease on
8.12.1886. On 13.12.1886 a director of the plaintiff lessor communicated by
letter an acceptance of the earlier offer to lease. On 13.1.1887 the
defendant lessee withdrew the offer which had been made earlier. At the
time the offer to lease had been accepted by the lessor, the director of the
lessor who communicated the acceptance did not if fact have authority to
bind the company be accepting the earlier offer. On 28.1.1887 the Board of
Directors ratified the contract of leases. The court ruled: The rule is to
ratification by a principal of acts done by an assumed agent is that the
ratification is thrown back to the date of the act done, and that the agent is
put in the same position as if he had had authority to do the act at the time
the act was done by him. [This is sometimes known as the doctrine of
relation back.]
HOWEVER according to Isaacs J (in dissent) in Davisons case Bolton
Partners v Lambeth was wrongly decided and should not be followed in

an agent commonly owes duties of a fiduciary nature to his principal: Hospital
Products v US Surgical Corp
principal and agent duties will arise when you have got either actual express
authority or actual implied authority - wont necessary arise in the case of
ostensible authority.
can be expressly stated in written agency document i.e. Power of Attorney.
can be wide and varied.
common effect is that the relationship is fiduciary in nature.
Principal/Agent relationship not necessarily fiduciary
consider whether the fiduciary undertakes . . . to act for . . . another person in
the exercise of a power or discretion which will affect the interests of that
other person in a legal or practical sense. The relationship . . . is therefore one
which give the fiduciary a special opportunity to exercise the power or
discretion to the detriment of that other person who is accordingly vulnerable
to abuse by the fiduciary of his position: Hospital Products.
Implied duties to:
obey principals instructions - primary legal duty of agent
exercise due care and skill
act personally
act in good faith
pertains to fiduciary part of relationship
to avoid conflicts of interest
not to profit from position of agent
not to devulge confidential information.
Duty to obey principals instructions
primary legal duty of the agent - to carry out on the principals behalf the
business or tasks which the agent has agreed to perform: Heytesbury v Kelly;
WH Coomb v Brown
Turbin v Bilton - 1843 - An agent was instructed to insure a ship but
failed to do so. Agent was held liable to the principal when the ship was
lost while uninsured. The basis of the agents liability to the principal was
for failing to carry out the principals instructions.

A derivation of that duty to follow instructions is the duty not to exceed

these instructions: Waugh v Clifford & Sons.
Duty to exercise due care and skill
is a requirement that pereates all business
the standard that applies in respect to agency is that which a reasonable person
would expect an agent of the type in question to exercise in the circumstances.
that enables the court to take into account factors relating to the agents
trade or profession and also perhaps whether the agent is acting for reward or
Duty to act personally
An agent must act personally when contracted by the principle for performance of
services on the principles behalf.
Reason for rule: lies in the need to uphold the personal qualities of the agent which
influenced the agents appointment in the first place.
The qualifications to this rule (rule known as the Rule against Delegation) are:
1. a power may be delegated when there is express or implied authority to delegate
i.e. professional or trade usage.
there are some statutory powers of delegation i.e. s54 Trusts Act 1973
-> a case of express authority to delegate
2. Authority to delegate can be implied for purely ministerial or administrative
acts such as the signing of a letter or the giving of a notice if no personal
confidence is placed in the agent by the principal or if no personal skill of the
agent is required: De Bussche v Alt.
There is a difference between delegating a task and delegating responsibility.
Duty to account
1. Proper accounts must be maintained by the agent.
2. If the agent receives goods or money from a third party on behalf of the
principal (or if the agent receives money from the principal for transactions with a
third party he (the agent) must keep the money separate or the relevant property
separate from their own: Foley v Hill.
The next three duties arise from the fiduciary nature of the relationship between
principle and agent.

Duty to avoid conflicts of interest and the Duty not to profit from the duty
as agent - the Self Dealing Rule.
An agent must not put himself to a position where his personal interests conflict
with those of the principals.
i.e. an agent cant buy property that he was instructed to sell.
Heywood v Roadknight - An agent ends up buying land that is for sale. He
buys it for 29 Pounds/acre and sells it in a year for 90 Pounds/acre. The
agent was held to be in breach of a fiduciary duty placed upon him by his
role in the sale. He was liable to account for the profit that he had made.
In this case the agent because of the fiduciary relationship had
knowledge of the principals difficulties in selling the property and the
knowledge of the true value of the property because he had been party
to all the confidences that the plaintiff had given.
Although this duty is applied very strictly - they are instances when it can be
if the agent makes prior disclosure of the exact nature and extent of the
agents interest in the transaction and the principal consents to the
transaction: Pennisula & Oriental Steam Navigation Co v Johnston.
Duty of the Agent not to accept bribes or secret commissions/profit
any benefit received by an agent over what the agent is entitled to receive
from the principal by way of remuneration will be regarded as a secret profit if
it is received without the informed consent of the principal: Denstate Pty Ltd v
Kennedy (SC of NSW 1989 - unreported).
Duty of an agent not to devulge confidential information
the duty is not to misuse confidential information
confidential information is information concerning the principal entrusted to
the agent for the use of the principal.
Heytesbury v Kelly The breachs of duty that had been argued to have occured
were as listed. The breached duties of failure to act honestly and failure to make
full disclosure and the conflict of interest duty were all relevant to the fact that K
had been promised a sizeable commission as a basis for entering into the
transaction which he failed to disclose to either H or Janet. He was also held to
breach the duty to act with due care and skill and to comply with instructions on
the basis that he had been told not to settle the sale other than receipt of cleared

funds or a bank cheque. He was also told not to permit the physical transfer of the
necklace until the purchase price had been paid.

Principals Duties and Agents Rights

An agent has 4 main rights against a principal:
1. remuneration
is different from the right to indemnify.
The right to remuneration compensates an agent for the value of services
expended in performing the agency.
The right to idemnity compensates the agent for costs and liabilities incurred
to third parties.
An agent is entitled to be remunerated as an express or implied term of the
agency agreement.
The courts will look to the circumstances of the case in order to determine
whether the implied right exists: Way v Latilla.
If you are a friend of the principal and you are doing someone a favour the
right to remuneration will be more difficult to imply than if you were a
professional performing a particular task.
The principal is only obliged to pay the agent if the agent complies with the
terms of the agency agreement and when the agent has actually earned the
This can be a point of contention as to when an agents right to remuneration
arose - it comes up frequently with real estate agents suing for their
Luxor (Eastborne) v Cooper - An agent appointed in respect to the sale
of a cinema - the agent introduced a purchaser who offered the asking
price but no contract was ever made because the principal decided
against proceeding with the sale. On agreement commission was payable
on completion of the sale which had not occurred. The agent was in
effect asking the court for a declaration that a term be implied into the
contract to the effect that the principle could not refuse to go ahead
with the sale. It was held that no such term could be implied and as a
result no commission was payable nor was the principal liable in damages
for breach of contract.
2. Indemnity
In respect to the agents right to idemnity, an agent is entitled to be idemnified
against liabilities that they may have occurred on behalf of the principal or to

recover any amounts paid.

The agent must have lawfully occurred the loss or liability in question.
If the agent has acted outside the scope of his authority or if the agent
suffered loss through his own negligence or fault then he will not be entitled to
indemnify: NZ Farmers Cooperative Distributing Co v National Mortgage &
Agency Co of NZ.
3. Agents right of lien
refers to the agents right where there is an outstanding claim to either
indemnify or remuneration.
the agents right to exercise a lien by retaining the principals goods which are
in the agents lawful possession.
different types of lien:
1. general lien - where an agent can retain goods of the principal even though
the principal does not owe the agent anything in respect to those specific
goods i.e. documents, keys etc kept in relation to money owed on other
Courts dont usually favour this type of lien.
2. a particular lien - operates by permitting the agent to retain a particular
item until the principal pays the agent what is owing on it: Re Clune.
4. Right of stoppage in transitu
Similarly to an unpaid seller if an agent has paid a third party for goods but has
not been paid by the principal then the agent can exercise the right to stop the
goods in transit until the principal pays for them.

Agency and Third Parties

agent acting for a disclosed and named principal
liability of agency for misrepresentation
agent acting for disclosed but unnamed principal
agent lacks authority although claiming a principal exists.
agent acting for an undisclosed principal.
Agency acting for a disclosed and named principal
A disclosed principal is one whose existence has been revealed to the third
party although the identity of the principal may not be known.
An undisclosed principal is the opposite - that is where the third party believes
the agent is contracting personally.
The general position in relation to a disclosed principal is that where the agent
has made a contract with a third party the principal can sue or be sued on the
contract. In contrast with the case of the undisclosed principal who will only be
bound if the contract was in the agents actual authority.
An agent must make clear that he/she is acting as an agent preferably by
adding the word agent after their signature.
Liability of agents for misrepresentation
An agent may be liable to a third party for a wrong in tort not withstanding that
the agent in not liable to a third party in contract.
Although the agent will normally drop out of the picture once the contract is
settled they will however be liable for negligent misrepresentation made prior
to entry into the contract by the principal and the third party and for breach
of s38 FTA 1998 (Q) - misleading and deceptive conduct; Roots v Oentory.
Agent acting for disclosed but unnamed principal
different from first senario because although existence of the principal is
disclosed the name of the principal is not given.
usually makes no difference whether principal is named or not when you are
trying to determine the rights or liabilities of a principal under a contract.
What is important is whether the existence of the principal is disclosed.
there are some cases where it has been suggested that where the principal is
not named the courts will more ready assume that the agent was contracting
personally: Teheran-Europe v ST Belton (Tractors).
normally the mere fact that the agent has not identified the principal will not

make the agent personally liable: Marsh & McLennan v Stanyers Transport.
Agent lacks authority although claiming a principal exists.
this is a cause of action that can be taken by a third party against an agent
where none of the forms of authority are said to exist. So the third party can
still sue the agent for breach of warranty of authority.
basis for the cause of action against the agent by the third party is that the
agent has misrepresented authority: Collen v Wright. If the agent has not
contracted personally but purports to contract as agent but it is found that
there is no authority between the principal and the agent then the agent may be
liable to the third party of the basis that they misrepresented that they had
the agents liability for breach of warranty is strict and it doesnt depend on
the state of mind of the agent. So it doesnt matter that the agent honestly
thought that he or she was authorized.
if you have a case of ostensible authority then there wont be generally any
need to sue an agent for breach of warranty of authority - even though the
third party will have suffered no loss in that situation as the principal is still
bound on the basis of ostensible authority.
where the agent is fraudulent - they knew they werent authorized but claimed
to be then the agent may also be liable in deceit: Polehill v Walter; Gould v
if the agent is negligent there may also be a case of negligence to be made out:
Hedley Bryne v Heller.
Elements necessary for breach of warranty
agent was purporting to act as an agent
the agent must lack authority
the agent must not have expressed doubts about his or her authority or warned
the third party of them
the third party must rely on the representation
the third party must have suffered damage.
Where the agent acts for the undisclosed principal - the Doctrine of the
undisclosed principal
in the situation where not even the existence of the principal is disclosed at the
time of entering such a contract the third party will have believed that the
agent is acting personally and that the agent is therefore personally liable and
is entitled to sue on the contract.

this is subject to the principals right to intervene on that contract but nothing
must prejudice the right of the third party to sue the agent should the third
party wish to do so.
once the third party discovers the existence of the principal then the third
party may sue if the case involves issues between the third party and the
principal, the third party may sue either the principal or agent or both in the
if both the principal and the agent are found liable the third party must elect
to take judgment against either the principal and the agent: Kendall v Hamilton.
what is a binding election is a question of fact - it seems you dont make a
binding election until you actually make a recovery from one or another.
this doctrine will only apply if the agent was acting with actual authority .
ostensible authority cannot act when principal is undisclosed because it runs
counter to the nature of the authority - there will not have been any
representation by the principal and no reliance on the misrepresentation.
cant operate in relation to ratification either because the agent has to disclose
the existence of the principal when they enter into the contract that is
eventually ratified by the principal.
an undisclosed principal may not be able to sue or be sued if intervention is
inconsistent with the terms of the contract - express or implied.
this is a relicit of the parole evidence rule and the courts will be slow to regard
the terms of a contract excluding the intervention of an undisclosed principal
unless it was clearly intended to make the agent the sole contracting party.
the principal may not be able to intervene when the identity of the person with
whom the third party is contracting is material to the third party - then you
cant hid behind the agent.
Breach of warranty of authority:
This is a fallback position for TP (ie, if TP does not succeed against P, its
preferred target).
Collen v Wright is analysed in Yonge v Toynbee [1910] 1 KB 215.
the state of mind of the supposed agent is irrelevant, as is the distinction
whether the agency never or that it existed but terminated.
the liability of the agent stems from the implied promise that the authority
which the agent claims to have exists;
the remedy for the third party is damages;
the agent can never claim an indemnity from the principal (because the principal
is not really the principal of the agent and under a correlative duty to indemnify
the agent).

Termination of the Agency Relationship

can be terminated two main ways:
1. though the conscious act of the parties; and
2. by operation of law.
a consentual arrangement where the parties simply agree to the
voluntory discharge of their relationship.
where the principal revocates the authority of the agent
where the agent renounces their position.
operation of law: death of either; insanity; bankrupcy of either;
expiration of agreed period of agency

The issues are:
is P an undisclosed principal?
did A contract personally or is he an agent of P?
can the third party sue both P and A?
What is the effect of Ps change of heart?
Issue No 1:
Rule: the elements of the doctrine of the undisclosed principal; see Fisher [16.49].
Cases: The Teheran-Europe Case; Maynegrain v Compafina Bank; Siu Yin Kwan v
Eastern Insurance Co
the scope of As authority;
does the contract exclude Ps intervention?;
do any exceptions to the doctrine apply? (see Fisher [16.50]-[16.53]);
Exceptions to the doctrine:
(1) the terms of the contract; and
an undisclosed principal may not be able to sue or be sued if
intervention is inconsistent with the terms of the contract - express
or implied.
this is a relicit of the parole evidence rule and the courts will be slow
to regard the terms of a contract excluding the intervention of an
undisclosed principal unless it was clearly intended to make the agent
the sole contracting party.
(2) where the personality of the agent and the third party are vital to the
contract of transaction.
the principal may not be able to intervene when the identity of the
person with whom the third party is contracting is material to the
third party - then you cant hid behind the agent: Dyster v Randall &
contracts for personal service: Carberry v Gardiner
where the identity of the agent is vital to the transaction with the
third party such that the third party is relying on the personal skill or
creditworthiness or solvency of the agent: Greer v Downs Supplies Co.
what of the fact that A did not reveal Ps existence.

Conclusion: probably P is not an undisclosed principal because A did not contract in

such a way as to exclude Ps intervention.
Issue No 2:
Rule: decide whether A is an agent in light of the outcome that P is an undisclosed
principal; if so, then P is the true principal and A need not be sued by the third
party (who is at liberty to do so).
Application: on the hypothesis that P is the principal, A is not primarily liable to the
third party, but if sued, can claim an indemnity from the principal (P). On the
hypothesis that P is not the principal, the third party cannot sue P qua principal.
Conclusion: on the first hypothesis, P is the principal and liable to the third party
for the price of the goods. On the second hypothesis, P is not a principal and P is
not liable to the third party for the price of the goods.
Issue No 3:
Rule: the third party can sue both the principal and the agent: Siu Yin Kwan v
Eastern Insurance Co Ltd [1994] 1 All ER 213 at 220.
Application: the third party can sue both P and A.
Conclusion: both P and A are liable to the third party for the price of the goods.
However, the third party can only get judgment against P or A as it must elect
between them.
Issue No 4:
What is the effect of As change of heart?
A acted without authority initially.
P later adopted the acts of A.
Ratification and the undisclosed principal doctrine are mutually exclusive (Keighley
Maxstead v Durant).
P may be estopped from denying as between P and A that she adopted As
unauthorised act. This is not an estoppel that the third party can invoke because it
was not made to it. It applies as between P and A to prevent P from resiling from
indemnifying A for the purchase of the computers.
It may amount to a ratification under alternative scenarios (i) and (ii) because the
principal is identifiable (see (i)) or identified (see (ii)).


INTENTION: animus - [mental element]

CONTROL; corpus [physical element]

The physical and mental elements must coincide if there is to be possession in

law: Button v Cooper.
Sometimes statute law intervenes and allocates possession to a person by
operation of law.
The necessary combination of the two elements depends on the facts of each
The mental element may be inferred from knowledge of control or custody of
The mental element relates to an attitude of mind on the part of the possessor
in denying access to others.
The mental element is ambulatory (or shifting).
Generally intention to control ripens into intention to own (the animus domini).
The physical element (control) requires the possessor to exercise some degree
of power over the goods.
Control is used to determine the content of the physical element.
Control is directed to the use or enjoyment of the goods unless excluded by
Control can be direct or indirect. Control is direct when it involves physical
contact, and it is indirect when it involves access.

Possession is exclusive and indivisible.

Possession can be shared in community
Possession implies the power to exclude
Possession can be transferred entire.
Possession is a root of title.
Possession is nearly the same of title. Often a person will be able to
demonstrate a claim to ownership of goods by proving possession of them.
Example: say a person has bought a valuable watch but lost the receipt. The
watch is stolen from that persons apartment and that person wants to make a

claim on their insurance using their contents policy - if that person hasnt a
receipt to prove ownership they have to prove prior possession. So where you
cant prove ownership you can prove possession.
Possessory title is good against the whole world except the absolute owner.
Ranks the interest of owner, possessor, and the rest of the world. Possessory
title gives the possessor a special interest.
1. Owner
2. Possessor
3. The rest of the world
1. In the event of a wrongful taking of goods, the possessor s possessory title
prevails over the rights of the wrongdoer
2. As between the owner and the possessor, the owner has a superior right
to possess, and the possessory title of the possessor must yield (absent a
supervening legal relationship such as bailment).
The owner, who does not have possession, has a right to possession.
The possessory title of the possessor in subordinate to the possessory right of
If the bailment is for a term (a fixed period of time) then the owner cannot
get the goods but before the bailment expires.
If the bailment is a bailment at will (temporary), the bailee must, if the bailor
askes for the goods back, deliver them up. If the bailee doesnt deliver the
goods up, the bailee is liable to be sued for an action in detinue or conversion
(depending on what the bailee has done).
3. As between the true owner and the wrongdoer, the superior right of the owner
prevails over the wrongdoer.
Possession is proved by acts that are consistent with possession and by
discounting those acts that are inconsistent with any more remote
association: Button v Cooper.
In Button v Cooper, someone was charged with being in possession of goods
thought to be stolen. The revelant goods in question were found in the accused
bedroom cupboard. The defence he mounted to the charge of being in
possession of stolen property was although they were found in his room they
werent in fact on his person as he wasnt wearing the stolen articles of

clothing. He was convicted. It was appealed but the court said the conviction
was proper.
What the courts do is balance up all the circumstances - they talked about the
accused being in possession because although the stolen items werent being
carried by the accused when he was arrested they were in his house, in his
bedroom, and stored in a place where only he had access to.
So if we go back to those fundamental concepts of intention and control that
are critical to possession - although his control was weak in the sense that he
didnt have immediate control or custody of the articles, the fact that they
were stored in an area of his house that he had generally only had access to
was sufficient to justify and sustain a conviction. So that is why the courts say
that we will look at those circumstances that are consistent with possession,
we will explain away or discount those acts that are not consistent with the
idea and then we basically reach a conclusion as to whether or not a given
person is or is not in possession of goods.
The courts evaluate all the circumstances of the case - they look at the legal
relationships between either the owner or possessor - and then they come to
the conclusion as to whether or not a given individual is or isnt in possession of
the articles but they only do that when they take into account the incidence of
intention and control.
Choses in possession can be possessed.
You cant possess a chose in action. The test for differentiating choose in
possession from chose in action hinges on whether the thing in question can be
reduced to physical possession.
Goods within goods can also be possessed.
i.e. a tool box - eve though when the lid in shut on the tool box the possessor
of the tool box would not say I possess a spanner, a hammer . . . - the fact is
that by possessing the tool box as an entire entity you are taken in law asbeing
in possession of each individual tool within it.
Articles within receptiacles are possessed if the person who possesses the
larger receptiacle has both intention and control.
Personal use assets are usually possessed by personal contact.
i.e. watches, clothes.
Possession of goods can take place even if they are in a separate building.
Possession of goods can occur constructively.
Custody is separated from legal possession i.e. QUT - books in the library -the

librarian through cotnrolling the library controls the books on behalf of QUT.
In terms of constructive possession, QUT possesses constructively through its
employees and agents.
QUT as a legal entity possesses its property constructively through its entire
body of employees.
Materialised choses in action can also be possessed.
There are some chose in action such as bills of exchange, promissory notes, and
share certicates that are valuable because of the value of the piece of paper the intrisic thing that records the amount of the bill of exchange or the
cheque or a share certificate - what is valuable about these things are the
things they represent - if you are a BHP shareholder and you have a million BHP
shares and you have in your hand a share certificate for a million BHP shares
that is an example of a materialized chose in action - the relationship between
a shareholder and a company is expressed to be that the shareholder has an
interest in the capital of the company in the form of shares or share capital.
What of course in valuable, is the relationship between the shareholder and
the company. The chose in action has materialized because it appears in the
form of a share certificate which is a material embodiment of shareholders
rights. You buy and sell shares by buying and selling the share certificate. So in
that sense when we say a materialized chose in action can be possessed we are
talking about the intangible claims which appear in basically paper form.
Electronic shares are not materialized chose in action.
There are 2 schemes to analyse the degrees of possession.
The broader, less detailed scheme divides possession into actual and constructive
The more detailed scheme is the one that Pollock and Wright developed.
The Pollock and Wright scheme
1. Custody.
Lowest degree of possession. Defined as a physical holding, a detention, an
occupational control of goods which falls short of possession in law.
Meaing of custody depends on its context. Sometimes statutes use the phrase
custody - if defined that definition is used - but if not go to common law where
the meaning is a physical detention: FCT v ANZ Bank - the primary meaning of
custody is physical control.
2. Actual (or de facto) possession.

3. Legal possession.
4. Lawful possession.
5. Constructive possession.
6. The right to possession.
Custody: a physical holding, detention, occupation or control of goods which falls
short of possession in law.
The meaning of custody depends on its context.
Possession, custody and control.
The employee has custody in the sense of physical control.
Look for a supervening legal relationship to decide if the putative occupier has
possession in law.
Actual possession takes place when the possessor of goods has the use and
occupation of goods of which the subject matter of the possessory relationship is
capable: Gray v OTB (Official Trustee of Bankrupcy) (1991) 29 FCR 166 at 171.
This means that with actual possession someone is more than a mere custodian.
They are in fact allowed to use the articles in question for lawful proper
Actual possession is not the same as possession in law.
Actual possession allows the possessor to exclude others and also connotes the
state of being in effective control.
Actual possession is not always the same as custody, although the two coincide
often in practice.
Physical custody and actual possession can be separated in practice also.
Actual possession is not concerned with the lawfulness or rightfulness of
Is the state of being in possession in the contemplation of the law: Gray.
Note 2 presumptions:
1. possession in fact (actual possession) is prima facie evidence of possession in law
- presumption but can be rebutted - check for supervening legal relationship;
2. possession in fact imports possession in law, so long as there if the manifest
intent of sole and exclusive dominion.
Can be separated from custody and actual possession.

Does not depend upon (but can co-exist with) detention or lawful or rightful
Denotes rightful legal possession.
Is one degree above legal possession -it refers to the rightful quality of
possession by the possessor.
May coincide with legal possession (and doesn t if the rightful possessor is out of
Look for some dealing in goods in order to determine whether possession is
Is the basis on which to vindicate claims for an invasion of possession.
Is the foil to actual possession,
Occurs when the right to possess or to have legal possession is separated from
actual possession.
So look for the separation between legal possession and actual possession - the
person with constructive possession has the right to get the possession back.
See if there is a transaction effecting the ownership of the revelant article.
Covers the relationship between a person and goods, which not in the person s
actual possession, are held by another from whom possession may be demanded.
Look for an underlying dealing affecting the right to possession (especially a
dealing affecting property).
Requires the exercise of control over goods: Compafina
Examples of constructive possession:
1. sale of goods coupled with a bailment;
2. sale of goods in the hands of a third party custodian by seller to buyer;
custodian attorns to the incoming owner/buyer.
The person having actual possession usually has an inferior interest in the
goods to that of the constructive possessor.
Requires the identification of the goods (especially where they are in bulk).
Is the highest possessory interest a person can have in goods.
Claimant is usually out of possession.
Endures against the whole world.
Is an incorporeal interest in goods.

It follows ownership.
Is summarised as follows:
1. it includes the right to physical possession.
2. it can exist apart from both legal and lawful possession.
3. it is a normal incident of ownership and is sometimes called property.
4. is transmissible or assignable by a dealing (excepting delivery).
5. is not always exclusive (sub-bailment).
6. can co-exist with legal possession when the right to possess is vested in the
person having custody.
See Gray (1991) 29 FCR 166 at 171-2.
Divesting possession
Making Delivery
Abandonment - an intentional transaction - is voluntary - not lost
Acquiring possession
Taking Delivery
Original Acquisition - is the flip side of abandonment
Delivery is the voluntary transfer of possession, whether actual or
constructive, of goods from one person to another.
There are 2 forms of delivery:
actual (or manual);
Delivery requires 2 legal subjects as well as a legal object.
Takes place by an alteration in control over goods without any any change in
physical possession: Gamer.
look for a transaction that effects ownership
5 forms of constructive delivery exist:
1. Delivery by attornment;

2. Symbolic delivery;
3. Delivery of documents of title;
4. Delivery to a carrier;
5. Bailee becomes owner.
Constructive delivery involves some consensual dealing in the right to possession
which is transferred by agreement: Mills v Charlesworth . This means that the
person who is not in actual possession of the article can axquire the ownership by
agreement because a Sale of Goods Contract is the paradigm example of a
voluntary transaction effecting personal property. When something is transferred
by agreement the parties usually intent to transfer both possession and ownership
but if the bailee is already in possession of the goods then there is no shift of
actual possession that remains insitu - what actually changes is the right to control.
Possession of goods can be acquired and lost.
The acquisition of possession may be original or derivative.
It is original in the case of ownerless things (res nullius and res derelictae).
It is derivative when the transfer of possession takes place by the process of
Possession (as well as ownership) can also be abandoned: Re Jigrose.This depends
on intention.
The finding cases involve a contest between the possessory interests calimed
by an occupier of land and the finder of goods on that land.
The underlying legal principles are:
1. the finder has a possessory title to the goods;
2. the occupier of land has, by law, possession of everything which is attached to or
under the land and in the absence of a better title elsewhere, the right to possess
the goods also.
The first principle covers the gap left by the second, namely the situation of goods
which are on but not attached to or under the land.
The policy of the law in the finding cases is to facilitate the reunion of the the lost
goods with their owner.
This policy is likely to be met if the law gives primacy to the interests of the owner

over those of the finder.

To use the Finding and Occupier Rules derived from Parker:
1. identify the party and the kind of interest which that party claims;
2. identify any supervening legal relationship which affects a party;
i.e. employer/employee
3. apply the appropriate Finding or Occupier Rule to the situation of the party
4. see whether (if at all) the true owner intervenes;
5. look for the timing as to when (if at all) the occupier manifests an intention to
control entry onto the land;
Is the article found on top of the land or underneath it?
If the goods are found on top of the land then according to Parkers case for
the land occupier to have a better claim than the finder the occupier has to
have a manifest intention to control the land before the finder fines.
If the article is buried under the land the law automatically imputies
possession to the occupier.
This is a question of fact.
6. look for these factors when advising the finder:
is the finder on the land by consent or dishonestly or as a trespasser?
has the finder acted honestly since the find?
has the finder occupied the goods?
is there a contractual stipulation affecting the right of the finder to remain in
possession of the goods?
7. identify exactly where and how the goods are situated when found.
8. note that Occupier Rule 1 dovetails very closely with Finding Rules 1, 2 and 3.
9. Most finding disputes resolve themselves on the facts not the law;
intention and control are not critical to Occupier Rule 1, but they are for Occupier
Rule 2.

Ownership is the most significant interest that can exist in relation to personalty.
What is owned is what belongs to a person: Myerson v Collard.
Ownership is the intangible tie which unites a legal subject (person) with a legal
object so that the subject has an absolute interest in the object.
Only legal persons can own property: Glebe Admin Board.
Ownership is incorporeal even if the thing owned is a material object (such as
goods or land).

Ownership has 2 dimensions:

1. internal: the ability to use ; enjoy, etc.
2. external: the capacity to ward off encroachments: Marfani.
Ownership tends to be defined in terms of what rights of ownership entail - user,
alienation, vindication, etc: Knapp.
Ownership of personalty is absolute not divisible into estates: Knapp.
The significance of ownership is that all other legal persons are under a duty to
respect an owner s rights in relation to what is owned: Marfani.

Proof of ownership normally consists of proof of possession: Gatward v Alley.
Proof of ownership can also be made by tracing it back to some dealing under
which the putative owner acquired both ownership and possession of the goods:
Gatward v Alley.
Sometimes, a title registration system exists for some kinds of goods, ie ships
under the Shipping Registration Act 1981 (Cth).
The Acquisition of Ownership
The acquisition of ownership is either original or derivative. It is original when
title does not derive from the title of another person.
Forms of alienation of ownership include:
dealings - such as sale, exchange, barter, gift, deed;
operation of law - bona vacantia;
reduction into occupation of ownerless things- res nullius;
abandonment of goods;
capture by enemy forces;
consumption: see Vincent v SBNSW.
Some of these are original and some are derivative.
Forms of Original Ownership
Forms of original ownership include:
occupancy following abandonment or finding;
occupatio required the taking into possession coupled with the intention to

appropriate (NB conjunction of control and intention): Re Jigrose;

creation of new things - copyright and patents;
Derivative Ownership
Derivative ownership divides into:
consensual transactions: dealings such as sale, gift, barter, assignment;
involuntary transactions: accession, commingling, specification, destruction, and
dealings or transfers by operation of law.
Derivative consensual ownership transactions:
1. depend on the intention of the owner coupled with consent: Lewis v Andrews
& Rowley Pty Ltd (this rule cannot apply to res nullius), as well as the consent
and intention of the transferee: Quality Tyres
2. depend on the rules of recognition developed by the legal system for the
validity of such dealings: Quality Tyres.

Involuntary Ownership Dealings

The main forms include:
other transfers by operation of law (insolvency and bankruptcy);
Accession derives from the Roman law doctrine of accessio. It refers to the
increase to real or personal property as a result of any natural or artificial process.
It covers ownership in particular.
Accession involves 2 material objects -the principal and the accessory
1. is grounded in the right of occupancy of the accessory by the owner of the
principal: Lewis.
2. involves the principal and the accessory being owned by 2 different persons;
3. involves a transfer of property from the principal to the accessory.
is a doctrine of both real and personal property law which deals with the loss of
ownership by one person of personal property and, the acquisition of the
divested property by another.

no Australian court has ever given a succinct statement of what the doctrine is
Jones v De Marchant - the right to all which ones own property produces,
whether that property be moveable or immoveable and the right to that which
is united to it by accessory, either naturally or artifically.
accession is a form of transfer of personalty from one existing owner to
another: McKeown v Cavalier Yachts.
The Test for Accession
The test for accession comes from Rendell:
The accessory continues to belong to its owner unless as a matter of practical
necessity, the accessory cannot be identified; if identifiable, the accessory
must be incorporated into the principal to such an extent that it cannot be
The intention of the owner of the accessory cannot retard the transfer of
property in the case of impracticability.
Accession is an objective test and it overrides the subjective intention of the
owner of the accessory not to transfer property to the principal.
The Effects of Accession
The effects of accession are three-fold:
1. the accessory becomes part of the principal: Lewis; McKeown.
2. the title of the owner of the accessory is extinguished on accession: Lewis;
3. it by-passes the nemo dat rule: McKeown.
As to (3): if the accessory is merged into the principal or consumed in the course
of manufacturing the principal, then the property in the accessory passes by
operation of law to the owner of the principal - this displaces the general law
doctrine of nemo dat (that no man can be deprived of his property, except by his
own voluntary act or by operation of law). Justification for displacement: the
combination of the absence of motive on the part of the innocent holder of the
accessory coupled with the irrevocable consumption of or change of state of th
accessory would make it unjust to require that innocent occupant to return the
principal or the manufactured article to the dispossessed true owner.
Application of Accession
Accession applies where:
1. the accessory cannot be detached without damage or as a matter of

practical necessity: Rendell; McKeown.

2. the owner consents to the accession: Akron;
3. the owner of the accessory is estopped from contending that the owner is
entitled to the accessory: Rendell.
Restitution or compensation resulting from the accession
As a matter of general principle, the court is expected to make a fair and just
allowance to the owner of the accessories to compensate that owner for the
improvements done to the true owners article: McKeown v Cavalier Yachts.
refers to the mixing together of goods belonging to two or more people in such
a way as to result in common ownership of the resultant mass or bulk.
The 2 forms of commingling are commixtio (solids) and confusio (liquids or solids
resolving into liquids before solidifying).
There is no commingling if the mixture can be separated into its constituents
and returned to A and B: Lewis.
The relationship between commingling and accession is that they are mutually
the tests for both accession and commingling may be moving in the same
direction as the criterion of practical necessity activates the operation of both
doctrines: Lewis.
Where commingling of goods reults in an inextricable mixture or mass where it
is either impossible to separate the constituent parts or where the mixture is
not practicably capable of being separated then the separate property of each
contributor is merged and the allocation of property in the new mass is
determined by applying rules as detailed below:
1. If the separate goods belonging to A and B are commingled then:
(a) if the commingling is consensual, A and B own the goods as owners-incommon in equal shares if it is not possible or practical to determine their
respective contributions: Buckley v Gross.
(b) if the commingling is consensual and it is possible to determine the
respective contributions of A and B to the mass, then A and B own the mass as
owners-in-common according to the relative ratio of their contributions to the
mass: Coleman v Harvey.
2. If separate goods belonging to A and B are commingled by accident or without
consent, then:
(a) if the determination of the respective proportions for A and B can be
made, then A and B hold the resultant mass as owners-in-common according to

the relative ratio of their contributions to the mass: Indian Oil Corp.
(b) if it is not possible to determine how much of or the maximum amount of
the innocent partys goods into the common mass, then that entire mass
belongs to the innocent party: Indian Oil Corp.
3. If the separate goods belonging to A and B are commingled by consent, and they
can be separated as a matter of practical necessity, then there is no commingling:
4. If separate goods belonging to A and B are commingled by consent than A and B
can agree on the amount of their respective shares in the common mass: The Drege
5. If separate goods belonging to A and B are commingled by consent, then it is
open for A and B to agree that one of them will obtain entire property in the
common mass to the exclusion of the other, so long as the evidence is consistent
with an intention to part with ownership altogether: Coleman v Harvey.
Specification is the process under which raw material or other input is altered
by the application of some work or some mechanical or chemical process to
produce an output of a different identity or species from the input or inputs.
Carey MIller has defined specification as the unauthorized utilization of the
property of another, producing a thing, irreducible to its constitutents but
sufficiently distinct in character to justify acquisition by the maker, regardless
of his state of mind.
Under Scots law, the test for specification is whether the manufactured article
can be reduced to its constituents. If so, then the parts belong to their owners
and the parts may be restored to their owners. If not, then the entire product
belongs to the operator and the dispossessed owner is entitled to the value of
the inputs: IBC case.
The operator must act in good faith: McDonald. If not the operator does not
acquire good title to the manufactured article.
the true owner of the constituent elements of the article is entitled to trace
the article into whoevers hands it may come into: McDonald v Provan.
the owner of the constituent elements and the operator may reach an
agreement about their respective interests in the manufactured article, and
the courts will respect and enforce the agreement: Wylie and Lochhead.
the relationship between specification and accession is that each doctrine deals
with the grounds on which the union of goods belonging to two or more people
will resul in a transfer of property to one or the other (or both). The coverage

of each doctrine is mutually exclusive.

specification usually involves a change of physical or chemical state of the input
so that it is impracticable to reverse the process. This means that the
impracticability test underpinning accession has no role to play in determining
ownership allocation in a case of specification.
commingling does not produce a different kind of species to the inputs (but if it
does it is really a case of specification).
An owner s property in goods may be lost if the goods are destroyed or consumed:
Vincent v SBNSW.
Loss by Operation of Law
Property may be lost or transferred by operation of law:
death (testate or intestate succession);
bankruptcy and insolvency;
compulsory acquisition.
An owner of personal property may pursue a remedy for the conversion or wrongful
detention fo his goods by another person - HOWEVER this entitlement may be
statute barred by virtue of s12(1) of the Limitations of Actions Act 1974 (Qld) an action must be brought within 6 years from the accrual of the cause of action.
Abandonment of Ownership
The definition in Simpson v Gowers was approved in Keene v Carter :
Abandonment occurs when there is a giving up, a total desertion, an absolute
relinquishment of private goods by a former owner. It may arise when the owner
with the specific intent of desertion and relinquishment casts away or leaves
behind hid property . . .: Simpson v Gowers.
The underlying idea of abandonment is that the owner does not want the goods
Two elements must be satisfied:
1. intention
2. control.
The abandonment of goods will not lightly be inferred. Abandonment occurs where
an owner is indifferent to any future asportation of them by others, where the

owner leaves them for anybody to take them away. It is possible that the
circumstances of the finding, and the nature and condition of the goods, is such
that a person may reasonably believe that they have been abandoned, yet at the
same time, know, or have the means of ascertaining, the identity of the former
owner who has abandoned them: Keene.
Abandonment is one of the consensual methods of loss of ownership of personal
property: Vincent.
The doctrinal dispute polarising abandonment is whether it is possible as a matter
of law to abandon goods. Some say yes and some say no.
Is Abandonment Possible? There are three views as to this question:
Abandonment does not divest the owner of property in goods: Kaine.
Some cases echo uncertainty whether abandonment strips an owner of property
in goods: Moorhouse; Vincent.
Abandonment is possible as a matter of law: Re Jigrose; Lang; Cook v Saroukas.
Requirements of Abandonment
Abandonment requires the conjunction of 2 elements:
1. the physical act of abandonment;
2. the owner s intention to abandon the property in the goods: Moorhouse; Re
Compare this with the elements of possession: intention and control.
How do you prove abandonment?
The best evidence is that which points unequivocally to a renunciation of the
interests an owner has in the goods: Moorhouse. (Interest here refers to the
interests of ownership and possession - abandonment must effect both.)
Intention also distinguishes abandonment from loss: Re Jigrose.
The Intention to Abandon
Is it decided subjectively or objectively? Re Jigrose, Keene v Carter and Gerber.
(A) decide that you look at:
1. the relationship between the parties;
2. the terms of any contract or transaction between the parties;
3. the value of the goods;
4. the circumstances under which it came to be putatively lost;
5. the length of time that it has been lost;
6. the attempts made by the owner to find or recover the goods;

7. the conduct of the owner and of the occupier;

8. the size and mobility of the goods.
Arguably. the test is an objective multi-factor test rather than solely subjective.
Common Ownership
Note the terminology:
joint ownership.
There is no tenancy of personalty as it absolutely owned.
Dennis v Dennis:
Ownership-in-common ... connotes that the owners have a unity of possession, but
a distinct and several title to shares which need not be equal...
Common Ownership and Personalty
The regime for intangibles is not co-extensive with the regime for tangibles -there
is no ownership-in-common of a chose in action at law: In re McKerrell cf equity see Buchan v Nash.
Joint ownership is possible for both choses in possession and in action; Knapp;
Joint owners enjoy the 4 unities of possession, interest, title and time of
Severing Joint Ownership of Personalty
There are 4 methods to sever joint ownership of personalty:
1. effective disposition of a share to a person: Corin v Patton;
2. by mutual agreement/course of dealing: Gebhardt v Dempster;
3. course of dealing sufficient to intimate that the interest of all were mutually
treated as owned-in-common: Abela;
4. any act, dealing or transaction contrary to public policy to continue joint
ownership: Kemp.
Ownership, Title and Possession
Gatward v Alley:
possession is a platform for ownership and title, especially against third parties:
good title to property means having the rights to that property that the law
allows to property of that class;
possession is prima facie evidence of ownership;
possession overcomes the difficulties associated with establishing a chain of

title to goods.
The main forms of dealings in personalty are:
involuntary dealings;
security dealings.
Some of the underlying phenomena are:
the presence or absence of consent;
form vs substance;
which legal system or body of law recognises the dealing;
does the property relate to present or future property?
Sale relates to any form of transfer of any property in exchange for a price:
Sale is generally confined to the contract of sale of goods. See the Sale of Goods
Act 1896 (Qld).
Sale involves the voluntary transfer of goods from the seller to the buyer in
exchange for their price: s4(1).
There are 2 aspects to the sale of goods:
1. contract: the mechanism for the parties to assume mutual obligations relating to
the transfer of property of goods (obligations);
2. conveyance: the transfer of the ownership of the goods from the seller to the
buyer (property).
Contract is relational and relatively concrete. It is facilitative and facultative.
Conveyance is proprietorial and relatively abstract.
Both phenomena combine in the contract of sale. Each produces or has effects in
the overall transaction.
Means the immediate transfer of an existing proprietary right, vested or
contingent, from the assignor to the assignee: Norman v FCT.
Assignment requires 2 legal persons and a legal object. Anything can be assigned

unless this is contrary to public policy: Norman.

There are 2 forms of assignment:
1. legal;
2. equitable.
Each form has different rules of recognition.
Historically, the common law did not recognise or support assignments of choses in
action at first.
Examples of Assignments Today
Factoring: the assignment of debts by a trader to a financier to raise money. This
applies only if the trader supplies credit to its own customers: Squires v SA
Sheet and Steel Pty Ltd.
Securitisation: the packaging of illiquid loan assets into securities and their later
distribution into the capital markets to investors.
Assignments and Other Dealings
Assignments can be absolute or by way of security. The determinants are the
purpose of the assignment and the way it is structured.
Novation: the making of a new contract between the creditor and the debtor
(whether the old or the new debtor) in consideration of the extinguishment of the
old contract: Olsson v Dyson.
Release: the annihilation of a property right or interest by the obligee in favour
of the obligor.
Defintion of a Gift
The term gift is used in 2 senses:
1. a gift is the descriptive designation for the transfer of property from one
person to another;
2. a gift is the voluntary transfer of property from one person to another where no
valuable consideration passes from the transferee to the transferor: Leary v FCT.
The underying idea of a gift is the concept of benefaction: Cuming Campbell. This
is also called the animus donandi - the intention to give: Leary v FCT.
Parties: donor (giver) and donee (receiver).
Attributes of a Gift
There are 4 attributes of a gift:
1. a gift is by way of benefaction;
2. a gift does not normally arise out of a contract;

3. a gift normally is made without any material advantage accruing to the

4. a gift proceeds out of detached generosity or out of affection or respect or
similar values: Leary v FCT; FCT v McPhail.
A gift must transfer the beneficial interest in property from the donor to the
donee: Peers.
Modes of Making a Gift
There are 3 modes of making a gift:
1. by deed or an instrument in writing: French v Gething;
2. by delivery in the case of movable corporeal property: Williams v Williams;
3. by declaration of trust: Cain v McEacharn.
Elements of Making a Gift
There a 3 elements associated with the making of a gift:
1. the donor must have the intention to make a gift: Knapp v Knapp;
2. the donee must have the intention to receive the gift of property: Knapp v Knapp
3. there must be acts sufficient to give complete effect to the intention: Knapp v
Knapp (these acts include a deed or delivery or a declaration of trust).
Involuntary Transfers of Personalty
There are 3 main forms of involuntary transfer of personal property by operation
of law from one person to another:
1. death: the personal estate of the deceased vests in the executor under a will
(45 of the Succession Act 1981 (Qld)).
2. bankruptcy: the personal property of the bankrupt vests in the trustee in
bankruptcy under s58(1)(a) of the Bankruptcy Act 1966 (Cth).
3. insolvency: property of the company does not vest automatically in the liquidator
in the case of the winding up of the company. This only occurs if the court makes
an order to that effect (s474(2) of the Corporations Law).
Security Transfers Generally
A security is defined as follows:
The essence of a right in security is that it is a defeasible right a creditor has
over some or all of the property of the debtor to satisfy a debt or an obligation
owed by the debtor to the creditor: Armour.
Summary of the Elements of a Security: The 5 elements which summarise a

security at general law come from Armour:

1. right over property;
2. given by debtor not reserved;
3. activated by default;
4. priority over unsecured creditors;
5. the right is defeasible.
Elements of a Security
If the Armour definition is examined, it yields 5 elements:
1. a right over property;
2. given or ceded by the debtor over the debtor s property in favour of the
3. it is activated by a breach of a contract, duty or other obligation owed by the
debtor to the creditor;
4. the creditor acquires priority over the secured property of the debtor as
against the general (or unsecured) creditors of the debtor;
5. the security right is defeasible - the creditor s rights over the debtor s
property can be annulled if the debtor performs the duty owed to the creditor.

Question 1(a):
Property is defined as follows by the Canadian lawyer Welling:
B Welling, Property in Things in the Common Law System
(Scribblers Publishing, Gold Coast, 1996), pp6-7)
[6] Property is a relationship. There are always three people in the relationship.
The first person is the state.
The second person is someone whom the state has concluded is the holder of a
specified form of property. The third is any other person whom the state has not
concluded is the holder of that specified form of property.
The state will suppress the civil liberties of the third person to the extent they
fall within the scope of the form of property held.
Question 1(b):
Distinguishing real from personal property:
Applicable laws (Land Title Act 1994).
Civil procedure and private international law.
Succession law.
Question 2:
The sources of commercial and personal property law are:
Model contractual codes.
Custom or usage.
Common law or equity.
National or State legislation.
International treaties.
Question 3:
(a) Right to sue in contract:
The right is a chose in action. It is an intangible claim against the party in breach
It is an obligation too because it is a composite right-and-duty thing. The contract
is a voluntary obligation.
(b) Right to sue in tort:
The right is a chose in action. It is an intangible claim against the party in breach
It is an obligation too because it is a composite right-and-duty thing. The tort is an
involuntary obligation.
(c) Copyright:
Section 31 of the Copyright Act 1968 (Cth) sets out the nature of copyright (ie,
the right to copy certain types of literary, dramatic, musical and artistic works).

Section 196(1) enacts that copyright is personal property. It is a chose in action.

The material form in which copyright subsists is usually a chose in possession.
(d) Sale of goods on 60 days credit:
There are goods (this is a chose in possession).
There is the 60 days credit period for the payment of the price (this is a chose in
(e) computer software:
In the Toby Constructions case, Rogers J left open the question whether software
by itself was a good within the Sale of Goods Act.
In the St Albans case, the court ruled that software by itself was not a good
within the Sale of Goods Act. (This ruling depends on the evidence of this case, so
do not extropolate too far from its material facts).
(f) Computer hardware:
Computer hardware is clearly a good within the SGA.
(g) Computer hardware and software:
Computer hardware and software is clearly a good within the SGA: see Toby
Constructions case.
Question 1(a):
K transfers possession of her watch to D. D has intention and control after the
transfer (K must relinquish control if D is to have possession: see Young v Cockman
149 ALR 1006); therefore D has possession.
Question 1(b):
S transfers actual or de facto possession of her jewellery to the bank. S retains
some control via the duplicate key. Note the arrangement regarding the use by the
bank of the duplicate key in its possession. S has mediate (or remote) control (not
immediate physical control) of the jewellery.
As for the mental aspect, there is no specific evidence regarding this. This would
be inferred from the overall circumstances and the conduct of the parties.
Considering these, it would seem that the intention of S is to retain possession for
Overall, S retains possession of the jewellery.
Question 1(c):
This is similar to 1(b) above except that no outsider has access or control of the
book in Js locker.
J has possession of the book even though it is not with him. J has mediate (or
remote) possession. Even though the physical element is weak, it is enough when
combined with the mental element.

Question 1(d):
There are two transactions affecting interests in personal property here: the sale
(ownership) and the constructive delivery (possession).
Property passes when the contract of sale is made or when the price is paid.
The book has remained static and has not been physically delivered.
Because of the sale, ownership has passed. The book has been constructively
delivered by J to S.
S becomes the owner/bailor and J becomes the bailee/possessor.
Question 1(e):
Jo has remote (or mediate) physical possession of the marijuana.
For the same reasons as for 1(b)-(d), Jo has possession.
The mental element would also be inferred from the fact the marijuana was hidden
inside a drawer in Jos bedroom.
Question 1(f):
Chronology and critical phenomena:
Initially, Jill has possession of the wheat. How do the intention plus control
elements come into play?. Possession of the wheat passes from Jill to Graincorp
Ltd when it is deposited in the Graincorp silo.
What is the significance of the delivery order given to Jill by Graincorp?
The delivery order is a "document of title".
Graincorp becomes the bailee of the wheat while Jill remains the owner. As a
bailee at will, Graincorp has possession of the wheat. At the same time, Jill has
constructive possession of the wheat.
Ownership of the wheat passes 14 days later to Queensland Bread Co Ltd (QBC).
What happened when Jill handed over the delivery order over to QBC?
Sixty days latter when QBC withdrew 40 tonnes for its milling and baking
operations, QBC took delivery of that 40 tonnes from Graincorp. How has
possession of that 40 tonnes changed when it was withdrawn from the bulk of 100
What is the significance of the surrender of the 100 tonnes delivery order by QBC
to Graincorp and its replacement by a delivery order for 60 tonnes ?
Question 1:
identify the legal relations between the parties;
identify the transactions engaged in by the parties;
what are the obligations (rights and duties) of the parties?

use each person as the focal point of discussion, and in particular, determine who
has rights against whom.
Jill owns Broadacres.
Jill has leased Broadacres to Asgard.
Jack entered Broadacres and found the axe.
Jack had the axe evaluated by the Queensland Museum.
Jill and Asgard demand the return of the axe.
Finding Rules (see Study Guide pp 60-61):
From the key facts distilled under the Chronology, see which of the Finding Rules
from Parkers case will apply. Not all of the Finding Rules can apply to each legal
actor. Think about the underlying social policies to the Finding Rules.
1. Jack:
Locate Jack within the scheme of the Finding Rules (ie the class of legal actor) and
then match up the applicable Finding Rules that fits Jacks circumstances.
Finding Rule Nos 1, 3. And 5 apply.
What duties and liabilities apply to Jack as a result of these Finding Rules?
2. Asgard:
Locate Asgard within the scheme of the Occupier Rules (ie the class of legal actor)
and then match up the applicable Occupier Rules that fits Asgards circumstances.
Occupier Rules Nos 1 and 3 apply. Why cant Occupier Rule 3 apply?
What duties and liabilities apply to Asgard as a result of these Occupier Rules?
3. Jill:
what is Jills legal status and how does she fit into the scene?
how can Jill prove her claim to the axe?
how do the Finding and Occupier Rules apply to Jill and how can she assert her
what is the outcome of the dispute as far as Jill is concerned?
4. What of the true owner?
How does the true owner fit into the scene?
What is the point of the Finding and Occupier Rules so far as the true owner is
Question 2(a):
NB: students should have read the case cited, Young v Hitchens (1844) 115 ER 228.
What cause(s) of action does Bob have against Bill?
What interest in personal property does Bob have when Bill intervenes?
What interest is necessary (as opposed to sufficient) to support a claim for an

invasion of a personal property interest (Hint: read Fisher, Commercial and

Personal Property Law, Ch 9).
Can Bob succeed against Bill?
Question 2(b):
NB: students should have read the cases cited before the seminar, viz The
Tubantia [1924] P 78 and Columbia-America Deep Search Inc v Atlantic Mutual
Insurance Co 974 F 2d 450 (1992).
What cause(s) of action does SSB have against CDI?
What interest in personal property does SSB have when CDI intervenes?
What interest is necessary (as opposed to sufficient) to support a claim for an
invasion of a personal property interest (Hint: read Fisher, Commercial and
Personal Property Law, Ch 9).
Can SSB succeed against CDI?
Question 3:
Statutory assignments of things in action
199.(1) Any absolute assignment by writing under the hand of the
assignor (not purporting to be by way of charge only) of any debt or other legal
thing in action, of which express notice in writing has been given to the debtor,
trustee or other person from whom the assignor would have been entitled to claim
such debt or thing in action, is effectual in law (subject to equities having priority
over the right of the assignee) to pass and transfer from the date of such notice
(a) the legal right to such debt or thing in action; and
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of
the assignor.
(2) If the debtor, trustee or other person liable in respect of such debt or thing in
action has notice
(a) that the assignment is disputed by the assignor or any person claiming under
the assignor; or
(b) of any other opposing or conflicting claims to such debt or thing in action;
the debtor may, if the debtor thinks fit, either call upon the persons making claim
to the debt or other thing in action to interplead concerning the same, or pay the
debt or other thing in action into court under and in conformity with the provisions
of the Acts relating to relief of trustees.
The assignor within s 199 of the Property Law Act would be Bill; the assignee
would be All-States Discounts Ltd (ASD); the debtors are all of the customers of

Bill whose debts are assigned to ASD.

Outline of Steps to Factor the Debts to ASD:
The parties are the assignor (transferor) and the assignee (transferee).
The assignment must be absolute (and not by way of charge).
The assignment must in writing.
It must be under the hand of the assignor.
The thing assigned must be a debt or other legal thing in action.
Notice of the assignment must be given to the debtor/trustee/obligor.
The Effect of the Assignment:
The effect of the assignment is as follows:
The assignment is subject to equities as between the assignor and the debtors.
The assignment passes:
The legal right to the debt or thing in action.
All legal and other remedies for the debt and the thing in action.
The power of the assignee to discharge the debt without the actions of the
Question 1:
Bob owns the tractor.
Bob bought some tyres from Jax.
The tyres are installed on Bobs tractor.
Bob installed the engine parts he bought from JDF on his tractor.
Bob defaults under the contracts of sale with Jax and JDF.
The issue for each supplier is: can it reclaim the goods supplied or are they each
relegated to a damages claim against Bob?
Area of law:
The doctrine of accession. Why doesnt specification or commingling apply?
Identify the principal and the accessory things.
Approaching accession: 4 Questions:
What is the proper test for determining when the accessory accedes to the

What is the effect of the doctrine of accession?
What are the methods which the law recognises as competent for the doctrine of
accession to apply?
What restitution or compensation (if any) should be made by the owner of the
principal to the owner of the accessory?
Apply these 4 questions to each of the accessories supplied to Bob by the
how and on what basis should Bob account to each supplier (or compensate them
for the value of any item that has acceded to the principal?
dont overlook each suppliers contractual rights against Bob.
can each supplier get an order for specific delivery of the accessories against Bob;
if so, what are the things that should be reflected in the order?
Question 2:
identify the legal relations between the parties;
identify the transactions engaged in by the parties;
what are the obligations (rights and duties) of the parties?
use each person as the focal point of discussion, and in particular, determine who
has rights against whom.
Jon found the ingot.
Andy claims the ingot (qua true owner).
Jon melts the ingot down for the statue he is making for PGI.
PGI installed the statue in its HQ in situ.
The basic issue is: can Jon reclaim the statue?
Has A lost property in the ingot? If so, what are the proprietary consequences of
this. If not, what can A do to get it back?
What process affecting ownership has taken place to the ingot?
Can Jon reclaim the statue?

Issue # 1:
What has happened to the ingot in a proprietary sense?
What process has happened to the ingot?
What are the ownership allocation rules that are called into play?
Reach a conclusion based on the application of the law to the facts.
Issue # 2:
What has happened to the ingot in a proprietary sense?
What process has happened to the ingot?
What are the ownership allocation rules that are called into play?
Reach a conclusion based on the application of the law to the facts.
Issue # 3:
What interest does Jon have in the sculpture?
Has Jon lost his interest (and if so, how)?
What has happened to the sculpture?
What cause(s) of action does Jon have (and why)?

1. If a party bears the accidental loss or damage to goods then they are at that
partys risk.
So if the risk of the goods was with the seller then the seller had the risk in
the goods and they perished while they were at the risk of the seller what
ordinarily would be the consequence of this - the seller would be liable to the
buyer for damages for non-delivery - for being unable to comply with the
sellers obligation to deliver the goods on time .
2. The buyer would not be liable for the price.
So that would be the consequence of goods being at the risk of the seller - the
seller will be liable for any loss or damage.
The point is that the contract for sale remains on foot.
When does the risk pass in a contract for the sale of goods?
The prima facie rule per SGA is that risk of loss or damage to goods passes to the
buyer when the property in the goods is transferred: s23
If the seller bears the risk of goods and they perish then the seller is liable to the
buyer in damages for non-delivery - that is so unless the seller can establish that
the contract was frustrated.
If the contract is frustrated, the contract is discharged and neither party is liable
to the other.
Frustration occurs where a supervening event takes place without fault of either
party and for which the contract does not provide which so significantly changes
the nature of the rights and obligations of the parties that it would be unjust to
hold them to the literal bargain.
Is this concept of frustration is recognized in the Sales of Goods legislation?
There are two provisions that sort of resemble the concept of frustration in
contract: s9 and s10 SGA
s9 of SGA
When there is:
a contract for sale of specific goods, and

the goods without the knowledge of the seller have perished at the time when
the contract is made,
the contract is void.
McRae v Cth Disposal Commissioner - s9 not applicable because goods had never
existed at all. This case concerned the sale by the defendant of the wreck of a
ship at a certain location - no ship existed at that location - so the defendant was
sued for breach of contract - the High Court said the plaintiffs were entitled to
succeed because there was an implied term that the ship was at the location
specified - s9 was not obstacle to the plaintiff because it only applied where the
goods had once existed but had perished - if s9 had applied the contract would
have been discharged and there would have been no obligations owed by either
party so it suits the plaintiff in this case to establish that the section does not
s10 of the SGA
When there is
an agreement to sell specific goods [as opposed to a sale - s3 and s4(3) - the
difference between a sale and an agreement to sell depends on when property
passes - with a sale the property passes at the time the contract is made with
an agreement to sell it passes in the future], and
subsequently the goods,
without any fault on the part of the seller or buyer,
perish before the risk passes to the buyer,
the agreement is avoided.
It is used in both s9 and s10. The word has a wider meaning then no longer there
and it has also been applied where as a matter of business the goods have so
deteriorated as to have loss their merchantable character or they no longer
conform to their contractual description.
The cases suggest that perish should be construed in a commercial sense.
Asfar & Co Ltd v Blundell - concerned a contract for the sale of dates that had
been under water for two days and when they were brought up they were mush they had been impregnated with sewerage and they were in a state of
fermentation - the insurers in this case were arguing that there had not been total
loss of the goods and therefore the goods had not perished - but the court held

that while the argument might commend itself to chemists it would not to
businessmen and then they reinforced the test that was whether as a matter of
business the nature of the thing has been altered. So the term is not limited to
total physical destruction - it has a commercial meaning.
Rendell v Turner - was a contract for the sale of table potatoes - the contract was
held to be void because at the time of the contract the potatoes by reason of
second growth had become unfit for human consumption - so although technically
the potatoes still existed in specie - they are still potatoes so technically they
havent perished in that sense - they had ceased to be table potatoes if you
adopted the commercial meaning of the term perish.
Barrow Lane & Ballard v Phillips & Co Ltd: contract for an indivisible parcel of
specific goods, part perish, then contract avoided. If the parties do not contract in
this manner - i.e. for an indivisible parcel - then the parties will only be able to
avoid the contract if it is a material breach -> s32 SGA.
Terms and Representations
What is it that the buyer and seller have contracted to buy or sell?
If you are concentrating on a transaction involving the sale of a defective product
then the answer would not be complete if you solely focused on the implied
conditions in the SGA.
s14(2) SGA: matter of construction of contract as to whether term in contract is
a condition or warranty.
It is an important distinction because of the remedies that flow. If you are a seller
who is held to have breached a condition then the contract might well be
repudiated and if it is, the buyer then has the right to reject the goods because
they can basically restore the parties to the position they were in at the date of
Breach of warranty on the other hand means that the buyer is entitled to damages
only - so the buyer does not have a right to reject the goods and treat the
contract as repudiated.
This is the prima facie position when you are looking at terms in contracts for the
sale of goods but there are qualifications.
Breach of condition - repudiation
Breach of warranty - damages only (not a right to

reject the goods and treat contract as repudiated).

Qualification in s14(3) SGA
It sets out what the qualification on that general provision is. It has two limbs:
Limb 1:
When a contract of sale is not severable and the buyer has accepted [
see s36 and s37 for meaning of accepted] the goods or part thereof
Limb 2:
When the contract is for specific goods the property in which has
passed to the buyer . . .
Then the breach of any condition to be fulfilled by the seller can only be treated
as a breach of warranty and not as a ground for rejecting the goods and treating
the contract as repudiated unless there is a term of the contract, express or
implied, to that effect.
You can contract out of s14(3) as is evidence by that provision and also s56
SGA. This is a qualification because it changes what we would ordinarily think a
buyer would be entitled to upon breach of a condition by the seller - but only in
these two situations.
Common Law
pre-contractual statement
mere puff
innocent -> rescission only
negligent -> damages as well as rescission
fraudulent -> damages as well as rescission
term of the contract
Term or misrepresentation?
Whether a statement is a term or misrepresentation depends on the intention of
the parties which is determined objectively on the basis of the conduct of the
parties and the circumstances of the case: Oscar Chess v Williams.
If a term - condition or warranty?
Depends of the intention of the parties as to its importance.
Would the buyer have entered into the contract unless he had been assured of

strict performance of the promise?: JJ Savage & Sons v Blakney

Innominate term
Can only be assessed after the breach by assessing the seriousness of the breach:
Hong Kong Fir Shipping v Kawasaki Kisen Kaisha.
SGA implied undertaking as to title, etc
There are three limbs to s15 - ss(1)(a) implies a condition and ss(b) and (c) imply
warranties only,
implied condition that seller has the right to sell the goods, or in case of an
agreement to sell that seller will have the right to sell the goods at the time when
property is to pass.
s15(1)(a) - application
Can apply to the case of purported sale by a non-owner (i.e. no title): Rowland v
You can sue for a breach of s15(1)(a) even where the buyer has no title in the
goods - so they are not the owner but they are purporting to sell something to you
Rowland v Divall - it was held that it was possible to sue for a breach of a implied
condition that you had the right to sell - of course someone in the Rowland v Divall
situation could also argue the total failure of consideration - this is an interesting
extension because under the definition of sale of goods, it requires the transfer of
property - so some may argue how can the Act even apply if you dont get pass first
base - if you dont have property to transfer in the first place - notwithstanding
that in Rowland v Divall it was held that a buyer could sue even where the owner
had no title for breach of s15(1)(a).
The more common application is like in Niblett Confectioners Materials where the
seller is the owner of the goods but in the circumstances has not the right to sell
Niblett Confectioners Materials - there was an infringement by the seller of the
English Trademarking Provision - so under this provision the seller was the owner
but did not have the right to sell the goods - this was a typical case where s15(1)(a)
Contracting out of Title Provisions - debate as to whether parties can contract

out of s15(a). It appears that it can be contracted out ot: Warnings Used Cars v
Feeding title
The subject of feeding title is relevant to s15(1)(a). This situation arises because
there is a time lag between the time the seller purports to pass title under a
contract for sale and the time the seller actually acquires title to those goods
after the contract is concluded.
A seller who has no title to goods but who afterwards acquires title can hold the
buyer to the bargain before the buyer rejects the goods and rescinds the
contract, and the seller is estopped from denying the validity of the transaction.
Subsequent title feeds earlier defective title of the buyer: Lucas v Smith; Patten v
Thomas Motors; Alico Steel Corp v Australian Development Corp
Although the buyer cannot reject the goods so has been no breach of the condition
the buyer can see sue for damages in this situation if they have suffered damage
as a consequence but they cannot repudiate the contract which they would normally
be entitled to do for a breach of s15(1)(a).
s15(1)(b) and (c) - implied warranties
s15(1)(b) - buyer shall have and enjoy quiet possession of the goods: Healing Sales v
Inglis Electrix - seller must not wrongfully seize goods from buyer - here goods
had been delivered on credit and the buyer had not paid for them yet but the
seller wrongfully seized or repossessed the goods - this action activated s15(1)(b).
It is an ongoing obligation of the sellers: Microbeads AC v Vinhurst Road Markings.
Applies to future: Microbeads AC v Vinhurst Road Markings - in this case road
marking machines were later found to infringe a patent - and although at the time
of the sale there was no patent in existence and therefore no infringements of
s15(1)(a), that didnt mean that there couldnt be an infringement of s15(1)(b)
which applies not only at the time of sale but for the future.
s15(1)(c) - goods shall be free from any charge or encumbrance in favour of any
third party, not declared or known to the buyer before or at the time when the
contract was made.
TPA equivalent: Part V Division 2
s69(1) - mirrors s15(1) SGA
s69(3) - sales of a limited title - provides for a situation where it appears from the
contract or from the circumstances that the supplier intends to transfer only the

title that that person or third party may have - so it might be a limited title.

Correspondence with description

s16 Sale by description
When there is a contract
for the sale of goods by description
there is an implied condition
that the goods shall correspond with their description and
if the sale is by sample as well as description
it is not sufficient that the bulk goods correspond with the sample if the goods
do not also correspond with the description.
Equivalent provision of TPA: s70
Issues to consider regarding s16:
1. Is there a sale by description?
2. If so, what words form part of the description? Not every descriptive
statement of a good will be treated as a condition under s16 -limited to certain
types of descriptive statements?
3. Do the goods correspond with their description? Has s16 been breached?
When is there a sale by description?
In case of unascertained or future goods can be no contract of sale of goods
except by reference to a description of some sort which will identify them.
In the case of specific goods - where buyer relies at least in part upon a
description given or to be inferred from the circumstances.
The fact that the seller provides a description does not make it a sale by
description. There has to be some reliance by the buyer on the description for the
sale to be by description.
Harlingdon & Leinster Enterprises v Christopher Hull Fine Art - this case involved
the sale of a painting attributed to a particular artist - it turned out that the
painting was not painted by the artist - so one of the issues was whether there had
been a breach of s16 - that is did the goods correspond with their description the first point they had to argue was whether there had in fact been a sale by
description - the court held that for a sale of goods to be by description, the

description had to be influential so as to become an essential term of the contract

- i.e. a condition of the contract - if you can show that the buyer did not rely on
the description in purchasing the goods this would be cogent evidence that the
parties did not contemplate or intent that the authenticity of the description
should constitute a term of the contract - it was said at page 574 by LJ Slade that
reliance by the buyer was the nature index of a sale by description. The reliance
can be inferred from the circumstances.
Self - selection by purchaser
Self selection by the purchaser constitutes sale by description at least to the
extent that the words on the box delineate the goods and indicate the kind of
clothing agreed to be bought: Grant v Australian Knitting Mills - this case
concerned the sale of defective long johns - the purchase of the defective
underwear did constitute a sale by description even though he had simply gone into
the store and purchased the item off the shelf - because he did rely to some
extent to the description on the box - so as long as you as the buyer are not just
buying the goods as they are but as a thing corresponding to a description - such in
Grants case woolen underwear then you would come within s16.
Assuming that there is a sale by description:
What words form part of the description?
Only statements concerned with the kind, class or species of goods that are
relevant in the context of s16: Taylor v Combined Buyers.
s16 is only concerned with words of identity not quality. There are other sections
dealing with quality: Christopher Hill v Ashington Piggeries
Once you have ascertained the words you think form part if the description
(confining to words going to the identity of the goods) consider:
Do the goods correspond with their description? - has the section been
So assuming that you have satisfied the above two elements and you can imply the
condition that the goods must correspond with the description then you have to
ask whether they do in fact correspond with the description: Taylor v Combined
Christopher Hill v Ashington Piggeries - the plaintiff - a compounder of food stuffs entered
into a contract with the defendant mink farmer who asked the plaintiff to compound for him in
accordance with a formula supplied by the buyer a mink food know as King Sized - the plaintiff was
in the business of compounding or manufacturing compounds for animal feeding to customers
formulas but had never previously manufactured mink food - so the plaintiff made it clear to the

defendant that it knew nothing about mink food - one of the ingredients was herring meal and this
was supplied to the plaintiff by a third party Norwegian firm - unbeknown to any of the parties the
herring meal had become contaminated due to a chemical reaction with a preservative used in the
manufacture of minx food - the substance was highly toxic and there was a heavy loss of life on the
mink farm - the

plaintiff actually sued for the purchase price of the food - the
defendant was counterclaiming for the damages for the loss incurred - the
defendant based its claim on the grounds that (a) the goods didnt correspond with
their description (b) that they were not reasonably fit for the required purpose
and (c) not of merchantable quality. The plaintiff joined the third party who was
the Norwegian herring meal supplier alleging also breaches of the equivalent of our
s16 and s17 which are the same as (a) to (c) and also claiming an indemnity from the
third party in respect to the defendants counterclaims - dealing first with the
equivalent to s16 the House of Lords (with Viscount Dilhorne is in dissent) agreed
with the Court of Appeal that there had not been a breach of s16 in respect of
either contract - they said that the Herring meal though contaminated was still
herring meal and this conclusion followed from their Lordships proposition that s16
was concerned with the identification of goods as opposed to their quality - the
dissenter dissent was that the distinction between a poisonous and non-poisonous
ingredient was more than a difference in quality and amounted to a difference in
kind - p484-5.
The make and model of a car and the year of manufacture of the car are probably
part of the identification of a car and therefore would form part of its description
when it is sold - each fact that is the make, the model, and the year of
manufacture is a substantial ingredient in the identification of the thing sold:
Miller v Industrial Acceptance Corp.
Bele v Taylor - the defendant advertised his car as a Herald Covertable white 1961
model - so it is obviously a sale by description but what words form part of the
description? The important question here was whether the year formed part of
the description. The car was in fact made of two parts welded together - only one
part was from 1961 - the court had to decide if the year formed part of its
description and they held that it was and that a breach of s16 had been
established and the goods did not correspond with their description - the damages
were assessed at the purchase price as the value of the car was scrap.
Liability of the seller under s16 - the section is strictly construed and unless the
discrepancy is trivial the buyer is entitled to reject the goods even if the goods
are merchantable: Bele v Taylor

Fitness for Purpose - s17(a) and (b)

When the buyer
expressly or by implication
makes known to the seller the particular purpose for which the goods are
so as to show that the buyer relies on the sellers skill and judgment, and
the goods are of a description which it is in the course of the sellers business
to supply . . . ,
there is an implied condition that the goods shall be reasonably fit for such
1. Disclosure of Purpose
The first element is that the buyer must make known expressly or by implication
the particular purpose for which the goods are required.
The purpose must be disclosed prior to or at the time of the contract.
The wider the stated purpose the better the chance that the goods will be fit
for the purpose.
If the goods in question have only one normal purpose then the buyer makes
know the particular purpose by asking for the goods by their ordinary name - so
this is by implication: Grant v Australian Knitting Mills.
If the goods are capable of being applied to a number of purposes then the
buyer does have to specify the particular purpose they have in mind.
2. Reliance on Sellers skill and judgment
The second element deals with reliance - that is the particular purpose must be
disclosed in such a way that it is clear that the buyer is relying on the sellers skill
and judgment.
There has to be actual reliance by the buyer on the sellers skill and judgment.
Evidence of reliance usually arises by implication from the circumstances. It is
usually quite easy for a consumer to show reliance by inference.
In Grant v Australian Knitting Mills it was said that reliance in general will be
inferred by the fact that a buyer goes to the shop in the confidence that the
tradesman has selected his stock with skill and judgment.
But the same presumption wont apply in the sale between two traders who are
equally knowledgeable: Hardwick Game Farm.
Reliance by the buyer need not be exclusive of all reliance on everything else. It
is sufficient that the reliance must constitute a substantial and effective
inducement that led the buyer to purchase the article: Ashford Shire Council v

Dependable Motors.
3. The Seller is in the Business of Supplying Such Goods
The third element is that the seller is in the business of supplying goods of that
description. This means that this section does not apply to private sales. It is very
wide - the seller need only sell goods of the general kind - the requirement has
been held to have been satisfied by a one off sale: Ashington Piggeries.
4.Assuming the elements have been satisfied, ask whether the proviso to the
application of s17(a) applies: The Trade Mark Proviso
And then converting what is actually a proviso to the operation of s17(a) into an
element - the fourth element is that the goods if specific must not have been
bought under their patent or other tradename.
Goods must not have been bought under their patent or other trade name: Baldry v
Marshall - this proviso is of very limited use - the mere fact that something is sold
by its tradename doesnt make it a sale under a tradename - the same applies if you
ask for a good that will fulfill a particular purpose and then you are supplied with a
good with a well known tradename - that still doesnt aggravate the proviso. Buyer
can ask for the item by its tradename and then asks for the advice of the seller
and the proviso still doesnt operate.
Liability under s17 - If reliance is established, the slllers libility is strict, it does
not depend on whether or not the defect was obvious or latent: Hardwick.
Once it is established that the proviso does not apply, then consider whether
s17(a) has been breached;
Has the implied condition as to fitness for purpose in s17(a) been complied
This is a question of fact. What needs to be determined is whether the goods are
reasonably fit for the specified purpose.
Griffiths v Peter Conway - there is no breach of the section if a coat is suitable
for a normal person but not for a person with abnormally sensitive skin.
Clark v Esanda - the goods must remain fit for a reasonable time after they come
into possession.
The onus is reversed - presumption of reliance which the seller must rebut.

Merchantability - s17(c) - goes to quality aspects

When goods are
bought by description
from a seller who deals in goods of that description . . .
there is an implied condition that the goods shall be of merchantable quality.
1. Goods bought by description - from s16 - goods have to have been contracted for
under that description - so reliance by the buyer on the description. A contract
for the sale of unascertained goods will always be a sale by description. If the
goods are specific it becomes more difficult to determine whether there has
been a sale by description. Self selection sale = sale by description: Grant v
Australian Knitting Mills.
2. the buyer has to have bought the goods from a seller who deals in goods of that
description. In Christopher Hill v Ashington Piggeries that this essentially means
the same thing as in s17(a).
3. the goods must not have been examined by the buyer (s17(b) proviso). If the
goods have been examined and such examination ought to have revealed such a
defect then the implied condition of merchantability will not be available.

Proviso: s17(d)2
However if the buyer has examined the goods, there is no implied condition
regards defects which such examination ought to have revealed.
What does such examination mean?
Much debate.
Two possibilities are:
1. such examination means the actual examination conducted by the buyer.
2. or a reasonable examination.
Condition excluded if ?:
A reasonable buyer making such examination as actual buyer made would have seen
defect: Frank v Grosvenor Motor Auctions -> actual examination approach ->
favours buyer.
s71(1) TPA
Condition is excluded if consumer examines goods before contract made as regards
defects which that examination ought to reveal.
The examination is the ACTUAL examination not the examination a reasonable
buyer would have made: Truck Wreckers (1979) Pty Ltd v Waters.

The Victorian court held that the words such examination referred to the
actual examination conducted by the buyer, so that if the examination was
superficial, the buyer would be held to have detected defects which an
examination which an examination of that nature could be expected to disclose.
It is submitted that this is the preferred construction of th provision because
it tilts the balance from caveat emptor to caveat venditor which is the whole
purpose of the provision.
A reasonable buyer making an examination that was reasonable in the
circumstances would have seen the defects: Thornett & Fehr v Beers & Sons ->
reasonable examination approach -> needed to open barrel to examine goods favours the seller.
The court preferred to apply the proviso objectively, holding that if the buyer
makes a cursory examination of the goods, the buyer cannot complain later
about the defects which a more thorough examination would have detected.
The underlying idea is that the buyer must perform a reasonable examination
of the goods.
It is safer if the buyer does not make any examination.
In a problem:
First see if you can imply the condition by satifying the
elements of s17(c) and (d)
Second work out whether the condition has been breached
The third step would be to look at the consequences of breach
of the implied condition by looking at the remedy provisions in
the Act.
Once you can say that the elements have been satisfied and
therefore you can imply a condition in your contract that the goods
must be of merchantable quality then your next question is whether
the condition of merchantability has been breached.
What does merchantability mean? No definition in the Act so go to
the common law definitions.
Test of merchantability
Whether the goods are reasonably fit for any one of the purposes to which
goods of this description and price are reasonably put: BS Brown & Sons v
Here the plaintiff ordered rayon cloth of a particular description from the
defendant - the plaintiff wanted the material to make dresses but didnt

disclose this to the defendant - the defendant supplied material which

conformed to the contract discription and was suitable for several industrial
purposes but not for dressmaking - it was proved that the contract price was
higher than normal for industrial rayon cloth - but not unreasonably high the House of Lords held that in view of that fact and other factors that the
goods were of merchantable quality because they were reasonably fit for one
of their purposes that is for use in industry
Another usual test that can be applied is: the goods in the form in which they
were tendered must be commercially saleable to some buyer under the
description by which they were sold under the original contract of sale at a
price not to far removed from the contract price.
What does commercially saleable mean?
Goods will be commercially saleable if they are suitable for one or more of the
purposes within the range of purposes for which they are normally bought under
the description by which they were sold.
Statements which form part of the goods description are only statements going to
the identity of the goods not their quality. If you apply a very narrow description
to your goods so that goods of that narrow description can only be used for one
purpose they are more likely not to be of merchantable quality.
Aswan Engineering Establishment Co v Lupdine - p612 discusses tests of
Merchantability under TPA: s66(2)
If you are looking atthe implied conditions in Part V Div II of the TPA - s71(1)
deals with merchantability.
Merchantability in defined in the TPA in s66(2):
Goods are merchantable: If they are as fit for the purpose or purposes for which
goods of that kind are commonly bought as it is reasonable to expect having regard
to any description applied to them, the price (if relevant) and all the other relevant
The major difference between this test and the common law is that the goods have
to be fit for the all purposes that goods of that kind are commonly bought. Not
just for one of several purposes that the goods are commonly bought for. This
time we are looking at it from the expectations of the consumer - at the common
law we were looking at whether the goods were commercially saleable.

The same definition as this one appears in the TPA at s74D(3) which is the
definition applying to cases within Part V Div 2A.
TPA: merchantable
Rassell v Cavalier Marketing: statutary test imports a requirement that the goods
are fit for all normal purposes (as opposed to one) for which the goods of the kind
are commonly bought.
Test focuses on the reasonable objective expectations of the parties (which can
be curtailed by description parties give goods).
Rassell v Cavalier Marketing: This case concerned the supply of carpeting to a
consumer - the manufacturer was held liable under s74B for breach of the
statutary condition of fitness for the particular purpose - in relation to the
condition of merchantability the following points were made:
the carpeting had the defect of what was called pile reversal or shading.
It was argued by the manufacturers that because the carpet was fit for its
purpose of a floor covering in terms of its physical quality and manufacture
which is a purpose for which carpet is commonly bought that it was of
merchantable quality.
The judge disagreed with that submission.
He compared the TPA definition to the common law definition which is applied in
the SGA and said that the SGA act relates to saleability of goods and the test
of merchance is more appropriate to commercial sale.
The TPA focuses on the reasonable objective expectations of the consumer who
didnt purchase the goods for resale.
The approach to the definition is to first identify the purposes to which goods
of that kind are commonly bought and then secondly to ask whether the goods
were fit for the purposes so identified as it is reasonable to expect - here he
said that one of the purposes for which the carpet was bought was for the
aesecfic appreciation of the owner of the residence. The description of the
carpet didnt limit the purpose of decoration. Nor was the price so low as to
make it an unreasonable expectation. One of the common reasons for which
carpet is bought and that a reasonable consumer would expect, would be a
carpet of high quality and be fit for the dual purpose of floor covering and
decoration. So he concluded that the carpet was not of merchantable quality.
The result may be different if we applied the common law definition
appropriate to the SGA which only requires that the goods be fit for one
of their purposes.

So once you have concluded any discussion on implied conditions - you

should always consider as a group:
s16 dealing with correspondence with description,
s17(a) and (b) dealing with fitness for purpose, and
s17(c) and (d) dealing with merchantability.
Once you have come to a conclusion as to which of the implied conditions
have been breached you should deal with the consequences of breach.
So then discuss with s14(3), s36, and s37.
s14(3) When a contract for sale
is not severable, and
the buyer has accepted the goods, or part thereof, or
where the contract is for specific goods the property in which has passed to
the buyer,
the breach of any condition to be fulfilled by the seller can only be treated as a
breach of warranty and not as a ground for rejecting the goods and treating
the contract as repudiated,
unless there is a term of the contract, express or implied, to that effect.
s36 Buyers right of exmaiinig goods
s36(1) When goods are
delivered to the buyer,
which the buyer has not previously examined,
the buyer is not deemed to have accepted them unless and until
the buyer has has a reasonable opportunity of examining them for the purpose
of ascertaining whether they are in conformity with the contract.
s36(2) Unless otherwise agreed,
when the seller tenders delivery of goods to the buyer,
the seller is bound, on request,
to afford the buyer a reasonable opportunity of examining the goods
for the purpose of ascertaining whether they are inconformity with the
s37 Acceptance
s37. The buyer is
deemed to have accepted the goods
when the buyer intimates to the seller that the buyer has accepted them. or

when the goods have been delivered to the buyer, and

the buyer does any act in relation to them which is inconsistent with the
ownership of the seller, or
when after the lapse of a reasonable time. the buyer retains the goods without
intimating to the seller that the buyer has rejected them.
s18 - deals with the implied conditions in a sale by sample. A sale by
sample is where the seller expressly or impliedly promises that the goods
being sold will conform to the samples So if you have a sale by sample you
can imply the conditions in s18(2).

Transfer of Property and Risk

Part 3 Effects of the Contract
1. Transfer of property as between seller and buyer: ss19-23.
2. Transfer of title: ss24-28
The concepts of property and title are different.
It provides for innocent third parties to acquire title to goods against the rest of
the world even though under the rules as to the passage of property the seller or
buyer will normally have such property in the goods. This deals with the exceptions
to the nemo dat rule and in effect allows for the situation where someone who is
innocent of the wrong doing can acquire title to goods in certain circumstances.
Transfer property important
determines whether seller can sue for price instead of damages for nonacceptance: ss50 and 51.
risk prima facie passes with property
may determine when Buyer loses right to reject goods: s14(3)
apart from exceptions, it determines whether buyer can confer a good title on a
third party purchaser
may be vital if either party becomes insolvent before transaction completed.
if property has passed to the buyer you will generally have good title to
the goods if the seller becomes insolvent while the goods remain in the
sellers possession.
if the goods are delivered to the buyer but subject to what is called a
reservation of title clause (Romapla clause) by the seller then the seller
may have a good title to the goods should the buyer become insolvent.
the right to sue a third party for damage to goods may depend on who has
property in the goods.
generally the seller can only sue for the price if property has passed.
LG Thorne v Thomas Borthwick - Held - that the mere fact that a sample had been
shown by the intending vendor to the prospective purchaser in the course of
negotiations leading up to a sale did not necessarily make the final contract a sale
by sample. If the contract is reduced to writing after the sample has been shown,
and makes no reference to this fact, then the written contract, if apparently a
complete one, cannot have an added term relating to the sample incorporated in it


Unascertained goods: s19
When there is:
a contract
for the sale of unascertained goods
no property in the goods is transferred to the buyer
until the goods are ascertained.
Applies irrespective of intention of parties.
s19 is an absolute term and overrides the expressed intention of the parties:
Jansz v GMV Imports.
Re Wait - the seller sold 500 tons of wheat out of a quantity of 1000 tons on board
a ship to a buyer - what category of goods are they? unascertained goods because
the goods were not earmarked in the contract - the 500 tons hadnt been
unconditionally appropriated to the contract - they hadnt been separated from the
larger bulk - the buyer prepaid for the goods in advance of delivery and the seller
went bankrupt prior to delivery - the issue was who had property in that wheat? well, as the 500 tons of wheat were unascertained the result was that the
property in the wheat contracted for by the buyer had not passed to him under
the contract of sale - so that in the sellers bankrupcy the buyer was merely an
unsecured creditor not as a buyer having property in goods but remaining out of
Specific or ascertained goods: s20
ss(1) property is:
transferred to the buyer
when the parties to the contract
by extrinsic evidence. -> -> -> sale of certain oil.
James Dummond & Sons v Van Inger - Held upon such a contract that there was an
implied warranty that the goods should be fit for use in the manner in which goods
of the same quantity and general character ordinarily would be used. Cloth
merchants ordered from clothing manufacturers worsted coatings which were to
be of a quantity and weight equal to the samples. Latent defects in both goods and
sample making goods unfit for the use that they had been bought for manufacturers aware of reason that goods purchased for.

intend it to be transferred.
s20 applies to both specific and unascertained goods.
s20(1) - it is a matter of intention of the parties as to when property passes. The
best evidence of intention will be an express term in the contract stating when
property is to pass. Howver if there are other terms which indicate a contrary
intention then it will be a matter of looking at the agreement as a whole.
Ascertaining intention: s20(2)
s20(2) states three things to consider when ascertaining intention:
terms of the contract
conduct of the parties
circumstances of the case
It is only then if you cannot ascertain the intention of the parties or if the
intention of the parties is unclear that you move on to s21.
Intention not clear: s21 Rules
s21 is a provision which sets out five rules which you can apply to help you ascertain
when property has passed.
They are rules to be used as a last resort when you cannot ascertain the parties
Which rule you apply depends on the classification of goods that you are dealing
NOTE that the rules are only to be applied unless a different intention is appears so the rules are only to be applied when the parties have formed no intention to
when property is to pass or when they have not expressed it.
First categorize goods - specific, unascertained or future
Specific Goods: s21 rule 1
Where there is:
an unconditional contract
for the sale of specific goods
in a deliverable state,
the property in the goods passes to the B
when the contract is made, and

it is immaterial whether the time of payment or the time of delivery, or both,

be postponed.
There must be:
(1) an unconditional contract;
(2) specific goods; and
(3) the goods must be in a deliverable state (meaning that they are in such a state
that the buyer must take delivery of them: s3(4))
So that the property passes to the buyer on formation of the sale of contract.
This is the complete antithesis of retention of title clauses.
Presumption that it applies unless ousted by different intention.
Once you look at the implied conditions you should then look at the consequences of
breach by examining s14(3) which basically says that you treat a breach of a
condition only as a breach of a warranty in two situations.
So in effect the buyer loses his right to reject the goods if s14(3):
(1) one way that right is lost under s14(3) is where there is a contract for specific
goods the property in which has passed to the buyer. This is a litle harst. Some of
the cases have extended the time to the time that the buyer has accepted the
goods which can be later than the time of the contract.
This rule is subject to a contrary intention - in modern trading conditions it is
fairly easy to establish a contrary intention. i.e. you will see terms that state that
property in specific goods in only to pass on deliver or on payment: International
Alpaca Management Pty Ltd v Ensor.
i.e. A COD contract is one of these situations as the intention of the parties in this
situation is that property will pass only on payment (a condition precedent to the
passing of title): RV Ward v Bignell.
If payment is made by cheque it is a question of ascertaining the intention of the
parties to determine whether the cheque is accepted as equavalent for cash or the
alternative interpretation of payment by cheque could be that the property is not
to pass until the cheque is met: Davey v Robinson Motors.
If you pay by credit card property passes on the tender of your card.

Specific goods not in a deliverable state: s21 rule 2

Where there is:
a contract for the sale of specific goods and
the seller is bound to put goods in a deliverable state,
the property does not pass until such thing be done and
the buyer has notice thereof.
(1) performance of that act; and
(2) notification of it to the buyer.
Symes v Laurie - Kniepp J was prepared to apply Rule 2 analogically to a sale of
goods requiring the severance of a wooden house from land. Held, obiter, that the
variant of Rule 2 embodied in the parties contract reflected the need for the
house to be put into a deliverable state (by severing it from the land) but that the
contract dispensed with the requirement of notice.
The meaning of deliverable state which also applies to rule 1 where the goods are
in a deliverable state is defined in s3(4) SGA as in such a state that the buyer
would under the contract be bound to take delivery of them.
In Wallace v Safeway Caravan Mart a carvan was purchased on the condition that a
shower be installed and the price be paid. But before the work could be finished
the caravan was stolen - it was held that the caravan was not in a deliverable state
at the time of the theft - so that neither property nor risk had passed to the
buyer and he was entitled to a refund.
It has been held that the notification requirement in this section may be dispensed
with if you can ascertain that that was the intention of the parties - so it may not
be fatal that the buyer has not received notice that the goods are deliverable:
Joseph Reid v Schulz.

Specfic goods in a deliverable state but seller bound to weigh, measure, test
to ascertain price: s21 rule 3
Where there is:
a contract for sale of specific goods in a deliverable state but
seller bound to weigh, measure, test, or do some other act or thing with
reference to the goods for the purpose of ascertaining the price,
the property does not pass until such act or thing be done, and
the buyer has notice thereof.
The weighing, measuring, testing, etc has to be something to be done by the seller:
Nanka-Bruce v Cth Trust.
Goods on approval/sale or return: s21 rule 4
Where goods:
are delivered to the buyer on approval/sale or return or on any similar terms
the property passes to buyer in three ways:
1. Buyer indicates his approval or acceptance to seller.
2. Buyer does act adopting transaction.
3. Buyer retains the goods without giving notice of rejection beyond the time
fixed for return of the goods, or if no fixed time, beyond a reasonable time.
What is a reasonable time is a question of fact.
If a buyer sells or pledges the goods it will be an act adopting the transaction so
the property will pass to the buyer: Kirkham v Appleborough.
Notice of rejection
Atari Corp (UK) v Electronics Boutique Stores (UK): said the notice of rejection
could refer to the goods generically. It did not matter that it did not mention the
specific goods being rejected. It did not matter that the goods were not available
for collection at the time the notice was served by the buyer.

Unascertained goods: s21 rule 5

When there is:
a contract for the sale of unascertained or future goods by description, and
goods of that description and in a deliverable state are unconditionally
appropriated to the contract by one party with the assent of the other . . .
the property in the goods thereupon passes to the buyer.
The Elafi - it was held that an unconditional appropriation was not essential to pass
property in unascertained goods. Howeever it is essential that the goods become
s21 rule 5 - requirements
Essential that goods become ascertained and that parties intend property be
transferred: Re Goldcorp Exchange; Re Stapylton - said that of all five rules there
are two main ones - that is that the goods become ascertained and secondly that
the parties intend property will pass.
Unconditional appropriation
Usual way of passing property in unascertained goods.
It is the selection of goods by one party, usually seller, and the adoption of that
act by the other party (distinguish seller merely setting aside goods which he
expects to use in the contract).
It has to be an irrevocable election by seller and assent to that election by buyer.
see rule 5 ss(2) - an example of unconditional appropriation.
Contrary intention of parties: retention of title clause: s22 - Fisher 12.22
Such clauses are essentially a security device where seller reserves property in
goods sold to buyer until purchase price paid in full.
Contract with such a clause will be an agreement for sale.
These clauses will be evidence of a contrary intention as to when property is to
These clauses fragment property and possession.
The possession of goods is given to the buyer but the property in the goods
remains with the seller.

Risk: s23
Once property in the goods passes from seller to buyer, the goods are at the
buyers risk, whether or not delivery has been made.
s23(1) Unless otherwise agreed:
the goods remain at the sellers risk until
the property therein is transferred to the buyer
but when the property therein is transferred to the buyer
the goods are at the buyers risk whether delivery has been made or not.
Sterns v Vickers - the reason why the Court of Appeal held that risk to goods has
passed to the buyer when the property in the goods had not, was that the buyer
had taken delivery of a delivery warrant representing the goods from the seller
and the third party bailee had attorned in respect of those goods in favour of the
buyer. It was the buyer, not the seller, who had control over the disposition of the
goods despite the fact that the property has not passed to the buyer.
You may contract out of s23.
Provisos to s23
First proviso - Delay
Where a delay in delivery has occurred the goods are at the risk of the party in
fault in relation to any loss which might not have occurred but for such fault there must be a causative link.
Demby Hamilton & Co Ltd v Barden - the buyer was late in taking delivery of apple
juice - in the meantime the apple juice deteriorated and the court held that
because delivery had been delayed through the fault of the buyer and in applying
the first proviso to s23 in ss(2) the buyer have to bear the risk even though the
buyer at that stage did not have property in the goods.
Second proviso - Bailment
s23(3) This section does not effect the duties or liabilities of either seller or
buyer as a bailee of the goods of the other party.
Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd - relevant to ss(3) - this section

does not effect the duties or liabilities of either the seller or buyer as a bailee of
the goods of the other party - here the seller had failed to deliver the goods and
they were destroyed by fire while being stored in the warehouse - the buyer had
resold the goods and was forced to buy other goods to replace them in a rising
market and claimed damages against the seller to cover subcontracts - the buyer
was relying on the proviso in ss(3) but the seller argued that the proviso only
exonerated the buyer from paying for the goods, it did not entitle the buyer to
damages - the NSW Court of Appeal rejected this argument - holding that the
goods were at the risk of the seller because of his breach of the contract and that
if the contract had been complied with the goods would not have been destroyed
and that the seller was liable as bailee as they were storing the goods in the
s34(4) says that goods are at the sellers risk if the goods are sent by sea and the
seller fails to give notice to the buyer to insure them.
s35 says that if the seller has agreed to deliver the goods at the sellers own risk,
at a place other than where they were sold, then the buyer must nevertheless,
unless otherwise agreed, take any risk or deterioration of the goods necessarily
incident to the course of transit.

Transfer of title by the non-owner

The second part of Part III of the Act deals with the transfer of title by the nonowner. Normally the fundamental principle is the nemo dat rule which states that
no one can give a better title than he or she has or is authorized to give.
The problem with this principle is the innocent third party. The balancing act is
performed by the exceptions to the nemo dat rule.
Nemo dat rule
Nemo dat rule - no one can give a better title than he or she has or is authorized
to give: Sigglekow v Gibbs it was held that the nemo dat maxim means a person who
does not have title cannot give one.
A strict application of the rule is not always appropriate and accordingly there
have been several exceptions to the rule developed. There are six exceptions to
the rule.
The main provision in the SGA is s24(1). It repeats the nemo dat rule and then
contains within it one of the exceptions to the nemo dat rule expressly and then
refers to others impliedly.
Subject to the Act,
when goods are sold by a person who is not the owner and
who does not sell them under the authority or with the consent of the owner,
the buyer acquires no better title to the goods than the seller had,
unless the owner of the goods is by the owners conduct precluded from denying
the sellers authority to sell.
This last part refers to estoppel.
Exceptions to the nemo dat rule
subject to the Act is referring to:
1. Sales under voidable title: s25
2. Sales by a seller or buyer in possession after the sale: s27
s27(1) deals with the seller in possession exception.
s27(2) deals with the buyer in possession exception.
3. Bona fide purchaser for goods bound by writ of execution: s28

4. Revesting of stolen goods on conviction of thief: s26

5. found in s24(2)(a) - is a saving clause - it retains the application of the Factors
Act in relation to this area of sales of goods law.
s24(2)(a) - saving clause which protects ability of merchantile agent in possession
to confer good title on an innocent third party for value: Factors Act 1892 (Qld) NEED s3 AND s2 OF THE FACTORS ACT - factors act exception.
6. is embodied in the concluding words of s24(1): unless the owner of the goods is
by the owners conduct precluded from denying the sellers authority to sell.
So has the owner done anything to estoppel him or herself from asserting title
to the goods. The Act does not define what type of conduct it is that will
preclude the owner from denying the sellers authority to sell.
What is relevant conduct?
Refer to principles of common law expressly saved by s61(2), namely estoppel:
Associated Midland Corp v Sanderson Motors - this case is authority for the point
that those words in s24 are referring to the common law principles of estoppel.
So we are really focussing at common law on the principles of estoppel to guide
us in determining what type of conduct will be relevant to this exception.
1. Voidable title s25
When the seller has a voidable title but the sellers title has not been avoided at
the time of the sale, the buyer acquires a good title to the goods, if the buyer
buys them in good faith and without notice of the sellers defect of title.
This section allows for someone to get good title provided that the seller with
voidable title doesnt have their title avoided before they on sell to you.
s25 envisages two sales
Seller 1 to Buyer 1 - pays with cheque which is dishonoured.
Buyer 1 now Seller 2 . . . Buyer 2
The s25 sale is a second sale where the seller is the buyer under the first contract
and is on selling the goods.
To get good title, buyer 2 must satisfy s25. Must determine whether contract is
void or voidable. s25 will only apply if the title is from a voidable contract.
Voidable title?
Can be difficult to decide whether a contract is void for mistake and therefore
a nullity or whether it is merely voidable for fraud.

The usual situation is when a seller sells goods to a buyer under a

misrepresentation of fact, fraudulent or innocent, the title of the buyer is
generally voidable - so if the buyer resells the goods before their title is
avoided then the purchaser who he sells to will get good title under s25
provided that person is someone who is acting in good faith and without notice
of the sellers defective title.
A difficulty can arise if the misrepresentation is so fundamental as to give rise
to an operative mistake by the seller - if it is an operative mistake then the
contract is void (generally such contracts will be voidable - but it is possible
that they will be treated as void):Ingram v Little; Lewis v Averay.
Did original seller rescind contract in time?
If first contract is voidable then issue arises as to whether seller 1 rescinded
contract before property under contract 2 passed to the buyer (i.e. buyer 2 is an
innocent third party).
It is generally accepted that a seller could only rescind a contract for
misrepresentation by the buyer by giving notice to the buyer.

Car & Universal Finance v Caldwell.

How do you communicate an election to rescind? Normally it must be
communicated to the other party to the contract - but if that person is a
fraudulent rogue who has absconded then obviously communication is going to
be impractical - in Car & Universal Finance v Caldwell it was held that it was
sufficient that the seller on discovering the fraud took all possible steps to
regain the goods - in this case the seller informed the police of the fraud and
that was held to be sufficient so the innocent third party did not get good
title under s25 exception because the seller had rescinded the first contract

2. Seller or buyer in possession after sale: s27

SGA enables a seller or buyer in possession of goods after sale to pass a good title
to a third party acting in good faith and without notice of the previous sale.
Kind of estoppel.
s27(1) Seller in possession
Where a person, having sold goods continues or is in possession of the goods or
documents of title thereto, the delivery or transfer by the seller (or by a
mercantile agent acting for the seller) of the goods or documents of title under
any sale, pledge, or other disposition to a person receiving them in good faith and
without notice of the previous sale, has the same effect as if the transferor (the
seller) were expressly authorized by the owner of the goods to make the same.
s27(2) - deals with what is called the buyer in possession exception - it sounds
very similar to the seller in possession exception but differs in three main
Firstly it says when a person has bought or agreed to buy goods (it extends to
situations of an agreement to sell) where as s27(1) applies only where there was a
Secondly - the difference relates to the words with the consent of the seller so the person who has agreed to buy goods obtains with the consent of the seller
possession of the goods - in s27(1) there was no requirement that the seller be in
possession with the consent of the buyer - under s27(2) the seller (who might be
the owner or someone with the right to sell) must consent to the buyer obtaining
possession - this consent will still be consent regardless of whether it was
fraudulently obtained - so consent for the purposes of s27(2) is still consent even
if fraudulently obtained: Langmead v Thyer Rubber.
Thirdly another difference between the two subsections is in relation to the
effect of compliance wiht the provisions:
under ss(2) the transaction would have the same effect as if the transferor
were a mercantile agent entrusted by the owner with the goods or documents
of title.
under ss(1) the wording is different.
It has been held that not withstanding the different wording that the sections
mean much the same - and that a delivery of goods by a buyer of goods in
possession should be treated as though the buyer or mercantile agent were
expressly authorized by the owner of the goods to make the further sale.

So there is an assumption to be made that a mercantile agent is disposing of

the goods in the ordinarily course of business: Gamers Motor Centre (NSW) v
Natwest Wholesale Australia.
What is the general effect of the subsections without concerning ourselves with
the detail?
Under ss(1) the third party is protected where they have received goods under
a sale by a seller (who is not the owner anymore because they have already
probably sold them previously) who had possession of the goods but not
In a situation where you can apply s27(1) the argument is that the owner is a
little bit more to blame than the third party because the owner left the goods
in the possession of the seller and therefore allowed this to happen.
The effect of ss(2) the buyer in possession exception is generally to protect a
third party from the buyer of the goods who had possession but not possession
in them - in this case why should an owner be prejudiced against in this
situation? - until you get payment of the goods you shouldnt put the purchaser
in possession of the goods as again you are allowing this situation to eventuate.
Elements of s27(1):
1. S selling to B1
2. B1 allows S who is not the owner to remain in possession
3. S resells to B2
4. then there is a dispute to title between B1 and B2
5. B2 wins if s27(1) applies.
Elements of s27(2)
1. S delivers possession of goods to B1
2. B1 has possession of goods but no yet the property in the goods
3. B1 then sells to B2
4. Again B2 should win if B2 can show that B1 was a buyer in possession with the
consent of the seller.
A few legal points to note:
1. continues in possession in s27(1) - what does it mean to be a seller who
continues in possession under s27(1) - it has been held that that only refers to
continuous physical possession, it does not matter if there has been a change in
nature of the possession.

Whenever a seller continues in possession after a sale then the title of the seller
by which he was in possession has to have changed from being the owner in the
first instance to the bailee in the second - holding on behalf of the owner - so the
nature of the possession will usually change from owner to bailee: Pacific Motor
Options v Motor Credits Higher Finance Ltd.
Sometimes you can be wondering on a given set of facts whether it is really the
buyer in possession exception that applies or the Factors Act exception - an
important point to remember is that someone who is given goods to sell by the
owner is not a buyer in possession but they might by a mercantile agent for the
purposes of the Factors Act exception: Shaw v Commissioner of Police of the
The Factors Act exception
The Factors Act exception is referred to in s24(2) - the actual exception itself
is contained in s3 Factors Act.
s2 of FA defines what it is to be a mercantile agent - a mercantile agent is
someone whose business it is to sell goods or to consign goods for the purpose
of sale or to buy goods or to raise money on the security of goods. Is someone
who has authority to sell goods on behalf of someone else.
In relation to this definition it can be the first time you have acted as an agent
so long as you are acting in a business capacity and not as a friend of the owner
then you can still qualify as a mercantile agent.
The Factors Act itself deals with a range of commercial activities undertaken
by people called factors.
We are concerning on the exception to the nemo dat rule which is contained in
The exception says that when a mercantile agent is, with the consent of the
owner [the same concepts come up in this section as did in s27] in possession of
goods or the document of title of goods, in sale, pledge, or other disposition of
the goods made by the agent when acting in the ordinary course of business of
a mercantile agent shall subject to the provisions of the Act be as valid as if
the agent were expressly authorized by the owner of the goods to make the
sale [there is a proviso to the section] provided that the person who takes
under the disposition acts in good faith and has not at the time of the
disposition notice that the person making the disposition has no authority.
The estoppel exception
This exception was contained within s24(1) in the closing words of that section ->
where it said that where the owner is by his conduct precluded from denying that

the seller has title - it is necessary to resort to the common law because the Act
does not state what type of conduct by the owner will preclude he or her asserting
title to their own goods.
Estoppel in this context covers two broad situations:
1. where the owner makes the representation that the seller is the owner of the
goods or has the authority to sell them.
2. where the owners act or omission allows the seller to create the appearance of
What is the effect of establishing estoppel in this context?
Well the effect is the the buyer who is the innocent third party acquires a title to
the goods against all the world not merely the rights to plead an estoppel against
those few parties privy to the representation by the owner. So it is a true
estoppel: Moregate Mercantile Co v Twitchens; Thomas Australia Wholesale
Vehicle Trading Co v Marrick Finances Australia.
What type of conduct might lead to estoppel?
If you are the owner of goods what type of conduct could prevent you from
asserting title where someone who didnt have your authority sold your car to
someone else who acted in good faith and paid for it. Merely entrusting someone
else with your goods/car is not enough to ground an estoppel against you: Moregate
Mercantile Co v Twitchens; Lennard v Lassie.
NOTE: what if you give goods to a mercantile agent (not just an ordinary person) if you give goods to a mercantile agent who is someone by the very nature of their
calling has implied authority to sell goods entrusted to them - then a sale by a
mercantile agent in the ordinary course of business will pass good title to an
innocent third party: this is embodied in s3 Factors Act.
If you give someone the documents of title to particular goods then that also wont
of itself be sufficient to ground an estoppel against the agent: Mercantile Bank of
India v Central Bank of India.
There have been cases where the owners have given possession of the car and
documents of title to someone who has ended up being a rogue and sells to an
innocent third party - is that conduct by the owner going to preclude the owner
from claiming title to the car?
If you have done both that will depend on whether the circumstances were such as

to led a third party to suppose that the possessor was the owner of the goods - so
the outcome can change depending on the circumstances of the case - contrast the
case of Motor Credits v Pacific Motor Options and Central Newbury Car Options v
Unity Finance.
What is a document of title to goods?
It has been held that a certificate of ownership or registration is not a document
of title to goods: Cook v Jenkins.
If in addition a signed notification of sale document is handed over together with a
letter confirming the sale of the vehicle then this has been held to be a clear
representation of ownership intended to be relied on by the innocent third party
purchaser: Shaw v Commissioner of Police .
In relation to the area of estoppel by negligence under s24 - it does not arise
simply because the owner of the car has been careless or negligence - if you are
going to argue estoppel by negligence you are going to have to prove the elements
of negligence - this requires a duty owed by the owner to the innocent third party
purchaser and if not specifically to the third party purchaser than a duty of the
general public of which the innocent third party purchaser was a member. Neglect
of that duty must be an approximate cause of that person being mislead:
Mercantile Bank of India v Central Bank of India.
One test which has been applied in the case of Thomas v Merrick Finance involved
asking whether having regard to the circumstanes known to the parties a
reasonable person in the position of the acquirer of the property would expect
the owner acting honestly and responsibly, if the owner claimed to any title in
the property to take steps to make that claim known by the acquirer and
whether in the face of an omission to do so the acquirer could reasonably
assume that no such title was claimed.
To illustrate this look at Lennard v Alassie - here an owner of a car lent it to a
friend and then discovered that the friend without authority had renewed the
registration in his own name - the car is then onsold to an innocent third party
purchaser - there is then a dispute between the innocent third party purchaser
and the owner - it was held that because the owner had taken no steps to regain
possession or to rectify the situation that the owner was estopped from denying
the friends authority to sell the car. So the owner had not acted honestly or
responsibly - the owner had become aware of dishonest dealings with his car and

had done nothing about it - so estoppel was held to have existed.

The performance of the contract

This is dealing with Part IV of the Act. The issue has been subdivided into three
the sellers duty to deliver
instalment deliveries
acceptance of the goods and the buyers loss of his right of rejection.
s29 provides that it is the sellers duty to deliver the goods and the buyer has
the corresponding duty to accept them and pay for them.
Under s30, unless it is otherwise agreed, delivery and payment of the price are
concurrent conditions.
The rules as to delivery are set out in s31 - there are quite a number of specific
rules relating to delivery.
s31(1)(A) provides that unless the parties have agreed otherwise that the place
of delivery is the sellers place of business or if there is not one the sellers
s31(5) provides that unless otherwise agreed the expenses associated with
putting the goods into a deliverable state must be borne by the seller.
Delivery may be actual, constructive, or symbolic. The word delivery is
statutorially defined in s3. It means the voluntary transfer of possession from
one person to another. Note it says transfer of possession not property property can be transferred before, at the time of, or after delivery.
s34 deals with delivery to a carrier. It provides that if the seller is required to
send the goods to a buyer then delivery to a carrier for that purpose will be
deemed to be delivery to the buyer.
Instalment deliveries:
s33(2) and Maple Flock Co v Universal Furniture Products; Hammer and Barrow v
s33(2) is a section that you have to consider when you are determining whether
the buyer has a right to reject goods when he has bought them by instalment.
A contract for sale by instalments is a situation where goods are delivered by
stated instalments and separately paid for.
In order to determine when a buyer with that kind of contract loses their right to
reject the goods then you have resort to s33(2) which provides that if the seller
makes defective deliveries in relation to one or more instalments or if the buyer
neglects or refuses to take delivery of or pay for one or more instalments then it
is a question in each case depending on the terms of the contract and the

circumstances of the case whether the breach of the contract is a reputiation of

the whole contract or whether it is a severable breach giving rise to compensation
but not giving rise to treating the whole contract as reputiated.
This is a test we have incorporated from the common law. So you have to ask
whether the breach of the contract is a reputiation of the contract or
whether it is just a severable breach giving rise to compensation.
The basic test of what conduct amounts to repudiation is whether the acts or
conduct of the party in breach evinces an intention to no longer be bound by the
So if the breach is of such a nature to lead to the inference that similar breaches
will be committed in the future then the whole contract can be regarded as
repudiated and may be rescinded: Maple Flock v Universal Furniture Products.
In particular they said that you had to consider the ratio quantitatively which the
breach brought to the contract as a whole and the degree of probability or
improbability that the breach would be repeated.
Acceptance of the goods & the buyers loss of the right of rejection/recission.
s33(2) dealt with the loss of the right of rejection in the context of a specific
type of contract - an instalment contract.
But a buyer can also lose the right to reject goods in a situation of an entire
contract where there is only one item for sale.
We dealt with this when we looked at breaches of implied conditions under the
SGA - ie. s16, s17(a)(b)(c) and (d) - once you had established a breach of a
condition the next step was to consider the consequences of breach and that
involved looking at s14(3) - s14(3) has two limbs:
one relating to an entire contract as opposed to a severable contract and in that
situation where you have an entire contract and the buyer has accepted the
goods then the buyer loses the right to rejection the goods
the second limb of s14(3) relates to a contract for specific goods - it says that
where there is a contract for specific goods and property has passed to the
buyer then the buyer loses the right to reject.
There is an argument that acceptance is actually the key in either limb as the
cases have watered down the strict application of s21 Rule 1 and the second limb of
s14(3): Taylor v Combined Buyers; Lippen International Galleries - that a buyer
loses his right to reject in either case when the buyer has accepted the goods.

When is it that a buyer will be seen to have accepted goods?

s37 sets out three instances when a buyer will be deemed to have accepted goods:
1. when the buyer intimates to the seller that the buyer has accepted them
2. when the goods have been delivered to the buyer and the buyer does any act in
relation to them which is inconsistent with the ownership of the seller.
There have been arguments in relation to this second situation - when a buyer enters into a
contract to onsell immediately after they have entered into the original contract to purchase
goods and if the goods have not yet arrived or been delivered to that buyer can that act of
entering into a contract of onsale be considered to be acceptance within the second limb of
s37 -> does when the goods are delivered to the buyer mean actual delivery - can it mean
constructive delivery.

3. Is when after a reasonable time the buyer retains the goods without initimating
to the seller that the buyer has rejected them.
s36(1) provides that where goods are delivered to the buyer which he has not
previously examined he is not deemed to have accepted them unless and until he
has had a reasonable opportunity to examine them for the purpose of ascertaining
whether they are in conformity with the contract.
Here there is a possibility of a conflict between s36 and s37 - in particular
between the second instance of s37 and s36.
In other jursidictions they have actually dealt with that conflict by making s37
subject to s36 but in Qld s36 in not express to prevail over s37.
Hardy v Hillerns and Fowler - in a jurisdiction where the equilavent of s37 and s36,
the conflict was not dealt with that s37 was not to be read subject to s36 - in this
case the buyer resold and despatched a portion of wheat to subpurchasers before
he had a chance to examine the wheat but the court said that s37 was not to be
read subject to s36 and the act of the buyer in reselling and dispatching the wheat
was an act inconsistent with the ownership of the seller and did amount to
an act inconsistent with the ownership of the seller - this phrase has been held
to mean an act inconsistent with the right of the seller in the event of rejection to
have the goods returned to him at the place of examination of the goods as
contemplated by the contract: Hammer and Barrow v Coca-Cola - this makes the
test of final acceptance dependent on whether there has been delivery of the
goods to the place contemplated by the parties for inspection.
The unpaid seller has rights against the goods of the following nature:
a right to a lien on the goods for the price while he still has the goods.

a right to stop the goods in transit after the goods have left the sellers
a right of resale as limited by the SGA s41(1)
The statutory remedies are not exhaustive so if the seller has a reservation of
title clause in their contract then the seller will be able to rely on that provision to
recover any goods in the buyers possession if the buyer becomes insolvent.
What are the sellers rights against the buyer in person as oppose to the
If the property has passed to the buyer and the buyer is wrongfully refusing to
pay for them then the seller can sue for the price under s50(1).
Conversely if property has not passed then the seller cannot sue for the price but
can maintain an action for damages for nonacceptance in certain cases: s51(1)
unless the price was payable on a certain date in which case even though property
has not passed the seller can sue for the price: s50(2).
The buyers rights against the seller
The seller who wrongfully negates or refuses to deliver goods to the buyer
becomes liable to pay damages for nondelivery: s52(1).
s52(2) provides that the measure of damages is the estimated loss directly and
naturally resulting in the ordinary course of events from the sellers breach of
The buyer is not entitled to reject goods by reason only of a breach of warranty by
the seller - similar to s14(3) - but may set up breach that is the breach of
warranty in denitition or extinction of the price or bring an action in damages for
the breach: s54(1) - the same applies in the case that the buyer has elected or
under s14(3) has been compelled to treat a breach of condition as a breach of
warranty. s54 says that if it is a breach of a warranty you have only got your right
to damages you cannot reject the goods. The section says that it is the same if the
buyer has elected to treat a breach of condition or a breach of a warranty or if
under s14(3) it is a matter of compulsion.

Read Fisher [10.38]-[10.41].
What is the best/better test for characterising contracts for the supply of
services? See the Deta Nominees output test and compare it to the substance
of the contract test.
Apply whichever test you think is the preferred test in Australia, and also consider
whether property in the articles passes to Irma (and if so, on what basis).
Sale of Goods Act 1896, s16:
note the breakdown of s16:
(1) sale by description, and
(2) the existence of an implied condition that the goods must correspond with
their description.
sale by description:
identity vs quality;
ascertained vs unascertained goods;
descriptive words must form part of the contract;
determine as a matter of fact what the descriptive words were;
the description applied to the goods must be influential and relied on by the buyer:
see Fisher [12.28].
once you have decided whether, as a matter of law, that the contract is a sale by
description, then the next step is to decide whether that description has been met
as a matter of fact: see Taylor v Combined Buyers Ltd.
determine the appropriate remedy that Jim can get (damages for delivery of nonconforming goods under s54 of the SGA: see Fisher [12.51] and see also whether
s14(3) is satisfied because Jim has accepted the goods.
Sale of Goods Act 1896, s17(a):
s17(a) is concerned with the suitability of the goods that have been sold.
the elements of s17(a) are:
(1) the buyer communicates the particular purpose for which the goods are
(2) the buyer must rely on the sellers skill or judment;
(3) the goods must be within the description of goods which the seller supplies
Dring the course of business;
(4) the sale must not be of goods sold under their patent or trade name (see
apply these elements to the sale by Smooth to Jim:

does the contract contain an implied condition that the goods will be reasonably fit
for their purpose?
If so, has that implied condition been breached or not, and what are Jims
does s14(3) apply if Jim has accepted the goods? See also s54.
Sale of Goods Act 1896, s17(c):
note the breakdown of s17(c):
(1) sale by description, and
(2) seller is a dealer in goods of that description, and
(3) implied condition that the goods are of merchantable quality, and
(4) non-applicability of the examination proviso.
sale by description: see Christopher Hill (same interpretation as for the s16
identify the actual description by which the goods are sold (this is a question of
the dealing element:
the seller must be a dealer [trader] in goods of that description;
one-off vs repeated transactions in a market: see Christopher Hill;
non-applicability of the examination proviso; see Thornett Fehr case [objective
test] and compare it to the Grosvenor Motors case [subjective test] (see Fisher
What is the effect of this proviso and how does it apply to the present case ?
does the contract between Jim and Smooth contain an implied condition that the
goods will be of merchantable quality ?
If so, has that condition been met ?
What is the meaning of merchantable quality (see Fisher [12.36]).
Think about 4 components: description, purpose, condition and price.
Issue # 1: can Jim recover the deposit ?
the underlying issue is whether property has passed to Jim or not.
If it has, then s50 of the SGA applies and Jim must pay the balance.
If not, then he can recover the deposit on the basis of a total failure of
consideration and not have to pay the balance of the purchase price.
identify the kind of goods we are dealing with: specific goods.
Therefore, s20 applies.
What are the intentions of the parties ?
Look at s20(2) as a default setting.

what is the significance of the arrangement concerning the car ?

it relates to the deliverable state of the goods: see s 21, rule 2 and s3(4).
It could be argued that the car is not in a deliverable state when it stolen: see the
elements of rule 2. See also Wallace v Safeway Caravan Mart
Ultimately, the loss falls on the seller and Jim can also recover damages for nondelivery under s52.
Connect also s10 and go through the elements of s10. See also s23 (dealing with
the incidence of risk).
Issue # 2: the payment of the balance of the purchase price.
this depends on whether property has passed to Jim: see s20.
What are the intentions of the parties ?
See s20(2) and apply it to the facts of the case (to the extent this can be done).

Is (1) the contract severable or is it an entire contract, and
(2) has the buyer accepted some or all of the goods ?
As to (1): severability is a question of fact [Esmail case]; lump-sum payment;
express or implied term of the contract regarding rejection of any defective
goods; s14(3) of the SGA.
Form an opinion as to the nature of the contract as severable or entire and argue
on the basis of the conclusion reached. Plead in the alternative (if necessary).
Issue # 1:
This invokes s37: the performance of an act inconsistent with the sellers
The consequence is that s14(3) is activated. The goods have been deemed to be
accepted. Unless the harshness of s14(3) can be mitigated, then it is conclusive.
See if s33(2) leads to a different result.
Issue # 2:
This invokes s37 and 38 of the SGA. Read Fisher [12.55].
Has G accepted the goods by doing any act with the goods that is inconsistent with
the sellers ownership after delivery: see s37. Identify the timing of the delivery
point and the inconsistency (the sub-sale). If the delivery comes after the subsale, then Hammer & Barrow says that s37 is not activated adversely to the
buyers interests.

If C has acted as the agent of G in delivering the goods to B, then (1) there is
constructive delivery to G and (2) this is an inconsistent act within s37: E&S Ruben
v Faire Bros.
If the contemplated place of delivery was Bs premises (ie, the sub-buyers
premises), then the Hammer & Barrow case holds that there is no delivery until the
goods have been delivered there. Thus this retards the delivery and acceptance
points until that time and place, so that there is no delivery followed by acceptance
as mandated by s37 [ie, the order of these 2 events is inverted].
Issue # 3:
Here the question is whether the likelihood that the future undelivered goods will
be defective so as to justify G terminating the contract in advance of delivery.
This invokes the Maple Flock test used to apply s33(2): see Fisher [12.56]. (1) the
ratio of the breach to the contract as a whole, and (2) the probability of
repetition. Apply these limbs to the facts, and reach a conclusion whether it is
possible for G to reject future instalments (as well as those goods already
delivered) or whether it is possible only for G to claim damages and keep the
contract on foot.

A bailment is the relationship that arises when one person (the bailor) delivers
goods to another person (the bailee) under a promise that the goods will be
delivered to the bailor (or as the bailor directs) or dealt with in a stipulated way:
Bailment derives from the French word bailler (meaning to deliver).
comes from law of tort
arises by transfer by possession CF Finding
always separation of possession and ownership
process called delivery
delivery makes it a bailment
so must look for transaction that creates a separation.
goods in bailment only include tangible personal property - choses in possession
usually not included unless it is the certificate that is under review.


The bailor is usually the owner of goods.
The bailee is the possessor of the goods.
Bailment involves the separation of ownership and possession. [To have
separation need DELIVERY]

Bailment involves goods (tangibles) and not intangibles that lack material form
(choses in action):CF If have document of title ie bill of lading; Cheque; Hobbs.

Some questions to ask about bailment:
1. How is a bailment created?
2. When does a bailment arise?
3. What is the purpose of bailment?
4. What are the interests of the bailor and the bailee?
5. What are the obligations (rights-and-duties) of the bailor and the bailee?
6. How does a bailment end?

Bailment relates more to obligations (rights-and-duties) rather than to

property. Bailment is not confined solely to the law of obligations. Bailment is
its own legal category (sui generis). CF contract; Tort
Contract is a sufficient but not necessary source of bailment: Hobbs and
Parastatidis v Kotaridis
MEANS - Bailment and contract law are converge i.e. organizing the movement
of goods interstate with a carrier - there is no such thing as a contract of
bailment before you have delivered the goods to the carrier - Bailment of
goods is only created when possession of the goods is transferred from
bailor to bailee - there is no contract before the goods are transferred - it is
an inchoate bailment. (if no delivery no bailment) If co-incide look at
contract to find the obligations to each
If there is a contract, then you look to the contract to see if effects the
obligations the bailor and the bailee share under the bailment: Parastatidis v
If there is no contract between the bailor and the bailee, GO to the general law
of bailment (the common law) supplies the terms of the bailment. (lend someone
an article etc) - if NO fee (non-contractual)

The 3 elements of bailment are:

1. the actual or constructive delivery of goods by the bailor to the bailee;

2. the voluntary and consensual assumption of possession by the bailee (the
bailee has control over the goods);
3. the bailee is knowingly in possession as a bailee: The Pioneer Container (this is
a mental or intentional element). If thought making a GIFT no Bailment even
if only lending
Indica of possession
Note the convergence of intention and control in the bailees case. This is
consistent with possession at general law.
A bailment cannot exist in the circumstances where a person is in
possession of goods and is unaware of that possession : Consentino v
Dominion Express.
Bailments can be classified according to whether they are:
1. commercial (or for reward) - commercial custodial services, hire or pledge or
for paid services/work;
A pledge is a type of bailment.
It is a bailment for security purposes. [pawn for money borrow money
against security)
Commercial bailments are usually tied to the law of contract. So whenever
you have a commercial bailment you usually have the elements of a contract
- offer, acceptance, intention to enter into legal relations, consideration.
2. gratuitous - safekeeping, for unpaid work or for loan.
No linking to contracts in these bailments - no consideration.
See also the scheme in Coggs v Bernard:

depositum (gratuitous safekeeping);

commodatum (gratuitous loan);
locatio et conductio (hire);
vadium (pledge);
locatio operis faciendi (contract for work and labour);
mandatum (gratuitous work and labour).


There are at least 4 other forms of bailment:
1. substitutional bailment: China Pacific TRANSFER OF BAILMENT - (outgoing
bailee vacates possession in favour of incoming bailee) - this is not a
subbailment - because the outgoing bailee not only transfers the possession of
the goods to the incoming bailee but ceases to be a bailee in regard to the
bailor - no longer has any rights or responsibilities to the bailor;
2. quasi-bailment: Hobbs (bailee contracts or agrees with the bailor to take
possession but does not do so, and instead arranges for another bailee to take
possession of the goods) - the first bailee in truth never acquires possession so
it is an inchoate bailment - commercially when this happens the original intended
bailee cant take possession so arranges another bailee;
3. bailment by attornment: Doherty (a bailee in possession of goods agrees to hold
them for a new owner of the goods) - eg. sale of wheat which is held by a grain
holder - is there a transaction effecting ownership that doesnt effect the
possession of the goods?;
4. mutuum: Parastatidis v Kotaridis; Customs v Woodlands Enterprises (a loan for
consumption of fungibles, that is, goods that are equivalent in quantity and
quality to those loaned). These cases say that mutuum is not really a form of
bailment at all. Australian cases that agree with this are Chapman Bros v Verco
Bros and SA Insurance Co v Randall.
The similarities between bailment and agency are:
1. both can arise independently of contract.
2. semble the bailee and the agent enjoy possession in their own right: cf
3. both can generate fiduciary obligations: Romalpa (but bailment is not a nominate
fiduciary relationship while agency is);
The differences between agency and bailment are
1. bailment always involves possession of goods while an agency does not .
2. an agent always owes a duty of loyalty to the principal while the bailee usually
does not (unless the bailment happens also to be a fiduciary relationship).


Contract is a sufficient but not necessary source of bailment: Bi-Lo case. A
contract to make delivery does not create a bailment; the goods must be delivered
actually or constructively to the bailee: Hobbs; Bi-Lo (cf substitutional bailment).
Contract shapes & forms any bailment arising out of contract: Parastatidis. Note
also the operation of exclusion or limitation of liability clauses.
Tactically it is almost always in the interest of the bailer to sue on the bailment
cause of action as opposed to the contractual cause of action because the bailee
has the onus of disproving negligence.
Money can be bailed as well as any other chose in possession.
A loan of money may be classified as a debt: King v Brown or as mutuum:
Parastatidis. Money can also be bailed, although this is quite rare in practice: Bi-Lo.
The bailee would be the borrower or debtor and the bailor would be the lender or
The cross-over point between bailment and restitution law is that the bailee may
be under a duty to make restitution to the bailor if the bailee unjustly enriches
itself at the expense of the bailor: Bi-Lo.
There may also be duty on the part of the bailor to reimburse the bailee if the
bailee acts gratuitously to safeguard the property of the bailor and incurs
expenses while doing so: China Pacific.
Bailment and sale may co-exist: Romalpa (a sale of goods contract containing a
retention of title clause under which property [or title] does not pass to the buyer
[bailee] from the seller [bailor] until the buyer pays the price of the goods. The
buyer obtains possession of the goods after the contract of sale is made and
before property in them passes to the buyer).

A transfer of property from the seller to the buyer may be preceded by

bailment of the goods (with the seller becoming the bailor and the buyer
bailee): Romalpa.
At the conceptual level, the convergence of sale and bailment focuses on
interests of the seller/bailor and the buyer/bailee (ownership and possession)
the distribution (or incidence) of those interests.


At the practical level, the convergence of sale and bailment recognises that the
possession of goods may pass from the seller to the buyer:
1. before the transfer of property (buyer becomes bailee); or
2. after property has passed to the buyer (seller remains in possession as a bailee:
The interest of the:
1. bailor is ownership (the bailor usually has a right to immediate possession,
especially if the bailment is at will);
2. bailee is possession (usually legal and lawful possession).
The bailors ownership is qualified by the possessory interest the bailee enjoys:
Franklin v Neate. The bailor has a reversionary interest: City Motors.
The contents of the bailors reversionary interest are:
1. the bailor has an immediate right of possession for the term of the bailment:
2. the bailor is entitled to the restoration of the goods or to direct the bailee to
deliver them to some other person: Chapman Bros v Verco Bros & Co.
3. the bailor may deal with its reversionary interest by alienation; the transferee
succeeds to the interest of the bailor: Franklin v Neate;
4. the immediate right to possession gives the bailor the right to vindicate any
invasion to its possessory interest by pursuing tort remedies against
tortfeasors: The Aliakmon.


The bailee has a possessory interest carved out of the bailors ownership. This
1. can be asserted against the whole world: Penfold Wines;
2. consists of legal and lawful possession: City Motors;
3. consists of actual possession when the bailee is in possession: Transcontainer;
4. gives rise to an immediate right of possession when the bailee is out of
possession (except when the bailment is terminated): City Motors;
5. gives the bailee exclusive possession of the bailed goods: City Motors;
6. can be used to create subordinate rights where this is not prohibited by the
bailor: Pioneer Container.
In the absence of a contract (and subject to the Trade Practices Act 1974), the
bailor must:
1. have the right to bail the goods: Webb v Ireland.
2. ensure that the goods are reasonably fit for the purpose the bailee requires
them for: Derbyshire Building Co Pty Ltd v Becker.
3. pay the bailee for services provided by the bailee to the goods of the bailor:
Acme Mooring & Pathing Co (1904) Ltd v S Spanglett Ltd.
4. reimburse the bailee for any costs incurred by the bailee under a gratuitous
bailment in preserving the goods of the bailor: The Winson.
5. compensate the bailee for any loss of damage to person or property caused by
defects in the goods: Coughlin v Gillison.
6. warn the bailee of any dangers that might arise from the goods bailed:
Pivovaroff v Charnabaeff.

the absence of contract, the bailee has 5 duties:

the duty to take care of the goods;
the duty to retain possession of the goods;
the duty not to use the goods beyond the authority given or misuse the goods
at all;
4. the duty to return the goods;

5. the duty not to dispute the bailors title.

The bailees duty of care springs out of a legal relationship: Morris.
The bailee owes the bailor a duty of care: Hobbs; The Antwerpen. Thus the duty of
care concept links the bailor and the bailee.
The duty of care arises out of the voluntary assumption of possession of the
bailors goods by the bailee: Hobbs; The Antwerpen.
The content of the bailees duty of care is the standard of care that the law
expects the bailee to observe:Low.
Older cases calibrated the standard of care according to the type and purpose of
the bailment: see Coggs v Bernard; Coldman v Hill.
Recent cases have abandoned the idea that the standard of care is to be
calibrated according to the type and purpose of the bailment; instead the modern
approach is to describe it in terms of reasonable care: Low; Port Swettenham.
Both commercial and non-commercial bailees owe the same standard of care - the
duty to take reasonable care of the goods: Hobbs and Morris (commercial bailees),
and Pitt Son & Badgery (non-commercial bailees).
What is a breach of the duty of care depends on the circumstances of the case.
Examples include:
1. a keeper of goods failed to provide adequate security to keep out intruders:
Pitt Son & Badgery;
2. a carrier mixed money bailed to it with its own funds: Bi-Lo;
the bailee delivered the goods to the wrong person: Jackson v Cochrane.


The bailees duty of care is not an absolute standard or liability unless:
1. this arises under contract (rare in practice);
2. the bailee becomes an insurer of the goods (that is, liable as if the bailee were
an insurer of the goods) from the moment the bailee breaches the bailment:
Mitchell v Ealing LBC.
The bailor must prove 3 things to establish a breach of bailment:
1. the existence of the bailment as a juridical phenomenon;
2. that the goods were lost or damaged during the course of the bailment: Chesser;
3. the bailors own loss or damage: Vanguard Press.
Once 2 and 3 above are proved, then the onus and burden of proof shifts to the
bailee for the bailee to prove that the bailee is not liable for the loss or damage to
the goods because it took reasonable care: Pitt Son & Badgery; Morris; Low.
The justification for this rule is that the bailee is in possession of the goods and
can carry the burden of trying to exonerate itself from liability: Cowper.
The bailee may satisfy the evidentiary burden it carries by showing 1 of 2 things:
1. the bailee was not at fault (the casualty took place despite the exercise of
reasonable care); or
2. the loss would have taken place even if the bailee had taken reasonable care but
did not do so: Conway.
The first element goes to an absence of fault; the second goes to an absence of
The bailee is not liable for ordinary wear and tear of the goods: Moorhouse.
Generally, a bailee must retain possession of the goods and not delegate the

bailment to any one. This applies especially to commercial bailments for custody:
Edwards v Newlands & Co.
Corporate bailees can always delegate the bailment to another person (such as an
officer or employee). That bailee remains vicariously liable for the acts and wrongs
of the delegate: Morris.
The bailee must observe any mandate given by the bailor relating to the delivery of
the goods to any place or other person: Bi-Lo case.
The bailees duty not to use or misuse the goods can be broken down by saying that
the bailee:
1. must not use the goods under a bailment of safekeeping unless this is
authorised by the bailor or is necessary for the preservation of the goods:
Webb v Ireland;
2. must not use the goods under a bailment of loan beyond any of the normal range
of uses which the goods have, or contrary to any direction of the bailor: Coggs v
3. must not convert the goods under any form of bailment: Penfolds Wines (this
duty co-exists with the duty to take reasonable care of the goods: Morris).
The bailee must, at the end of the bailment either:
1. return the goods to the bailor; or
2. deal with the goods as directed by the bailor: Jackson v Cochrane;
The nature of this duty is not an absolute duty, although it is a fundamental duty:
Gamer; Bi-Lo.

When must the bailee deliver up the goods?

1. in a bailment at will, when the bailor makes an unequivocal demand for their
return: Mitchell;
2. in a bailment for a term, at the end of the term: AGC v Ross.
Where must the goods be delivered up?
1. the place (if any) agreed by the parties: Mitchell;

2. If there is no agreed venue, then the place where the goods are located:
Delivery must normally be made to the bailor, but if the bailor directs that
delivery be made to a third party, then the bailee must comply: Jackson v
An example of the latter is where the bailee is a carrier and is under a duty to
deliver the goods to a third party: Bi-Lo.
Sub-bailment is a bailment by the bailee (or sub-bailor) to the sub-bailee: Pioneer
The bailee transfers possession to the sub-bailee: Bi-Lo.
There can also be any number of bailments below the level of the sub-bailee so long
as possession is transferred (or delivered) from each bailee to the next sub-bailee
(who takes possession of the goods): Hamburg Star.
Sub-bailments divide into those which are authorised and those which are
unauthorised: Pioneer Container.

The Pioneer Container establishes that:

1. there is a collateral bailment between the head-bailor and the sub-bailee even
if there is no contract ;
2. the sub-bailee owes the duties of a bailee to the head-bailor;
3. the rationale of sub-bailment is that the sub-bailee voluntarily assumes
possession of goods that the sub-bailee knows are not the property of the
intermediate bailee but are the property of another person.

A sub-bailment on terms means that the bailment by the intermediate bailee to the
sub-bailee takes place on terms dictated by the sub-bailee, including any limitation
and exclusive jurisdiction clauses. It requires the consent of the head-bailor:
Pioneer Container.
Stipulations in the contract between the intermediate bailee and the sub-bailee
can bind the head bailor (despite the absence of privity of contract) because the
owner of the goods (the head-bailor) consented to the sub-bailment: Pioneer
The sub-bailee must have notice that the goods are owned by someone other than
the intermediate bailee: Morris; Pioneer Container.
The following events terminate a bailment:
1. Demand and delivery of the goods: Mitchell;
2. Act of repugnancy by the bailee: Union Transport case;
3. Transfer of property by the bailor to the bailee: Motor Mart;
4. Destruction of the goods: Spycatcher (No 2);
5. Termination by operation of law: Re Aeblys Wills; Hawkins v Clayton.


Question 1:
Assumption: the stolen goods are never recovered.
Ben shows Bill the diamonds Ben bought overseas.
By agreement, Ben leaves the diamonds with Bill.
The diamonds are stolen from Bill.
Is there a bailment between Ben and Bill?
Does Ben have a good cause of action against Bill for breach of bailment (or any
other cause of action?)

Issue No 1: is there a bailment?

The bailor must prove that there is a bailment:
Element 1: Actual or constructive delivery of the goods by the bailee to the bailor;
Element 2: The voluntary (or consensual) assumption of possession of the goods by
the bailee;
Element 3: The bailee must be knowingly in possession of the goods: see The
Pioneer Container.
Issue No 2: What cause of action does Ben have against Bill?
To set up the cause of action for breach of bailment, the bailor must prove three
the existence of the bailment as a juridical phenomenon;
that the goods were lost or damaged during the course of the bailment: Chesser
[1961] 1 Lloyds Rep 534;
the bailors own loss or damage: Vanguard Press (unreported, FC, SC WA, 7/9/95).
To defend the claim, Bill must show 1 of 2 things:
the bailee was not at fault (the casualty took place despite the exercise of
reasonable care); or
the loss would have taken place even if the bailee had taken reasonable care but
did not do so: Conway [1986] 1 NZLR 382.
The first element goes to an absence of fault; the second goes to an absence of
Question 2:
draw a diagram of the parties and their relations: use the one at Fisher [5.70] as a
identify in particular the bills of lading and the effect of the limitation of liability
clause (eg, which parties are bound by it).
Personal Property Interests:
identify the sale and the bailments. Make sure that you understand and can
identify the various interests and how they are dealt with.
is there a bailment from the consignor (XPT) to the ship (Medex) ? What kind of
bailment is there between the 2 ships ? What important clause does this bill
contain ?
is there a sub-bailment from Medex (Tin Can) to the Semper Fidelis ? What

important clause does this bill contain ?

is there a collateral bailment between XPT and The Semper Fidelis ? Is it
supported by any contract ? Does this matter ?
Sub-bailment on Terms:
is there a sub-bailment on terms and if so, between whom ?
what is the effect of the sub-bailment on terms ?
The Pioneer Container holds that in a sub-bailment on terms, the bailor is bound by
the terms on which the sub-bailee acquired possession from the bailee because of
the consent of the owner (bailor) to the creation of a sub-bailment. Hence the
terms of the bill of lading issued by the Tin Can to XPT is decisive, in particular
the consent. What duty of a bailee does this clause seek to cover ?
the bill of lading issued by the Semper Fidelis contains a limitation of liability
clause. On what basis does this bind XPT ? What is the explanation given for this in
The Pioneer Container?
note that there are 2 bills of lading and 2 back-to-back bailments. Make sure that
you understand how they dovetail together and how they operate together.