THE NATURE OF COMMERCIAL LAW

There’s no established legal definition of what commercial law is. However, some writers have
put forward some widely accepted definitions:
‘Commercial law’ is an expression incapable of strict definition, but it is used to comprehend all
that portion of the law of England which is more especially concerned with commerce, trade and
business.
The object of commerce is to deal in merchandise and, if we adopt this criterion, commercial law
can be defined as the special rules which apply to contracts for sale of goods and to such contracts
as are ancillary thereto, namely, contracts for the carriage and insurance of goods and contracts
the main purpose of which is to finance the carrying out of contracts of sale.

Prof Sir Roy Goode: Commercial law is that branch of law which is concerned with rights and
duties arising from the supply of goods and services in the way of trade.

THE FUNCTION OF COMMERCIAL LAW

In Kum v Wah Tat Bank ltd it was stated that;
The function of commercial law is to allow, so far as it can, commercial men to do business in the
way they want to do it and not to inquire them to stick to forms that they may think to be outmoded.
The common law is not bureaucratic.
Lord Goff: Our only desire is to give sensible commercial effect to the transaction. We are there
to help businessmen, not to hinder them: we are there to give effect to their transactions, not to
frustrate them: we are there to oil the wheels of commerce, not to put spanner in the works, or
even grit in the oil.
Only in exceptional cases will the court relegate commercial needs to the backseat. This happened
in Hazell v Hammersmith & Fulham London Borough Council where the HOL held that local
authorities did not have the capacity to enter into swap transactions with the result that such
transactions concluded between banks and other financial institutions with local authorities were
void ab initio.
NOTE: Swap transactions: A swap involves an agreement between two parties by which each
agrees to pay the other on a specified date or dates an amount calculated by reference to the interest
which would have accrued over a given period on the same notional principal sum assuming
different rates of interest are payable in each case.

Special needs of commercial men

 They demand that their agreement be upheld

JONATHAN 1
  They require the decisions of the courts on commercial issues to be predictable so that
they know where they stand
 They need the law to be flexible enough to take account of their latest business practices
 They want their disputes resolved quickly, inexpensively and effectively

HISTORICAL DEVELOPMENT OF COMMERCIAL LAW

 The Lex mercatoria (Pg. 14)

SOURCES OF COMMERCIAL LAW

A. Contracts
The law of contract lies at the heart of commercial law. In the world of commerce, goods and
services are supplied pursuant to the terms of contracts made between businessmen. The
courts are reluctant to interfere with the principles of freedom and sanctity of contract

Hoffman’s principles on construing contractual documents

1. Interpretation is the ascertainment of the meaning which the document convey to a
reasonable person having all the background knowledge which would reasonably have
been available to the parties in the situation in which they were at the time of the contact.

2. The ‘matrix of fact’ also referred to as the background. It includes absolutely anything
which would have affected the way the way in which the language of the document would
have been understood by a reasonable man.

3. The law excludes from the admissible background the previous negotiations of the parties
and their declarations of subjective intents. They are admissible only in an action for
rectification. The law makes this distinction for reasons of practical policy and in this
respect only, legal interpretation differs from the way we would interpret utterances in
ordinary life. The boundaries of this exception are in some respect unclear.

4. The meaning which a document (or any other utterance) would convey to a reasonable man
is not the same thing as the meaning of it words. The meaning of words is a matter of
dictionaries and grammars; the meaning of the document is what the parties using those
words against the relevant background would reasonably have been understood to mean

JONATHAN 2
 5. The ‘rule’ that the words should be given their ‘natural and ordinary meaning’ reflects the
commonsense proposition that we donot easily accept that people have made linguistic
mistakes, particularly, in formal documents. On the other hand, if one would conclude from
the background that something must have gone wrong with the language, the law does not
require judges to attribute to the parties an intention an intention which they plainly could
not have had.

B. Custom and Usage

‘In the field of commercial law the custom of merchants has always been a fruitful source of law’
(Kleinwort Benson Ltd v Lincoln City Council). A custom is a rule which has obtained the force
of law in a particular locality and a usage is the settled practice of a particular trade or profession.
A custom or usage must be one which the courts recognizes. A custom or usage is not reasonable
unless it is fair and proper and such as reasonable, honest and right-minded men would adopt
(Paxton v Courtnay). It must also not be inconsistent with the express or implied terms of the
contracts (Kum v Wah Tat Bank)

C. National Legislation

D. European Community law (p.27)

E. International Conventions, model laws, uniform rules and Uniform trade terms (p.28)

PHILOSOPHIES OF COMMERCIAL LAW

1. Party Autonomy: The general philosophy of commercial law is that businessmen
should be free to make their own law. A contract is a contract. A party is entitled to
the benefit of this bargain and to the strict performance of conditions of the contract,
whether they relate to the time of performance or the description or quality of what
is to be tendered as performance…Only where the contracts terms are so restrictive,
oppressive or otherwise incompatible with society’s goals as to offend against the
public interests should the court intervene to curb the sanctity of the contract.

2. Predictability: the business world attaches high importance to the predictability of

judicial decisions on legal issues. The weight given by a legal system to the need
for predictability compared to equity and flexibility will, of course vary from
jurisdiction to jurisdiction and will depend in no small measure on the volume of
business and of dispute resolution particular State has or wishes to attract. A
reasonable degree of predictability is needed in the commercial world because so
much planning and so many transactions, standardized or high in value are
undertaken on the basis that the courts will continue to follow the laid down rules
in preceding cases.

JONATHAN 3
 3. Flexibility: Though predictability is a requisite requirement on the one the one
hand; there ought to be flexibility to accommodate new practices and developments
on the other hand

4. The encouragement of self-help: Compared to continental legal systems, the

common law is remarkably indulgent towards self-help. Acceleration clauses can
be invoked, contracts can be terminated or rescinded, goods repossessed all without
the need for judicial approval. The only limiting factor is that one must not commit
a breach of the peace.

5. Facilitation of security aspects: As an aspect of the common law’s attitude

towards self- help, but also an independent characteristic we may note that- again
in comparison with continental systems- it is extremely favorable to the creation of
security interests. Security can be taken over almost any kind of asset, tangible or
intangible, usually with little or no formality; it can cover present and future
property without the need for specific description; and it can secure present and
future indebtedness.

6. The protection of innocent third parties

7. The protection of vested rights

The two (above) established principles of commercial law do run in opposite directions.
The first reflects a general feeling that an owner should not lose his property without fault;
the second; that innocent buyers should be protected against proprietary rights of which
they have no notice, in order to ensure the free flow of goods in the stream of trade

8. Good faith

THE CONCEPPTS OF COMMERCIAL LAW

 The concept of market: the concept of market is central to commercial law. It does not
necessarily mean physical markets in which traders strike bargains in praesenti on the floor
of the market but a mechanism for bringing together substantial numbers of participants
who deal in commodities, securities or money and who make a market by acting both as
buyers and sellers at prices determined by supply and demand.

 The importance of customs or usages of a trade or locality: Even without a market a

court will recognize established customs or usages, such as those of particular trade or
locality, where the circumstances indicate that the parties were contracting by reference to
the custom or usage

JONATHAN 4
  The importance of a course of dealing: Since traders are often concerned in a continuous
course of dealing with each other, it is taken for granted that usual terms apply, whether or
not spelt out in the contract. Terms implied by course of dealing are thus fruitful source of
implication into commercial contracts.

 The concept of negotiability: A key feature of commercial law is the recognition of the
need for the ready marketability of commercial assets, in particular goods, money
obligations and securities. Hence, the development of documents of title and negotiable
instruments and securities, the delivery of which (with necessary indorsements) passes
constructive possession (goods) or legal title (instruments and securities) to the underlying
rights.

 The enforceability of abstracts payments undertaking: General contract law requires a

promise not made under seal to be supported by consideration if it is to be enforceable. But
all kinds of legal magic can be worked by mercantile usage. It is generally accepted that
certain types of payments undertaking become binding when communicated to the
beneficiary, despite the absence of any consideration or any act of reliance on the part of
the beneficiary.

BAILMENT
….any person is to be considered as a bailee who otherwise than as a servant either receives
possession of a thing from another or consents to receive or hold possession of a thing for another
upon an undertaking with the other person either to keep and return or deliver to him the specific
thing or to (convey) apply the specific thing according to the directions antecedent or future of the
other person.
ASHBY v TOLHURST
The owner of a car left it in a private car park. He paid the attendant and received a ticket from
him. Whilst the owner went about his business, the attendant allowed a thief to drive off in the car.
The thief, who had neither ticket nor the car key, had misled the attendant into believing that he
was taking the car with the owner’s permission. The owners of the car park had admitted that the
attendant had been negligent, but relying on an exclusion clause printed on the ticket, denied
liability.
ISSUE
Whether the owners of the car park had become bailees of the car?

HELD
Reversing the trial court decision, the CA held that, the relationship between the parties was that
of a licensor and licensee, and not that of a bailor and bailee. To the CA possession lies at the

JONATHAN 5
heart of bailment, and nothing of that sort had occurred. Because the car owner had merely been
given permission to park his car in the park, the owners of the park had not received possession of
the car.
The court further stated that possession alone is not enough to create a bailment. Two other
conditions must also be fulfilled. First, the bailor must retain a superior interest in the chattel to
that of the bailee. The bailee acquires limited possessory interest in the chattel which is subordinate
to the bailor’s interest. This is reflected in the fact that at the end of the bailment the bailee must
redeliver the chattel to the bailor or deal with it according to the bailor’s instructions (Wincanton
Ltd v P& o Trans European Ltd)
However, in a rather surprising twist and with no regard whatsoever to relevant authorities the
HOL held in Mercer v Craven Grain Storage that it is possible to have a bailment where the
bailee is authorized to substitute other goods for those bailed.
Secondly, the bailee must consent to take possession of the chattel for there to be a bailment. This
raises the question whether ‘involuntary bailments’ are really bailments at all. Involuntary
bailments arises where a person is in control of a chattel belonging to another without consenting
to act as a bailee. Eg where goods are sent to the bailees premises by mistake (as in AVX Ltd v
EGM Solders ltd) traditionally, bailment has been explained on the basis of mutual consent. This
notion has however, come under scrutiny in modern times; it has been argued that it is the bailee’s
not the bailor’s, consent which matters and that ‘any person who voluntarily assumes possession
of goods belonging to another will be held to owe at least the principal duties of the bailee at
common law’
TYPES OF BAILMENT
COGGS v BERNARD
There are six sorts of bailment; the first is bare naked bailment of goods, delivered by one man to
another to keep for the use of the bailor known as Depositum. The second, is when goods or
chattels that are useful, are lent to a friend gratis, to be used by him known as Commodatum
because the thing is to be restored in specie. The third is when goods are left with the bailee to be
used by him for hire (locatio et conductio). The fourth is when goods or chattels are delivered to
another as a pawn, to be used as security to him for money borrowed of him by the bailor and this
is called in Latin vadium and a pawn or a pledge in English. The fifth, is when good or chattels
are delivered to be carried, or something is to be done about them for a reward to be paid by the
person who delivers them to the bailee, who is to do the thing about them. The final one is when
there is a delivery of goods or chattels to somebody who is to carry them, or do something about
gratis, without any rewards for such his work or carriage.

JONATHAN 6
THE BAILEE’S LABILTY
HOUGHLAND v RR LOW (LUXURY COACHES) Ltd.
A couple returning from a trip boarded one of the defendant’s coaches. Their suitcase was loaded
into the boot of the coaches, which was locked by the driver. The bus stopped halfway through the
journey for passengers to take tea. The driver was unable to start the coach and so called for a
relief coach. But before the relief coach arrived, the coach stood unattended to in the dark. When
the relief coach finally arrived the driver supervised the loading of the passengers’ luggage into it.
The unloading of the luggage from the first coach and its transfer to the relief coach was done by
the passengers themselves without supervision. The boot of the relief coach was locked and the
coach had to stop occasionally for passengers to disembark. When the coach finally got to it
destination the couple could not find their luggage. The couples sued the defendant’s in detinue
(unlawful detention) and negligence.
ISSUE
Whether this was a case of detinue or negligence?
HELD
The trial court held that the driver of the coach was a bailee of the suitcase, and that the bailment
was a gratuitous bailment and that the defendants were liable to pay damages.
The CA held among others that there was nothing as ‘gross negligence’ because the standard of
care required in a case of bailment , or any other type of case, is the standard demanded by the
circumstances of that particular case. And that, to put bailment into a watertight compartment-
such as gratuitous bailment on the one hand, and bailment for reward on the other-is to overlook
the fact that there might be an infinite variety of cases, which might come into one or the other
category. The question then is, whether in the circumstances sufficient standard of care had been
observed by the defendants on their servants. The appeal should therefore fail regardless of
whether the case is put in detinue, or whether it is treated as an action on the case for negligence
accordingly, the defendants are liable as they failed the required standard of care under bailment.
In certain cases, the bailee’s liability for loss or damage to the bailed chattel may be strict. Strict
liability generally arises as follows:
1. Where the bailee is a common carrier, unless the loss or damage to the goods is
caused by an excepted peril, eg Act of God etc. However, strict liability may be
avoided by contractual exemption clauses or by the exemption of the status of
private carrier, and by various statutes permit or prescribe ways by which liability
may be excluded or limited.

2. Where the bailee ‘deviates’ in the conduct of the bailment eg by storing the chattel
somewhere other than the place agreed (Lilley v Doubleday) or by entrusting the
chattel without authority to a third party (Edwards v Newlands & Co) or by

JONATHAN 7
 wrongfully refusing to return the chattel or negligently failing to return it when
called upon to do so by the bailor at the end of the bailment.

BAILMENT AND THIRD PARTIES

THE WINKFIELD CASE
The question arises out of a collision which occurred between the steamship Mexican and
steamship Winkfield, and which resulted in the loss of the former with a portion of the mails she
was carrying at the time. The owners of Winkfield under a decree limiting liability to a specific
amount paid that amount into court, and the claim in question was one by the Postmaster-General
on behalf of himself and Postmasters-General of Cape colony and Natal to recover out of that sum
the value of letters, parcels etc. in his custody as bailee and lost onboard the Mexican.
HELD
That as against a wrongdoer possession is title. The chattel that has been converted or damaged is
deemed to be the chattel of the possessor and of no other, and therefore its loss or deterioration is
his lost, and to him, if he demands it must be recouped. His obligation to account to the bailor is
really not ad ide in the discussion. It only comes in after he has carried his legal position to its
logical consequence against a wrongdoer, and serves to soothe a mind disconcerted by the notion
that a person who is not himself the complete owner should be entitled to receive back the full
value of the chattel converted or destroyed. There is no inconsistency between the two positions;
the one is the complement of the other. As between bailee and stranger possession gives title-that
is, not a limited interest, but absolute and complete ownership, and he is entitled to receive back a
complete equivalent for the whole loss or deterioration of the thing itself.
There are instances where the wrongdoer may raise another person’s superior title to the chattel as
a defence against an action brought by the bailee….
 When the wrongdoer defends the action on behalf of, and with the authority of, the true
owner;
 When the wrongdoing was committed with the authority of the true owner.
 When the wrongdoer has, since the time of the wrongdoing, become the owner of the
goods.

THE LAW OF AGENCY

Definition of agency: Agency is the fiduciary relationship that arises when one person (a
‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s
behalf and subject to the principal’s control, and the agent manifests or otherwise consents so to
act.
(American Restatement of the law of Agency)

JONATHAN 8
THE RELATIONSHIP OF PRINCIPAL AND AGENT
The essential characteristic of an agent is that he is invested with a legal power to alter his
principal’s legal relations with third persons: the principal is also under a correlative liability to
have his legal relations altered. This power-liability relationship is the essence of the relationship
of principal and agent. To satisfy the principals’ claim in a myriad of cases the judges have imposed
on agents certain rules constituting safeguards against the abuse of their powers. To satisfy agents’
claims for reimbursement the judges have granted certain rights to agents. A power-liability
relation is one of the fundamental legal relations, it exist between two persons, A and B, when A
has the liability, conferred on him by law, by his own acts to alter B’s legal relations. A distinctive
feature of the agency power-liability is that the power of the one party to alter the legal relations
of the other party is a reproduction of the power possessed by the latter to alter his own legal
position. In other words, the power conferred by law on the agent is a facsimile of the principal’s
own power.

POWER & AUTHORITY

A power is a legal concept: it connotes the ability of a person to alter legal relations by doing some
act: an agent power is such an ability existing in the eyes of the law. Authority is a matter of fact:
it connotes that one person has given instructions or permission to another to act on his behalf. The
legal attribute of an agent, his power, may be called into being by the fact that he has the principal’s
authority to act, but it may be called into being by other facts, such as the necessity of the case.
AGENCY AND BAILMENT
Bailment occurs when there is the delivery or transfer of a chattel (or other item of personal
property) by one person (the bailor) to another (the bailee) with a specific mandate which requires
the identical item to be delivered up to the bailor or to be dealt with in a particular way by the
bailee. There are two important features which distinguish the two;
1. The bailee merely exercises, with leave of the bailor, certain powers over the bailed
property but, unlike the agent, the bailee does not represent the bailor and;
2. The bailee cannot enter into contracts on the bailor’s behalf, although he may have the
power to do things which are reasonably incidental to his use of the goods which he holds
(eg to have the property repaired) and thereby make the bailor liable to a third party.

CREATION OF AGENCY
The relationship of principal and agent maybe created in any one of the following ways;
1. By express or implied agreement between the principal and agent.

JONATHAN 9
 2. Under the doctrine of apparent authority
3. By operation of law
4. By ratification of the agent’s acts by the principal.

Agency arising out of agreement will always be consensual but it need not be contractual. An
agency may be gratuitous.
Although in modern commercial transactions agencies are almost invaluably founded upon a
contract between the principal and agent, there is no necessity for such a contract to exist. It is
sufficient if there is consent by the principal to the exercise by the agent of authority and consent
by the agent to his exercising such authority on behalf of the principal.
Main differences between consensual and a contractual agency;
 The presence or absence of consideration
 The fact that with a contractual agency the agent is usually under an obligation to carry out
his functions and the principal is under a corresponding obligation to remunerate him. The
agent’s contractual right to remuneration may be distinguished from his right to an
indemnity for loss and expense incurred in the execution of his duties. The right to an
indemnity arises by an operation of law irrespective of the agreement between the parties.
The agreement between the principal and agent may be expressed orally, in writing or by deed
(usually called ‘a power of attorney’)

AUTHORITY OF THE AGENT

1. ACTUAL AUTHORITY
Whether an agent has authority is a question of fact. If the principal has given prior consent to the
agent acting on his behalf then the agent can be said to have actual authority. Actual authority will
be conferred on the agent by the principal under the terms of the agreement of the contract between
them.
Diplock in Freeman & Lockyer v Buckhurst Park Pty. Ltd “an actual authority is a legal
relationship between principal and agent created by a consensual agreement to which they alone
are parties. Its scope is to be ascertained by applying ordinary principles of construction of
contract, including any proper implications from express words used, the usages of the trade, or
the business between the parties”
Ascertaining the scope of agent authority is important- as a general rule he will be entitled to an
indemnity only when he acts within the scope of his authority. However, if the agents act outside
the scope of his authority he will be liable to his principal for breach of contract, or liable to a third
party for a breach of an implied warranty of authority.

JONATHAN 10
  Express actual authority
When the authority is given to the agent by express words. Such as when the board of directors
passes a resolution authorizing an agent to sign cheques.

IRELAND v LIVINGSTON
Ireland wrote to Livingston asking him to ship 500 tons of sugar. The letter continued ‘fifty tons
or more of no moment, if it enables you to get a suitable price’ Ireland shipped 400 tons in one
vessel, intending to ship the rest in another vessel. Livingston refused to accept the 400 tons and
wrote to Ireland to cancel any further shipment.
HELD: The HOL held that Livingston was bound to accept the sugar…if a principal gives an
order to an agent in such uncertain terms as to be susceptible to two different meanings, and the
agent bona fide adopts one of them and acts upon it, it is not competent to the principal to repudiate
the act as unauthorized because he meant the order to be read in the other sense of which it is
equally capable…thus the principal should have given his order in clear and unambiguous terms.

 Implied actual authority

When it is inferred from the conduct of the parties and the circumstances of the case such as board
of directors appointing another as MD.
HELY-HUTCHINSON V BRAYHEAD LTD
Richard was the chairman of Brayhead. To the knowledge and acquiescence of the Brayhead’s
board he also acted as the defacto MD. Brayhead held shares in another company. To encourage
Hely-hutchinson to inject funds into the company. Richard in his capacity as chairman of Brayhead
wrote to him undertaking to indemnify him for any loss he might incur as a result of lending money
to the company or guaranteeing any loan. Relying on the undertaking, Hely-hutchinson advanced
the loan and the company subsequently went into liquidation. He sought to recover the loan granted
to Brayhead by relying on letter of indemnity written by Richard. This claim raised the question
of Richard authority to bind the company.
His claim was upheld on grounds that Richard had ostensible or apparent authority to bind the
company. The CA dismissed Brayhead’s appeal on grounds that Richard had implied actual
authority to bind Brayhead.

 Ostensible/apparent authority
Is the authority of an agent as it appears to others. It often coincide with actual authority. Thus
when a board appoint an MD, they invest him not only with implied authority, but also with

JONATHAN 11
ostensible authority to do all such things as fall within the usual scope of the office and people see
him as such.
HELD: That Richard had ostensible or apparent authority to make the contract. He also had by
necessary inference an actual authority, such authority being implied from the circumstances that
the board by their conduct over many months had acquiesced in his acting as MD committing
Brayhead Ltd to contracts without the necessity of sanction from the board.
HOW IMPLIED AIUTHORITY MAY ARISE
1. Incidental authority: an agent actual implied authority to do everything necessary for, or
ordinarily incidental to, the effective execution of his express authority in the usual way.
Rossenbaum v Belson

2. Usual authority: an agent has implied actual authority to do what is usual in his trade,
profession or business for the purpose of carrying out his authority or anything necessary
or incidental to it.

3. Customary authority: an agent has an actual implied authority to act in accordance with
the usage and custom customs of the particular place, market or business in which he is
employed, so long as those usages and customs are useful and lawful. Robinson v Mollet

Exceptions to (implied) actual authority;

 An agent cannot have actual authority when he exceeds express limits on his authority or
when he does something which his principal has expressly prohibited. The principal will
be bound by prohibited acts of his agent if the prohibited acts;

First, those acts fall within the authority which an agent of that type would usually possess
(usual authority)

Secondly, a third party dealing with the agent is not aware of the restrictions which the
principal has placed on the agent’s authority.

An agent has no actual authority to bind his principal when he acts fraudulently or in
furtherance of his own interests. Hopkins v TL Dallas Group

2. APPARENT AUTHORITY
RAMA CORPN. LTD V PROVED TIN GENERAL INVESTMENTS
Ostensible or apparent authority…is merely a form of estoppel. Indeed it has been termed as
agency by estoppel, and you cannot call in aid estoppel unless you have three ingredients;
I. A representation
II. Reliance on the representation

JONATHAN 12
III. An alteration of your position resulting from the reliance

FREEMAN & LOCKYER v BUCKHURST PARK PTY.

The articles of association of the defendant’s company created the position of managing director
but at that material time, no one had been appointed. However, one director with the knowledge
of the others purported to act as MD, he engaged the plaintiff’s firm to work for the company.
However, the company refused to pay for the services rendered and the firm sued. The company
argued that it was not liable as the director was not it MD and had no authority to contract on its
behalf.
HELD: That the company was liable as it had represented this director as its MD and since third
parties had relied on this representation, it was estopped from denying his apparent authority.
The court established four conditions that must be fulfilled…
I. There must be a representation that the agent had authority to enter on behalf of the
company, into contracts of the kind sought to be enforced with the contractor.

II. Such a representation was made by a person(s) who had actual authority to manage the
business of the company either generally or in respect of those matters to which the contract
relates.

III. That he (the contractor) was induced by such representation to enter into the contract and
he in fact relied on the representation.

IV. That under its memorandum of articles of Association the company was not deprived of
the capacity either to enter into the contract of the kind sought to be enforced or to delegate
authority to enter into a contract of the kind to the agent.

3. USUAL AUTHORITY
WATTEAU v FENWICK
The defendant owned a hotel appointing H as manager, but H was expressly forbidden from buying
any goods other than mineral water and bottles of beer. H had previously owned the hotel and his
name remained above the door as licensee. H ordered cigars from W, who believed he was the
owner of the hotel. The defendant (F) was held liable for the price of the cigars.
HELD: One might wonder whether F could have sued W if he had failed to deliver the cigars or
delivered cigars that were defective. It may be argued that W did not think H was an agent, he
believed H to be the principal, so if W had not been allowed to enforce the contract against F, W
would have lost nothing because he was unaware of F’s existence. Against this, it might be said
that F’s action in allowing his agent, H, to represent himself as the principal placed W in a

JONATHAN 13
weakened position. W had every reason to suppose H was the principal and this misconception
was facilitated by F.
[The decision here is difficult to explain/defend]
4. AUTHORITY BY OPERATION OF LAW: AGENCY OF NECESSITY
An agency of necessity is created by law in circumstances of necessity where one party is deemed
to have acted as an agent of another. This arises in two circumstances; commercial and domestic.
DOCTRINE OF AGENCY OF NECESSITY
I. A person may have authority to act on behalf of another person in certain cases where he
is faced with an emergency in which the property or interest of that other person are in
imminent jeopardy and it becomes necessary that in order to preserve the property or
interest so to act.
II. In some cases the authority may entitle him to affect his legal position by making contracts
or disposing off property. In other cases too, it may entitle him to reimbursement of
expenses or indemnity against liabilities incurred by so acting, or to a defence against a
claim that what he did was wrongful as against the person for whose benefit he acted.

CHINA PACIFIC SA v FOOD CORPN OF INDIA

The defendant a cargo owner charted a ship to carry wheat from the US to Bombay. The ship got
stranded on a reef whilst on the voyage. The ship’s management agent entered into a Lloyd’s
Standard form of Salvage Agreement No Cure No pay with the plaintiffs who were professional
salvors. They offloaded several tons of wheat and shipped them to Manilla to prevent them from
deterioration. The salvors looked to the owners for reimbursement of the storage charges.
Lloyd J held the cargo owner liable to reimburse the salvors but his decision was reversed by the
Court of Appeal. The HOL upheld the salvors appeal and restored the judgement of Lloyd J.
HELD: Commercial agencies arises where a party is in possession of another’s goods whether
perishable or not and an emergency arises requiring an immediate action in relation to the goods
and is impossible for the party in possession to seek instructions from the owner. This was also the
case in Couturier v Hastie. The party must therefore act in good faith. For the agency to arise
there must be; a genuine emergency necessitating action in relation to the goods, it is impossible
for the party in possession to seek instructions from the owner and the party in possession must
act in good faith for the benefit of the other party.
The agency will only arise if:
I. It is impossible or impracticable for the agent to communicate with the principal. Springer
v Great Western Rly. Co. However, improved methods of communication means this
requirement is rarely met.

II. The action is necessary for the benefit of the principal. Prager v Blatspiel (Stemp & ors.)

JONATHAN 14
III. The action taken by the agent is reasonable and prudent. F v West Berkshire Health
Authority

IV. The principal has not given express instructions to the contrary.

5. RATIFICATION
If a person (the ‘agent’) acts without authority, or exceeds his authority, his actions cannot bind
the person (the “principal’) on whose behalf he purports to act. Subsequently, however, the
principal may ratify the agent’s actions with effect from the time those actions took place.
Ratification can be either express or implied.
It comes into existence, when the person on whose behalf the agent purported to act and without
whose authority he acted adopts the transaction as if there had been prior authorization. By
ratification of the transaction the agent’s authority is backdated to the date of the transaction.
Applied in Bolton Partners v Lambert
 The agent must have purported to act for the principal and must have had a competent
principal.
 The principal must have had the capacity to enter the transaction, ratify the transaction
within reasonable time, be aware of the material facts affecting the transaction, and ratify
the transaction in its entirety.
 The contract entered into by the agent must be capable of ratification i.e. must not be illegal
or void.
KEIGHLEY, MAXSTED & Co v DURANT
Keighley, Maxsted and Co. (KM) instructed Roberts, a corn merchant, to buy wheat at a certain
price on the joint account of themselves and Roberts. Robert could not buy at this price, but he
agreed to buy the wheat from Durant at a higher price. Although Roberts intended to buy the wheat
on his own behalf of KM and himself, he bought it in his own name without informing Durant that
he was also acting for KM. KM then purported to ratify the agreement. The price was not paid to
Durant who claimed to hold KM liable on the contract.
Day J dismissed the action, but it was reversed by the CA but the HOL allowed an appeal from
CA decision.

HELD: As a general rule, only persons who are parties to a contract, acting either by themselves
or by an authorized agent, can sue or be sued on a contract. A stranger cannot enforce the contract,
nor can it be enforced against a stranger. The only exceptions to this rule is; the doctrine of
ratification, stated in Wilson v Tumman as “an act done for another, by a person, not assuming
to act for himself, but for such other person, though without authority whatsoever, becomes the
act of the principal, if subsequently ratified by him, is the known and well established rule of law.
In that case, the principal is bound by the act, whether it be for his detriment or his advantage,
JONATHAN 15
and whether it be found on a tort or on a contract, to the same effect as by, and with all
consequences which follow from the same act done by his previous authority.”
And so by wholesome and convenient fiction, a person ratifying the act of another, who without
authority has made a contract openly and avowedly on his behalf, is deemed to be, though in fact
he was not, a party to the contract.
Does this cover a person who makes no avowal at all but assumes to act for himself and not
for anyone else? If the rule in Wilson v Tumman is accurate, then it would seem to exclude a
person who may intend to act for another, but at the same time keeps his intention locked up in his
own breast, for it cannot be said that a person who so conducts himself does assume to act for
anybody but for himself. But ought the principle of ratification be extended to such a case? NO!
Civil obligations are not to be created by, or founded upon undisclosed intentions.
Accordingly, the undisclosed principal escaped liability because to the judges if the decision
appealed from was affirmed it would have introduced a very dangerous precedent. That is, it would
enable one person to make a contract between two others by creating a principal and saying what
his own undisclosed intentions were, and these could not be tested.
Brian CJ: The thought of man is not triable, for the devil has not knowledge of man’s thought.
The decision above has been criticized as being “peremptory and short sighted”
EFFECT OF RATIFICATION
BOLTON PARTNERS v LAMBERT
Lambert made an offer to Scratchley, an agent of Bolton Partners, to take a lease of certain
properties. The offer was accepted on behalf of Bolton Partners, though he had no authority to do
so. Lambert withdrew the offer before Bolton Partners ratified Scratchley’s acceptance. Bolton
Partners claimed specific performance of the contract. Affirming the decision of Kekewich J, the
CA held that Bolton Partners were entitled to specific performance.
HELD: The rule as 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 the authority to do the act at the time the act was done by him…the proper view is that
the acceptance by Scratchley did constitute a contract, subject to it being shown that Scratchley
had the authority to bind the company. If that were not shown, there would be no contract, but
when and as soon as authority was given to Scratchley to bind the company the authority was
thrown back to the time when the act was done by Scratchley, and prevented the defendant from
withdrawing his offer, because it was no longer an offer but a binding contract.

 Ratification must take place within reasonable time after acceptance of the offer by the
unauthorized person.

JONATHAN 16
  The rule in Bolton, will not apply if the third party’s offer was expressly made subject to
ratification. Metropolitan Asylum Board v Kingham or the third party’s acceptance was
expressly made subject to ratification Watson v Davies

 The agent and the third party may cancel the unauthorized transaction by mutual consent
Walter v James

 Ratification is not effective where to permit it would unfairly prejudice a third party, and
in particular where; it is essential to the validity of an act that it should be done within a
certain time the act cannot be ratified after the expiration of that time to the prejudice of
any third party. Secondly, the ratification may not be recognized if it will affect proprietary
rights which have arisen in favor of the third party or others claiming through him since
the act of the unauthorized agent.

ARHIN v KISSIWAA
The plaintiff bought from the defendant, a lotto receiver three lotto tickets and both numbers were
drawn. After the necessary processing procedures of the said winning tickets at the headquarters
of the NLA, the plaintiff was given in return for those tickets acknowledgement vouchers.
However, his tickets were declared void later by the director of the NLA, and that they were not
authorized allocations to the agent.
HELD: The legal relationship of an accredited seller or receiver with the director of NLA was that
of an agent and a principal and as to the relationship with the public dealing with such agent, the
receiver warranted that she had the authority of the director to conduct the business of a lotto
receiver. Thus on purchasing the tickets in the issue therefore A, the lotto staker contracted with
the director as a disclosed principal (K the lotto receiver) Any breach by the K therefore raised a
liability directly against the director, for an agent of a disclosed principal acting within the scope
of his authority generally never incurred any liability upon a contract. However, since in the instant
case the tickets sold to A had not been lawfully alloted to K by the director. K was outside the
scope and in breach of her agency. Consequently, when the director declared A’s winning tickets
void, K became directly liable to A on the basis of breach of warranty of authority.

GORDON v ESSIEN

The late MM, a Nigerian national, while residing in Ghana acquired house No 63/1, Old
John Sarbah Road, Takoradi. When she was leaving Ghana she left the house in the care
of DE who collected the rents on her behalf. When DE became ill, he assigned that
responsibility to his daughter, the defendant who continued to perform that duty. MM died
in Nigeria and DE died in Ghana later. The personal representatives of MM in Nigeria
executed a power of attorney in favour of the plaintiff in Ghana and gave her authority to
collect rent from the house. Following a dispute between the plaintiff and the defendant as

JONATHAN 17
 to which of them was the rightful person to administer that house each of them issued a
writ for the determination of that issue….

HELD: It was trite law that death was one of the events which automatically determined
an agency; the conception of authority demanded a continuing consent of the principal to
the agent to act on his behalf, and with the death of the principal the consent would not
continue because the mind from which it issued had ceased to exist. Accordingly, it was
unlawful for the defendant's father, DE, to have continued to collect rent in respect of the
house in dispute after MM's death. And since the defendant derived her authority from her
father, who had none, whatever authority she had also terminated automatically by
operation of law on the death of her father.

AGBEMASHOR v STATE INSURANCE Co.

A, an insurance claims agent, contacted the plaintiff who had been involved in a motor
accident and offered to make on their behalf a claim against the insurance company who
was responsible for the accident. A’s offer was accepted. A contacted K, a lawyer who,
acting on the instructions of A succeeded in recovering N3, 900.00 from the insurance
company and paid the same( less his professional fee of N100.00) to A for onward
payments to the plaintiff. The money did not get to the plaintiffs who then sued the
insurance company, the lawyer and the claims agent for its recovery.

HELD:
1. An agent stands in a fiduciary relationship to his principal and a duty was therefore
imposed on A to account to the plaintiff to accounts for all monies received by him
on their behalf. A having failed so to account was in breach of his fiduciary
obligation.

2. Where an agent is by agreement with his principal entitled to charge commission,

it will be unfair to ask him, despite his fraudulent conduct, to account for the full
amount due the principal.

RELATIONS WITH THIRD PARTIES

[DISCLOSED AGENCY]
1. RELATIONS BETWEEN ORINCIPAL AND THIRD PARTY
The General rule: Montgomerie v United Kingdom Mutual Steamship Assoc.
Montgomerie was the part owner of a ship which he insured with the defendant’s Mutual Insurance
Steamship. The policy of insurance was effected by Perry, Raines and Co. who acted as
Montgomerie’s agents Perry, Raines and Co. were members of the association but Montgomerie
was not, and his name did not appear on the policy.. When Montgomerie sued the association to

JONATHAN 18
recover a loss on the ship, the association claimed that the terms of the policy expressly excluded
liability to anyone other than a member of the Association.

HELD: The general rule as regards an agent is that; where an agent acts for a principal, the contact
is that of that principal and not that of the agent; and is prima facie at common law the only person
who may sue and be sued. The only exceptions to this rule are:
 The agent may be added as a party to the contract, if he has so contracted, and is
appointed as the party to be sued.

 The principal may be excluded in several other cases. He is excluded if the contract is
made by a deed inter parte; to which the principal is not party. In that case by ancient
rule of common law, it does not matter whether the person made a party is an agent or
not.

 Another exception is as regard bills and notes. If a person who is an agent makes
himself a party in writing to a bill or note by the law merchant a principle cannot be
added.

 Where by usage which is treated as forming part of the contract or the law merchant,
there is a foreign principal, generally speaking the agent in England, is the party to the
contract and not the foreign principal although subject to some limitations.

 The principal’s liability may be excluded, if the other party elects to sue the agent, he
cannot later sue the principal.

Accordingly, if the parties so contacted that Montgomerie and his co. plaintiffs cannot sue, the
alternative being that the action should have been brought in the name of Perry or Raines.
Exceptional cases where a disclosed principal cannot sue on a contract between his agent
and third party;
First, where the agent contracts by a deed inter partes, the principal will not be able to sue and be
sued on the contract unless he is described in the deed as a party to it and the deed is executed in
his name. But where the deed is not inter partes he can sue on it as if he is a covenantee. Moody v
Candor Insurance
Secondly, a principal cannot be made liable on any negotiable instrument unless his signature
appears on the bill. However, he will be liable if his signature is written on the document by
someone acting by or with his authority. If the agent signs the instrument with the principal’s name
then the principal will be bound.

JONATHAN 19
 [UNDISCLOSED AGENCY]
SAID V BUTT
Said wished to attend the first night of a new play to be staged at the Palace Theatre. He knew that
the theatre owners would not sell a ticket to him because of an existing dispute with them over
allegations Said had made concerning the sale of tickets by the theatre. Said therefore asked his
friend to buy the ticket for him. When said arrived at the theatre for the performance, Butt (the
MD of the theatre) refused him admittance. Said sued Butt for wrongfully inducing the owners of
the theatre to commit a breach of contract.
HELD: The officials of the theater had no idea that they were selling a ticket to an agent: if they
had known it, they would at once refused to supply a ticket….upon the special circumstances of
this case no contract existed between the parties upon which the plaintiff could sue the theater. The
personal element was here strikingly present. The plaintiff knew that Palace theatre would not
contract with him for the sale of a seat for the play. They had expressly refused to do so. He was
well aware of their reasons. By the mere fact of utilizing the name and services of his friend, the
plaintiff could not constitute himself a contractor with Palace against their knowledge, and
contrary to their express refusal. He is disabled from asserting that he is the undisclosed principal
of his friend.
Notes: The court drew a distinction between a public inn or a public service and a theater that: a
public inn is under a common law duty to supply to all who come provided that accommodation
exist; and provided also that the guest is of proper character and behavior. But a theater stands
upon a wholly different footing; it may sell or refuse to sell tickets at it own option. The public
cannot compel a theater to grant admission.
KEIGHLEY, MAXSTED & Co v DURANT
[See page 15]

2. SETTLEMENT WITH THE AGENT

IRVINE & Co v WATSON AND SONS

W and Sons employed C, a broker, to purchase oil for them. C purchased the oil from Irvine
and Co. with payment to be made by cash on or before delivery. At the time of purchase C
informed Irvine and Co that he was buying for a principal, although he did not reveal the
name of his principals. Irvine and Co. delivered the oil to C without payment, and W and
Sons not knowing that Irvine and Co had not been paid in good faith paid C. But C failed
to pay Irvine and Co who then sued W and Sons for the price. Judgement was originally
given to Irvine and Co and W and Sons appealed.

HELD: If the conduct of the seller would make it unjust for him to call upon the buyer for
the money, as for example, where the principal is induced by the conduct of the seller to
pay the agent the money on the faith that the agent and the seller have come to a settlement

JONATHAN 20
 on the matter, or if any representation to that effect is made by the seller, either by words
or conduct, the seller cannot afterwards throw off the mask and sue the principal. Heald v
Kenworth.

Notes:
In general, payment by a third party to the agent does not constitute payment to the
principal. A third party can only discharge a debt owed to the principal by paying the agent
in a limited number of circumstances;

1. If an express or implied term of the contract specifies this payment method

2. If the principal is estopped from denying the right of the third party to pay the agent because
such payment was induced by a representation by the principal.
3. If the principal has actual authority from the principal to receive payment.
4. If this method of payment was ratified by the principal
5. Mere delay by the third party in enforcing his claim against the principal is usually not
sufficient to give rise to estoppel, unless other factors makes the delay misleading to the
principal.

3. MERGER AND ELECTION

THOMSON v DAVENPORT
M’Kune’, a ‘general Scotch agent ‘in Liverpool, ordered a quantity of glass and earthen ware from
Davenport and Co, dealers in Liverpool for Thomson. At the time he placed the order M’Kune
informed Davenport and Co that he was acting for a principal but he did not reveal the principal’s
name. The goods were invoiced and debited to M’Kune, but he became bankrupt and Davenport
and Co sued Thomson for the price of the goods supplied. The jury gave decision in favour of
Davenport and Co. The Court of King’s Bench affirmed the decision.
HELD: The general rule is that, if a person sells goods (supposing at the time of contract he is
dealing with a principal), but afterwards discovers that the person with whom he has dealing is not
the principal in the transaction, but an agent for a third person, though he may in the meantime
have debited the agent with it, he may afterwards recover the amount from the real principal;
subject, however, to this qualification, that the state of the account between the principal and the
agent is not altered to the prejudice of the principal. On the other hand, if at the time of sale the
seller knows, not only that the person who is nominally dealing with him is not the principal but
agent, and also knows who the real principal is, and not withstanding all that knowledge, chooses
to make the agent his debtor, dealing with him and him alone, then, according to the cases of
Addison v Gandessequi and Paterson v Gandessequi, the seller cannot afterwards on the failure
of the agent, turnaround and charge the principal, having once made his election at the time when
he had the power of choosing between the one and the other.

JONATHAN 21
At the time of dealing for the goods, the plaintiffs were informed that M’Kune was dealing for
another. But were not informed of who the principal was. Thus at the time they did not have the
means of making their election…accordingly, this case falls in substance and effect within the first
proposition and not the latter.

DEBENHAM’s LTD v PERKINS

Mrs. Perkins purchased various items at different times from Debenham ltd. Later that year Mrs.
Perkins separated from her husband. The plaintiffs obtained judgement against Mrs. Perkins for
the items purchased after her separation. They then sued her husband for the price of those items
sold to Mrs. Perkins before separation alleging that she acted as his agent. The County Court gave
judgement for the husband on grounds that the plaintiffs had elected to proceed to judgement
against the wife. The plaintiffs appeal was allowed.
HELD: When an agent acts for a disclosed principal, it may be that the agent makes himself
personally liable as well as the principal. But in such a case the person with whom the contract is
made may not get judgement against both. He may get judgement against the principal or he may
get judgement against the agent, who is liable as the principal, but once he got judgment against
the other, either the principal or the agent, who has liability of the principal, he cannot proceed
against the other party, who might be liable if proceedings had been taken against him first-
Doctrine of election and sometimes by the doctrine that when one has merged a contract in
judgment, one can only have one judgement and cannot use the same contact to get a second
judgment.
However, in the instant case, there are two different causes of action; one against the husband and
the other the wife. Thus though the plaintiffs got judgement against the wife is no indication that
they merged the two causes of action. Thus judgement against Mrs. Perkins was for a cause of
action different from that against Mr. Perkins.
Note: Merger occurs when the third party obtains judgement against the principal or the agent
when they are both liable in the alternative. As with merger, election will not apply if the principal
and agent are jointly and severally liable on separate cause of action. The election must be clear
and unequivocal.

RAYNER v GROTE
The plaintiff purporting to act for the named principal, contracted in writing to sell certain goods
to the defendant. After discovering that the plaintiff was the real principal, the defendant accepted
delivery and paid for parts of the goods. The plaintiff then sued the defendant for non-acceptance
of the remainder of the goods. Judgement entered in favour of the plaintiff.
HELD: That if the contract had indeed been wholly unperformed, and one which the plaintiff, by
merely proving himself to be the real principal, was seeking to enforce, the question might admit
of some doubt. In many such cases, such as for instance, the case of contracts, in which the skill

JONATHAN 22
or solvency of the person who is named as the principal may be considered as a material ingredient
in the contract. It is clear that the agent cannot then show himself to be the real principal then sue
in his own name, and may be fairly urged that this, in all executory contracts if wholly
unperformed, or if partly performed without knowledge of who is the real principal, may be the
general rule.
Before delivery, the third party discovered that the plaintiff was the real principal and the third
party went ahead to accept and pay for the goods (part of it) only. The plaintiff successfully sued
the third party for failure to accept the remainder of the goods. It was important for the third party
to know the situation before delivery. If there had been no performance, a court might have refused
to enforce the contract in an action brought by the plaintiff where the identity of the principal was
material because, for example, it was a sale on credit and the credit worthiness of the named
principal was important.

YOUNGE v TONYBEE
Solicitors were instructed by Tony be to defend him in an action of libel and slander against him
by Younge. Before the action commenced and unknown to the solicitors, Toynbee had become
insane and was certified as being of unsound mind. The solicitors entered appearance, delivered a
defence and engaged in certain interlocutory proceedings. Subsequently they discovered their
client was insane and informed Younge of the fact. Younge applied to the court to have the
proceedings struck out and for the solicitors to pay for his personal cost incurred on the grounds
that they had acted for Toynbee without authority. The proceedings was struck out but his demand
for damages was refused. Toynbee appealed.
HELD: When the action was ultimately aborted, they were held liable for the opposing parties’
cost of the action on the basis of their breach of an implied warranty of authority. There are three
levels of authority namely (Smelt v Ibery); the case where the agent made a fraudulent
misrepresentation as to his authority with an intention to deceive- agent personally liable, where
the agent without fraud, but untruly in fact, represented that he had authority when he had none-
agent personally liable for inducing the other party to enter into a contract on a misrepresentation
of authority, where the agent bona fide believes that he has, but in fact he has no authority. This
category can be put in two;
 Where the agent never had authority but believed he had and,

 Where the agent had in fact full authority, but that authority had come to an end without
any knowledge, or means of knowledge on the part of the agent, that such was the fact.

Where the agent originally had authority, but that authority had ceased without his knowledge or
means of knowledge…it is true that without any mala fides he has at the moment of acting
represented that he has an authority which in fact he does not. He is then liable on an implied
contract that he had authority, whether there was fraud or not.

JONATHAN 23
Notes: the agent will not be liable where the third party knows or ought to have known that the
agent was not warranting his authority. Lilly, Wilson & Co v Smales, Eeles &Co.
The agent representation must be one of fact and not of law.

4. RELATIONSHIP BETWEEN THE PRINCIPAL AND THE AGENT

In most cases the rights and duties of an agent derive either from a contract made between the
principal and the agent or from a fiduciary nature of their relationship. But may also be derived
from other sources such as torts, or the law of restitution. Most agencies are consensual. But some
arise because of the apparent or usual authority of the agent or through necessity- such agencies
are not consensual and it remains uncertain as to whether they give rise to the normal incidents of
a principal and agent relationship. They probably do not.

5. DUTIES OF THE AGENT

I. Duty to perform his undertaken and obey instructions: If an agent has entered into
a bilateral contract with the principal, he must do what he has undertaken to do. In
Turpin v Bolton, a man who had agreed to insure his principal’s ship but failed to
do was held liable in breach of contract. When performing his duties the agent must
perform lawful and reasonable instructions of his principal even though he knows
that departing from them would be in the principal’s own interest, but a solicitor
for instance, may be under a duty to warn and advise the principal of any risk
inherent in the instructions. But an agent is not obliged to do anything that is illegal,
or which at common law or by statue is null and void Cohen v Kittel.

II. Duty of care and skill: a contractually rewarded agent owes a duty to his principal
to exercise reasonable care and skill in the performance of his undertaking. The
duty can be both contractual and tortious (Midland Bank Trust Co. v Hett, Stubbs
& Kemp) where a solicitor was held liable to his principal in both contract and tort.

CHAUDHRY v PRAHBHAKAR
Chaudhry who had just passed a driving test, asked the defendant, a close friend to find a second
car, which had not been involved in an accident for her to buy. The defendant agreed to do so for
no payment. The P did not know anything about cars, but the D though a qualified mechanic knew
something about them. The D found a car offered for sale and saw that the bonnet had been repaired
but made no enquiries as to whether it had been involved in accident or not and later recommended
it to P. The D’s answer to the P’s specific enquiry as to the accident status of the car was positive.
The P after buying the car later found that it had been involved in an accident and was

JONATHAN 24
unroadworthy and she sued for breach of duty of care. Judgement was entered in favour of the P
both at the trial and appeal stage.

HELD: If a paid agent exercised any trade, profession or calling he is required to exercise the
degree of care and skill reasonably expected of a person possessing or exercising such trade or
profession irrespective of the degree of skill he may possesses. Where an agent is unpaid any duty
of care arises in tort. Relevant circumstances would be the actual skill and experience that the
agent had, though if he had represented such skill and experience to be greater than in fact is and
the principal relied on such a representation, then he has to show that standard of skill he claims
to possess. They being close friends does not affect the duty of care, though it may be in
considering the standard of care (i.e. degree)
Notes:
This case drew a distinction between gratuitous agents and agents for reward.
Principle in Hedley Bryne applicable.

III. Duty arising from the fiduciary nature of the agency: Agents are normally subjects
to fiduciary duties. This is because the agent has the power to affect the legal
relations of his principal and the principal normally places trust and confidence in
the agent with regard to the exercise of that power. In these circumstances equity
will intervene and subject the agent to fiduciary duties so as to protect the principal
from any use abuse of power by the agent.
Fiduciary is defined as someone who has undertaking to act for and on behalf of another in a
particular matter in circumstances which gives rise to the relationship of trust and confidence. The
key element of this relationship are;
 A fiduciary must act in good faith
 He must not make profits out of his trust
 He must not place himself in a position where his duty and interest conflicts
 He must no act for his own benefit or for the benefit of third parties without the consent of
the principal.
DUTY NOT TO PLACE HIMSELF IN CONFLICT OF INTEREST SITUATION
AMSTRONG v JACKSON
Armstrong instructed Jackson, a stockbroker, to buy shares in a certain company for him.
Although, Jackson pretended to buy the shares on the open market, he actually sold his own
shares in the company to Armstrong. On discovering the truth some years later, Armstrong
claimed to have the transaction set aside. His claim was upheld and Jackson was ordered to
repay all the sums paid by Armstrong for the shares.

JONATHAN 25
 HELD: A broker who is employed to buy shares cannot sell his own shares unless he makes
a full and accurate disclosure of the fact to his principal and the principal with a full knowledge
gives his assent to the broker. The rule is not merely of law but of morality…as was said in
Parker v McKenna: No man can in this court, acting as an agent, be allowed to put himself
into a position in which his interests and his duty will be in conflict. Now a broker who secretly
sells his own shares is in a wholly false position. As a vendor his interest is to sell shares at the
highest price. As a broker it is his duty to the principal to buy at the lowest price and to give
unbiased and independent advice. The law has always required a measure of good faith from
the agent- he depart from the good faith when he secretly sells his own shares/property to the
principal. It matters not that the broker sells at the market price or without intent to defraud.
Bentley v Craven. The prohibition of the law is absolute. If the breach of duty is shown the
court will set the transaction aside Gillett v Peppercone
Notes: It is a rule of universal application that no one having (fiduciary) duties to discharge, shall
be allowed to enter into engagements in which he has or can have a personal interest conflicting
or which may possibly conflict with the interest of those he is bound to protect. Aberdeen Rly.
Co v Blaikie Bros.
The conflict rule; an agent instructed to purchase property must not sell his own property to the
principal. An agent instructed to sell the principal’s property must not buy it himself McPherson
v Watt- where an agent was held in breach for buying the property in his brother’s name.
No breach if the agent makes gull disclosures to the principal and obtains his consent accordingly.
.North & South Trust Co v Berkley

DUTY NOT MAKE A SECRET PROFIT

Unless he makes full disclosure and obtains consent, the agent may not use his position as agent,
nor his principal’s property or confidential information to make a profit for himself. In Lamb v
Evans, the CA held that the canvassers were not entitled to use for the purposes of any other
publication materials which while in the principal’s employment they had obtained for the
purposes of his publication. Also, in Hippsley v Knee Bros., the KB were in breach of their duty
and they were made to account for the secret profit. But were allowed to keep the commission as
they acted in good faith.
DUTY NOT TO ACCEPT BRIBES
BOSTON DEEP SEA FISHING & ICE Co v ANSELL
Ansell was employed as MD of the principal’s company acting on behalf of the company. Ansell
contracted for the construction of certain-fishing smacks, but unknown to the company, he took a
commission from the shipbuilders on the contract. Ansell also accepted bonuses from two other
companies (in which he had shares) with which he had placed orders on behalf of the principal’s
company. Ansell was dismissed for misconduct and later an action was brought against him to
account for the secret commission he had received. Reversing the trial decision, the CA held that

JONATHAN 26
the receipt of commission was good ground for dismissal. Ansell was thus ordered to account for
the secret commission and bonuses.
HELD:...if a servant or MD who is authorized to act, and is acting for another in the matter or any
contract, receives as regards the contract, any sum, whether by way of percentage or otherwise,
from the person with whom he is dealing with on behalf of the principal. He is committing a breach
of duty. It is not an honest act and it is sufficient to show that he cannot be trusted to perform the
duties which he has undertaken to perform…where an agent entering into a contract on behalf of
the principal, receives any money from the other person he is dealing with, then he is
misconducting himself as regarding his agency and that gives his employer the right to dismiss
him as a person who has by that act shown to be incompetent of faithfully discharging his duty to
his principal.
“he does the wrongful act whether such profit be given to him in return for services which he
actually performs for a third party or whether it be given to him for his supposed influence, or
whether it be given to him on any other ground; if it is a profit that arises out of the transaction, it
belongs to his master, and the agent or servant has no right to take it, keep it or bargain for it,
unless his master knows it”
REMEDIES AVAILABLE TO PRINCIPAL IF AGENT TAKES BRIBE
 The agent may be dismissed without notice Bulfield v Foamier
 The agent will be liable to forfeit his right to commission or remuneration that he would
otherwise have received Andrews v Ramsey & Co
 The principal may claim damages in tort for fraud against the agent and the briber( they
are severally and jointly liable for loss which resulted from the deal for which the bribe
was taken) Petrotrade Inc. v Smith
 The principal may recover the bribe and rescind the contract made with the third party as
a consequence of the bribe. Logicrose Ltd v South United FC

6. RIGHTS OF THE AGENT

I. REMUNERATION
An agent will only be entitled to a remuneration from his principal for his services if the agency is
contractual and there is an express or implied term of the contract to that effect.
WAY v LATILLA
An agent, Way agreed with his principal to send to the principal information concerning goldmines
and concessions in West Africa. Although the principal led the agent to believe that he would
receive an interest in any concession obtained, no terms as to remuneration was expressly agreed
between them. The HOL held that the agent was entitled to a reasonable remuneration on an
implied contract to pay him quantum meruit (A reasonable sum of money to be paid for services
rendered when the amount is not stipulated in a legally enforceable contract)

JONATHAN 27
Notes:
Whether a term as to remuneration is to be implied into the agency contract will depend on the
normal rules as to implication of terms into contracts. The rules as to implication of terms at
common law are strict: a term can only be implied (a) to give business efficacy to the contract, (b)
because it is so obviously a stipulation of the agreement that it goes without saying the parties must
have intended it to be part of the contract (c) as a standard term of the particular type of contractual
relationship, (d) by trade custom or usage.

II. EFFECTIVE CAUSE

MILLER, SON & Co v RADFORD
Miller, Son & Co, a firm of estates agents, were instructed by Radford to find a purchaser, or
failing a tenant, for his property Millar & Co introduced Cook, who took a seven year lease of the
property. Miller & Co were paid their commission. Fifteen months later without Miler & Co.’s
intervention, Cook purchased the freehold from Radford. Miller & Co claimed a commission on
the sale. Upholding the trial court’s decision the CA rejected Miller & Co claim for a further
commission.
HELD: It is important to point out that the right to commission does not arise out of the mere fact
that the agents have introduced a tenant or a purchaser, it is not sufficient to show that the
introduction was a causa sine qua non. It is necessary to show that the introduction was an efficient
cause in bringing about the letting or sale. Here, the plaintiff fail to establish what is a condition
precedent to their right to commission- viz, that they have brought about the sale. It is open to the
defendant in an action like this to say either that though the plaintiff effected a sale, they were not
his agents, or that, though they were his agents, they had not effected the sale. If the defendant
proves either one, the plaintiff fail to make their case out.
Notes:
a) The agent must be the direct or effective cause of the event upon which his commission is
to be paid, there must be no break in the chain of causation. County Homesearch Co ltd
v Cowham-the CA held that express terms of the agency contract were inconsistent with
an implied requirement that the agent be an effective cause of the deal.

b) Toulmin v Milliar- in order to be found a legal claim for commission, there must not only
be a causal, but there must also be a contractual relations between the introduction and the
ultimate transaction of the sale. Also, if he is instructed to find a tenant and he introduces
someone who actually buys the property he will not be entitled to a commission.

c) Where the agent is employed to find a purchaser but introduces a tenant, he will be entitled
to a commission. Rimmer v Knowles

JONATHAN 28
 d) An agent instructed to find a purchaser will not be entitled to a commission if he introduces
a Government department that goes on to acquire the property compulsorily. Hodges&
Sons v Hackbrideg Park Residential Hotel Ltd.

III. REIMBURSEMET AND INDEMNITY

An agent has a right against his principal to be reimbursed all expenses and indemnified against
all losses and liabilities incurred by him while actin within the scope of his express or implied
actual authority.
RHODES v FIELDER, JONES AND HARRISON
A country solicitor instructed London solicitors to act as his agent in an appeal which was to be
heard in the House of Lords. The London solicitors briefed counsel, who went on to win the case.
The country solicitors then instructed the London solicitors not to pau counsel’s fees, but the
London solicitors paid the fees and reimbursed themselves out of monies of the country solicitor
in their possession. The country solicitor then brought an action against the London solicitors for
the monies retained.

HELD: …it has been argued that the plaintiffs revoked the authority to the defendants to pay the
fees, and it was argued also that, when the country solicitors instruct London agents to brief counsel
and, in the usual way, the agents have consultations with counsel and incur obligations towards
counsel in respect of them which are fully recognized, the country solicitors can revoke their
authority to their London agents to pay counsel fees. Such a proposition is absolutely
unsustainable. It is, of course, the fact that the London agents could not be sued for these fees by
counsel, but that does not dispose of the question. If they did not pay the fees they would be
behaving in a way which would unquestionably place them in a serious position. A solicitor who
has undertaken to pay fees to counsel and refuses to pay them is guilty of misconduct, and therefore
it is impossible to say that it was open to the country solicitors in this case to revoke their authority.
The defendant did what they did at their master’s request. Accordingly, appeal dismissed.

Notes:

 Where the agency is contractual, the agent’s right to reimbursement and indemnity arises
as an express or implied term of the contract. However, the right may be expressly excluded
by the parties, or by a term through the custom of trade. The agent’s contractual right to
reimbursement is wide. It covers not only payments of debts which are legally binding on
the principal, but also payments which the agent is legally bound to make though the
principal is not ( Adams v Morgan & Co)

JONATHAN 29
  Where the agency is gratuitous, the agent has only a restittutionary right to reimbursement
of payments which he was compelled to make for the benefit of his principal and which
the principal would have been ultimately liable to make himself.

 The agent has no right to reimbursement or indemnity in any of the following instances

a. When he exceeds his actual authority (Barron v Fitzgerald) unless the

unauthorized acts were subsequently ratified by the principal.

b. As a result of the agent’s breach of duty, negligence, default , or insolvency (Lage

v Siemens Bros & Co)

c. In the performance of acts which the agent knows, or ought reasonably to know,
are unlawful.

BAAH LTD v SALEH BOTHERS

The P were importers of manufactured goods. Although there was no written agreement between
them, the P ordered goods for the D, usually on the D’s instructions. Since the P utilized her own
import licenses, they opened letters of credit on the D behalf and paid bank charges connected
therewith. They charged the D for these expenses plus a commission. When the plaintiffs sued by
means of a specially endorsed writ for the value of goods sold to or bought for the defendants the
matter was referred to a referee for an accounting…..
HELD: The relationship between the parties was that of an implied agency and on the general
principles of justice the plaintiffs acquired rights of reimbursement and indemnity in respect of
expenses incurred in consequence of ordering goods at the request of the defendants. However,
because the plaintiffs failed to adduce corroborative evidence to support the expenses their claim
failed and the defendants were entitled to their counterclaim.

BARCLAYS BANK v DABO

The defendant opened a bank account with the plaintiffs and made some deposits. Subsequently,
some other amounts were credited to his account and the appropriate entries made to his credit.
However, these amounts had in fact been deposited by one P. who discovered the mistake when
she came to withdraw the total. The plaintiffs produced evidence to show that one B. a clerk in
their establishment, fraudulently entered the deposits in the defendant's ledger account rather than
P.'s. B. was successfully prosecuted for his fraud. The defendant admitted that he did not make the
subsequent deposits credited to his account. The plaintiffs sued to recover those sums mistakenly
paid into the defendant account. The defendant claimed there was no mistake on the part of the
bank; that even if there was a mistake, the defendant as a customer was entitled to rely upon the
entries made in his pass-book; that the plaintiffs were estopped by their conduct from claiming the

JONATHAN 30
amount involved since the defendant had paid the amount involved to a third party. And the
plaintiffs as the principal responsible for the fraud of their servant since the acts were done in the
course of the servant's duties.

HELD:

1. The plaintiffs were not estopped from recovering the amount because the defendant, even
though he had parted with the money, had done so to his benefit, not to his detriment; he
had paid a third party in satisfaction of a debt which he in fact owed.

2. The fraud of the servant was on the master and therefore the bank can recover the loss
sustained from the servant and because of the activity of the defendant, from him also.

IV. LIEN
To secure his rights of remuneration, reimbursement or indemnity, the agent may be able to
exercise a lien over goods belonging to his principal which are in his possession. In general, the
lien gives the agent the right to detain his principal’s goods until he is paid what he is owed by the
principal in respect of those goods, i.e. it is usually a particular lien. But the agent can only exercise
a lien over his principal’s goods if he lawfully acquired possession of them in the course of the
agency (Taylor v Robinson), and he holds them in the same capacity as that in which he claims
the lien (Dixon v Stansfeld). Furthermore, an agent’s right to exercise a lien may be excluded by
express or implied terms of the agency contract (Wolstenholm v Sheffield Union Banking)

TERMINATION OF AGENCY
CAMPANARI v WOODBURN
The P agreed to pay A £100 if A sold his picture. The P died before the picture was sold. Unawares
of the P’s death A sold the picture and claimed £100 from the P’s administratrix. Although the
administratrix confirmed the sale she refused to pay A his commission. A then sued the
administratrix for his commission.
HELD: It does not appear that the original contract between the P and the intestate conferred upon
the former an authority which was irrevocable. It is plain that it was a mere employment of the
plaintiff to do an act, not carrying with it any irrevocable authority. It is trite that the intestate might
in his lifetime have revoked the authority, without rendering himself liable to be called upon to
pay the £100, though the P might have had a remedy for a breach of contract, if the intestate had
wrongfully revoked his authority….his death, however, was a revocation by an act of God and
the administratrix is not responsible for anything-it was no fault of hers – as Smout v Ibery,
that the contract was not carried out. T must have been part of the original compact between
the P and the intestate that, whereas on the one hand he would receive a large sum if he sold
the picture, so , on the other hand also, he would take the of his authority to sell being revoked
by death or otherwise.

JONATHAN 31
 FRITH v FRITH
The appellant had been appointed by a power of attorney to take possession of and manage an
estate owned by the respondent. The estate was mortgaged to a third party and the appellant gave
a personal guarantee that he would pay the mortgage debt. Neither the mortgage debt nor the
guarantee were mentioned in the power of attorney. Later the respondent revoked the appellant
authority and demanded possession of the estate from him. The appellant refused to give up
possesion on grounds that his authority was coupled with an interest, and was therefore
irrevocable. The Privy Council held that the appellant authority was revocable.
HELD: It cannot be disputed that the general rule of law is that employment of the general
character of the appellant’s in this case can be terminated at the will of the employer. The proper
conduct of the affairs of life necessitates that it should be so. The exception to this rule within
which the appellant must bring himself if he is to succeed is that where “an agreement is entered
into for sufficient consideration, and either forms part of a security, or is given for the purpose of
securing some benefit to the donee of that authority, such authority is irrevocable” it cannot be the
case that the ordinary case of an agent or manager employed for pecuniary reward in the shape of
a fixed salary comes within this exception, though his employment confers a benefit upon him.

Notes: The agent’s authority can be revoked in the following ways;

a. Execution of the agent’s commission (Blackburn v Scholes)

b. If the agent was appointed for a fixed period, the expiration of the period(Dickson v
Lilwal)
c. Agreement between the principal and the agent
d. Destruction of the subject matter of the agency of the agency(Rhodes v Forwood)
e. Frustration of the agency, rendering its performance illegal, impossible and radically
different from what the parties originally intended (Marshall v Glanville)
f. Notice of renunciation given by the agent and accepted by the principal.
g. The death, insanity, or bankruptcy of the principal or the agent, or where the principal or
the agent is a company, its dissolution or winding up (Pacific & General Insurance Co.
Ltd z Hazell)

A. IRREVOCABLE AGENCY
An agent’s authority cannot be revoked by the principal without the agent’s consent, or determined
by death, insanity or bankruptcy of the principal in any of the following ways;
 Where the authority of the agent is given by deed or for valuable consideration for the
purpose of securing or protecting any interest of the agent.

JONATHAN 32
  Where the agent’s authority is given under a power of attorney which is expressed to be
irrevocable and it is given to secure proprietary interest, of, or the performance of an
obligation owed the agent.
 Where the agent during the currency of the agency contract has incurred personal liability
in the performance of his authority for which the principal must indemnify him. Chappel
v Bray
Termination of an agent authority is prospective and not retrospective. Both the principal and the
Agent may be entiltled to sue one another on claims which accrued before termination.

B. TERMINATION BY THIRD PARTIES

DREW v NUNN
Nunn appointed is wife as his agent to purchase goods from Drew. Nunn was present when some
of the goods were ordered by his wife and he paid for some of them. Nunn later became insane
and was confined to an asylum. But his wife continued to purchase goods on his behalf from Drew,
who was unaware of Nunn’s insanity. When Nunn regained his sanity he refused to pay for the
goods ordered by his wife when he was in the asylum. It was held that Drew was entitled to recover
the price of the goods from Nunn. Nunn appealed.
ISSUE(s)
1. Does insanity put to an end the agent’s authority?
If such insanity existed at where it did not put an end to the agent’s authority it would be clear that
the plaintiff is entitled to succeed, but insanity of this kind (present case) puts an end to the agent’s
authority. Where such a change occurs as to the principal that he can no longer acts for himself,
the agent whom he has appointed can no longer act for him. The agent would be liable to a third
party, if he assumes to act on his principal’s behalf after he had knowledge of the principal’s
incompetency to act. In such a case he is acting wrongly…if not for the fact that she is married to
the plaintiff, she would have been required to compensate her husband who she is wrongly acting
on his behalf.

2. What is the consequence where a principal who has held out another as his agent,
subsequently becomes insane and a third party deals with the agent without notice of the
principal’s lunacy?
Here, authority may be created in two ways; by some instrument or the principal holding out
another as entitled to act for him. This instant case falls under the second category- that a person
dealing with the agent without knowledge of the principal’s insanity has a right to enter into a
contract with him and the principal, though insane is bound, so that he cannot repudiate the contract
assumed to be made on his behalf.

JONATHAN 33
Task: Compare Drew v Nunn with Younge v Tonybee

SALE OF GOODS
RE WAIT
Wait contracted to buy from Balfour, Williamson and Co. 1000 tons of wheat which was to arrive
at Avonmouth from the USA. The following day he agreed to sell 500 tons of this wheat to two
others, who paid him the price in advance. A few days later the vessel arrived, Wait went bankrupt.
By the time this action was brought, some of the wheat had been disposed of to other buyers, but
530 tons remained, which was still in law, the property of Wait (or his trustee in bankruptcy) and
in his possession. Nothing had been done to identify the 500 tons which was to be used to fulfil
the sale agreement to the two other buyers.
HELD: The CA held that the two buyers had no claim to any of the wheat, but could only prove
in Wait’s bankruptcy for the return of the price. Atkin J, rejected this claim that the buyers might
be able to assert a claim of a proprietary nature to their share of the wheat based on principles of
equity independently of the Act.
“That the claimants fail, and to grant the relief claimed would violate well established principles
of common law and equity. It would also embarrass to a most serious degree the ordinary
operations of buying and selling of goods…an agreement for the sale of goods does not import an
agreement to transfer property other than in accordance with the terms of the code…it would have
been futile in a code intended for commercial men to have created an elaborate structure of rules
dealing with rights at law, if at the same time it was intended to leave, subsisting with the legal the
legal rights, equitable rights inconsistent, more consistent with, more extensive and coming into
existence earlier than rights so carefully set out in the various sections of the code.
Notes: This case would have been decided differently today following the enactment of Sale of
Goods, 1995 which gives proprietary remedies to a buyer of goods forming part of a larger bulk
who has pre-paid the price.
MORGAN v RUSSEL & SONS
Morgan was the lessee of land in South Wales on which slag and cinders had been tipped, and
adjoining this property was land occupied by other persons on which were two disused cinder-tips.
He obtained a license from these persons to remove these materials and then agreed to sell to
Russel & Sons these cinders and slag from all three tips. After a considerable amount of cinders
and slag had been removed and paid for, Morgan’s lessor and occupiers of the adjoining property
forbade the removal of any more. Under the law at the time, the damages recoverable from Morgan
for breach of contract varied depending upon whether the contract was for sale of goods or of an
interest in land (Distinction no longer necessary following the rule in Brain v Fothergill)

JONATHAN 34
HELD: The court ruled that it a sale of an interest in land. The respondent Morgan did not contract
to sell any definite quantity of mineral, nor was it a contract for the sale of a heap of earth which
could be said to be a separate thing. The contract was one to give free access to certain tips for the
purpose of removing cinders and slag which formed part of the soil at a certain price. That the
contract is analogous to one which gives a man right to enter upon land with liberty to dig from
the earth in situ so much gravel or coal on payment of a certain price per ton.

Specific goods and unascertained goods

KURSELL v TIMBER OPERATORS AND CONTRACTORS
The contract between the parties was for the sale of all merchantable timber growing on a certain
date in a forest in Latvia as ‘ all trunks and branches of trees but not seedlings and young trees of
less than six inches in diameter at a height of four feet from the ground’. The buyers were to have
fifteen years to cut the timber. Shortly after, the Latvian government passed a law nationalizing
the forest. The sellers argued that the property in the timber had passed to the buyer’s and that the
consequences of the nationalization fell on them.
HELD: The timber which was the subject of the contract of sale was not specific goods, since the
trees answering to the contract measurements had not been identified (and could not in fact be
identified until the time came cut them which could be anytime within the fifteen year period). It
followed then that the property (timber) was still the property of the sellers and the contract was
frustrated

Sale distinguished from barter or exchange

ALDRIDGE v JOHNSON
Aldridge made a deal with Knights to exchange 32 bullocks for 100quaters of barley, to be
measured out of a larger amount lying in knights’ granary which Aldridge had inspected the day
before. They valued both the bullocks and the barley and agreed that the difference would be paid
in cash. Knight took delivery of the bullocks, and Aldridge sent 200 of his own sacks to Knight to
be filled with barley from the heap in the granary and put on the railway by Knight’s men. One
hundred and fifty-five of the sacks had been filled, when on knight’s instructions, they were
emptied into the heap again. Aldridge then learnt that knight was about to be declared bankrupt.
In this action brought against Johnson, Knights’ trustee in bankruptcy, Aldridge claimed the right
to the 100 quarters out of the barley in the heap.
HELD: The court held that only the barley in the 155 sacks had become Aldridge’s property. It
also held that he had not been divested of it when the sacks were emptied back into the heap. But
Aldridge had no claim to the 100 quarters which had never been put into his sacks.
“No rule of the law of vendor and purchaser is more clear than this: that, until the appropriation
and separation of a particular quantity, or signification of assent to the particular assent, the

JONATHAN 35
property is not transferred. Therefore, except as to what was put into the 155 sacks, there must be
judgement for the defendant. It was equally clear that, as to what was put into those sacks, there
must be judgement for the plaintiff. Looking to all that was done, when the bankrupt put the barley
in the sacks eo instanti the property in each sack-full vested in the plaintiff. He had inspected and
approved the barley in bulk. He sends his sacks to be filled out of that bulk. There can be no doubt
of his assent to the appropriation of such bulk as should have been put into the sacks. As to the
question of conversion, the property being in the plaintiff, he has done nothing to divest himself of
it. The plaintiff has done nothing wrong in this case because he had not mixed the property with
other similar ones. It was wrong of the bankrupt to mix what had been put into the sacks with the
rest of the barley, but no wrong had been done by the plaintiff. That being so, the plaintiff’s
property comes into the hands of the defendant’s as the bankrupt’s assignee…He claims all the
barley, and claims all of it as being the property of the bankrupt. He has therefore converted the
plaintiff’s property”

THE PROPRIETOR; MOK BEER BAR v GADA

The respondents purchased two bottles of whisky from the appellants, and afterwards asked him
to reserve the drinks for collection at a later date. The appellant’s wife mistakenly sold the goods
to another customer. The respondents therefore sued and got judgement. He later instituted another
action at the same court damages for breach of contract and also got judgement in his favor. The
appellant’s applied for a review of the judgement and was accordingly set aside. The appellant’s
contended that the agreement to keep the drinks for the respondent was not part of the contract of
sale and thus there was no breach- this was rejected and the damages were increased.
Upon further appeal, the respondent' were asked to justify the decision of the trial court and they
relied on s. 15&16 of the Sales of Goods Act( Act 137) to say that the agreement to keep the
drinks was an integral part of the contract. Appeal allowed!
ISSUE(s)
1. Whether the agreement to keep the goods for collection a condition of the contract
2. Whether failure to deliver the goods a breach of contract
3. Whether failure by buyer to accept delivery constitutes seller his bailee

HELD:
1. That since the appellants was willing and ready on the spot to deliver the goods in exchange
for the price, he had complied with Act 137; sections 15. Further, under sections 1692),
there was no evidence that the stipulation by the respondents to postpone acceptance of
delivery of the whisky was specifically made a condition of the contract of sale…the non-
delivery therefore at the time that the respondents called for them was not therefore a
breach of the condition of sale.

JONATHAN 36
 2. It was the duty of the buyer to accept delivery of the goods after he had paid the price.
Failure to perform that duty does not make the seller liable in any case.

3. It was the duty of the bailee to take reasonable care to keep and preserve the goods, and it
was also his duty to exercise that degree of care which might be reasonably expected from
a reasonable man in respect of the goods- if he failed to do that he had to pay for the goods
when they get lost. In the present case if it were not that the appellant had already paid for
the two bottles of whisky the trial court could legitimately have ordered recovery of the
value of the whisky by the respondent from the appellant.

4. The appellant could be held vicariously liable for conversion of the whisky by his wife, in
which the measure of damages was the value of the chattel, credit being given to the
appellant for the return of the chattel or its equivalent.

TAWIA v GHANA CIVIL AVIATION AUTHORITY

The plaintiff bought the firs defendant’s old and unserviceable storage tank at a public auction.
Four days later he approached the first defendant with a view to collecting the tank but he was
denied by the first defendant on grounds that the MOH had requested that the tank be released to
Pantang Hospital to satisfy a national need.
Rules: s.4 (1) (b), s.8 (1) s.53, s.54 (1) (2) and s.56 of Act 137

HELD
1. That on the fact the sale of the tank to the plaintiff was complete under sections 4(1) (b)
of the Sales of Goods Act. The statutory obligation of the first defendant therefore was to
deliver the tank and their refusal was a breach of contract.

2. For non-delivery of goods to the buyer under section 53 or for a breach of seller’s
fundamental obligation to deliver specific goods to the buyer, under s. 8(1), the same rule
was laid down in s. 54(1) and 56 respectively for the assessment of damages ie “ the
measure of damages was the loss which would have reasonably been foreseen by the seller
at the time when the contract was made as likely to result from his breach of contract”
Under s. 54(2)(b) in case of an available market the measure of damages was prima facie
the difference between the market or current price and the contract price.

JONATHAN 37
 NANOR v AUTO PARTS LTD
The plaintiff (P) entered into a contract with the defendant (D) to purchase a Nissan bus. The P
paid and the D promised to deliver within 6 months. They failed to deliver and later asked the P to
top up payment since the value of the car which they claimed being shipped had gone up and the
P paid. When the vehicles arrived some five months later, the D claimed they belonged to other
customers. The P then brought an action for specific performance or in the alternative damages for
breach of contract. The D claimed that the P had not paid the full price and also that there was no
delivery date given by them.
HELD:
1. Under s.1 of Act 137, a contract of sale of goods was one whereby the seller agreed to
transfer the property in goods to a buyer in consideration of a price consisting wholly or
partly of money. And under s.6 (1) the price must be fixed by the parties or determined by
the course of dealing between the parties. Accordingly, since the parties agreed that the P
offered to buy and the D promised to sell, the mere fact that there was a dispute over the
price and delivery did not invalidate the contract

2. It is clear under s.16 (4) that the parties could lawfully enter into contracts for which there
had been a change in time of delivery and yet no specific date had been substituted for the
original date. Since the P with full notice of the breach waived his right to insist on delivery
of the vehicle by another date, the agreement was varied to the effect that the vehicle was
to be delivered within reasonable time…since there was no evidence that the P refused to
pay the additional sums and yet the D refused to deliver the vehicle, they were in breach
and the P can treat the contract as at an end.

3. By the provisions of s.58 an order for specific performance of a contract for sale of goods
could properly be made in respect of ascertained or specific goods. Section 8(1) defined
ascertained goods as “goods identified and agreed upon after the contract of sale is made”
and specific goods as “goods identified and agreed upon at the time the contract is made”.
On the evidence at no point, neither at the time the contract was made nor after it had been
concluded, did the parties identify and agree upon a particular vehicle that that it should
be the subject matter of the agreement. Accordingly, the P not entitled to specific
performance.

4. The P is entitled to recover all the monies paid to the D under s.57 (1) (2) and also to
receive general damages for breach and also for loss of use.

HULLABY v WIREDU
The P sold his business and stock-in-trade together with the business premises to the D by separate
agreements. The value of the goods were payable by monthly installments. The purchase price and
the monthly instalment were later reduced in another supplementary agreements. As the plaintiff's
claim was in debt, he took out a summons for summary judgment …the defendant claimed as the

JONATHAN 38
purchase price was payable in more than five instalments, the agreements forming the basis of the
action were hire-purchase contracts but that these agreements had infringed section 66 (1)-(3) of
Act 137.
HELD
1. Although s. 81(1) defined a hire-purchase contract to mean a contract of sale of goods in
which the price was to be paid in five or more instalments, that definition did not include
every contract of sale. There was a distinction between a credit sale and a hire purchase
under the Act which defined hire-purchase price to exclude any sum payable as penalty or
as damages or compensation. Buyers in credit sales did not pay any sums as penalty. The
current agreement was therefore not a hire purchase agreement and fell outside the hire-
purchase provisions of Act 137.

2. The sale of a business was not the sale of goods within the meaning of Act 137. The sale
of a business was a sale of more than the goods that were sold by the businessman. It
included the sale of goodwill and a whole business organisation. In the instant case what
was sold consisted also of an interest in land and this could not be the sale of goods.

INTERNATIONAL SALES
There are several ways in which sale of goods contract may have an international element;
 The seller and buyer may be in different jurisdictions or,
 The contract may contemplate that the goods be carried from one country to another
A contract of this kind exposes the parties to several risks;
 Physical risk associated with transport/ handling
 Financial risk( movement in exchange rates)
 Political risk( wars, blockades)
 Legal risk( If a foreign system of law is involved)

Attempts at establishing standard terms of trade on supra-national basis by international treaty;

 The Uniform law on international sales based on a convention signed at the Hague in 1964
 The UN convention on contracts for international sales of Goods(Vienna Convention)
destined to succeed the above
Delivery of goods can be effected by handing over any of these documents. The principal
documents are:
 The bill of lading
 Commercial invoice
 Policy of marine insurance

JONATHAN 39
BILL OF LADING: A document with a threefold purpose. It is issued by the carrier (owner or
charterer of the ship) to the consignor of the good, or to someone nominated by him, shortly after
the goods have been loaded onto the ship.
 It acknowledges the fact that the goods have been received, describing them in itemized
list, and evidences the fact that they have been loaded in apparent good order and condition(
if not the defect is noted)
 It normally contains the terms of the contract of carriage, identifying the routes and
destinations
 It is regarded in law as evidencing the rights of possession and ownership in respect of the
goods, so that these rights are deemed (at least prima facie) to be vested in the person
holding the bill of lading-the person who is in possession. Delivery of the goods at their
destination is normally made by the carrier to the holder against the surrender of the bill.

COMMERCIAL INVOICE: This is an invoice itemising the goods sold and describing them in
a way which makes it possible to identify as the contract of goods, or as answering to the
description of the contract of the goods.
THE POLICY OF MARINE INSURANCE: This must be expressed in such a way as to make
it clear that it covers goods specified in the other two documents for the whole voyage covered by
the bill of lading. When the bill of exchange is transferred from one person to another, the policy
of insurance will be assigned at the same time.

A buyer of goods to whom this package of shipping documents has been effectively transferred
can assert:
 Contractual rights against the carrier under the contract of carriage. He will in turn be liable
to the carrier for the freight.

 The contractual rights against his immediate seller under the contract of sale

 His rights, as assignee of the benefit of the insurance policy, against the insurer, if the goods
are lost or damaged by an event which the policy covers.
In addition, if the property in the goods has passed to him, he will have rights in tort against those
who interferes with them or negligently damages them. However, this may not be the case if he
doesn’t own the goods, even though he may be at risk

JONATHAN 40
 TYPICAL EXPORT TRANSACTIONS
The parties to an international contract of sale are free to make any arrangements they choose as
regards delivery, risk and other incidents of the transaction. In practice, the contract is likely to fall
under one or another of a series of recognized heads…;
 Free carrier
 Free Alongside (FAS)
 Cost and Freight
 Cost, Insurance and freight (C.I.F)
 Delivery ex quay
 Carriage paid
FAS CONRACTs (FAS): Here, the first inland journey to the port of shipment is the seller’s
responsibility, but he assumes no obligations beyond that (except, perhaps, obligations in regard
to procuring certificates of origin etc.). This contract is no different in essence from a domestic
sale or FOR (free on rail) terms or even from where the seller agrees to deliver goods at any other
place within the seller’s own country.
The sellers’ duties includes;
 To supply the goods, with evidence of conformity with the contact
 To deliver the goods alongside the ship, at the place and at or within the time stipulated or
nominate by the buyer
 To give the buyer notice of the above
 To cooperate with the buyer in obtaining the necessary documentation eg. An export
license.
 To provide the certificate of origin.
The buyer’s duties;
 To procure a ship or shipping space, and give the seller due notice of the name of the ship
and the place and time of loading.
 To pay the price
 To bear all the cost from loading alongside ship
 To bear the cost of procuring all documentation including the export license, BL etc.

FOB CONTRACTs: The contract on FOB (free on board) terms is the first of the two
‘mainstream’ export transactions for which detailed rules have been fully worked out over the
years. Here, the seller undertakes not just to get the goods onto the ship, but to see them load onto
the ship and to bear the cost of loading them. But it is the buyer’s duty to make all arrangements
regarding the shipping and the insurance of the goods.
The seller must have the goods ready for shipment at the time and place, then he has to load them
onto the ship at his own expense. The buyer must be ready to pay the price after loading.

JONATHAN 41
At the conclusion of the loading, the consignor is issued with a document called ‘mates receipt’
which acknowledges receipt of the goods itemized as the quantity and description and confirmed
to be in apparent good order or condition. The critical moment in a FOB contract occurs when the
goods ‘cross the ship’s rail’ normally by being swung by a crane.
Seller’s duty under FOB
 Supply the goods with evidence of conformity to the contract.
 Deliver the goods on board the ship at the place and time stipulated by the contract or
nominated by the buyer.
 To obtain the export license
 To bear all the cost up to and including loading ( cross the ship’s rail)
 To give notice to the buyer to enable him insure the goods during the sea transit
Buyer’s duty
 Procure a suitable ship and give the seller due notice of the ship and place and time of
loading
 To pay the price
 To bear the cost of procuring all documentation
 To bear all cost subsequent to the goods passing the ship’s rail

PYRENE Co Ltd V SCINDIA NAVIGATION Co. Ltd

An airport fire tender that had been sold on FOB terms by Pyrene to the government of India, was
dropped and damaged while being loaded for export on a ship belonging to Scindia. It had not
crossed the ship’s rail. Contracts for the carriage of goods by sea were at the time regulated by The
Hague Rules which limited liability of the carrier for negligent damage of goods to £200. But the
contract of carriage here had been made between Scindia and the buyers. This action was brought
by the sellers (as in consignors of the goods in question) claiming £960 damages against Scindia
for negligently damaging the tender.
The question was whether the limitation of liability by The Hague Rules could be pleaded in
defence. It was argued that the doctrine of privity prevented Scindia from relying directly on the
contract of carriage.
HELD: On the facts, the sellers had ‘participated’ in the contract of carriage sufficiently for them
to be bound by The Hague Rules, or that alternatively, there was a collateral contract between the
parties into which The Hague Rules could not be incorporated on the basis of usage and custom.
From the standpoint of the shipper;
Where the shippers take out a bill of lading or an insurance policy, he has at the time of the contract
himself got the property in the goods; the question whether he contracts for the benefit of
subsequent owners depends on proof of his intention at the time of contracting. But where as in
this case, he has not got the property at the time of contract, and does not to acquire it before the
contract begins to operate, he must act as an agent. He cannot intend otherwise; the intention is

JONATHAN 42
inherent in the act; he must either profess agency or confess himself a wrongdoer. For if the ship
owner lifts the sellers goods from the dock without the sellers authority he is guilty of conversion,
to which the shipper, by requiring him to do it, makes himself a party.
From the standpoint of the ship;
If the ship owners were sued for conversion, they would surely have redress against the shipper.
A person who requests a carrier to handle goods must have the right to deal with them or it would
not be safe to contract with him. A ship owner cannot be supposed to inquire whether the goods
he handles do or do not belong to the shipper who entrusts them to his care, if the goods are not
the shipper’s there must be an implied warranty of authority by him that he has the right to contract
with regard to them.
From the standpoint of the seller;
If his goods are left behind and it is said to him “you made no contract with the ship; what else did
you expect? I think he would answer that all necessary arrangements had been made by the
shippers.
If this conclusion is wrong, there is an alternative way by which on the facts of this case, the same
results would be achieved. By delivering the goods alongside the seller impliedly invited the ship
owner to load them, and the ship owner by lifting the goods impliedly accepted that invitation. The
implied contract so created must incorporate the ship owner’s usual terms; none other could have
been contemplated; the ship owner would not contract for the loading of the goods on terms
different from those which he offered for the voyage as a whole

CIF CONTRACT: This is the second and ‘classic’ export sale form. Here, the delivery point is
moved further down the sequence, to a time after the goods have been shipped. In a CIF contract,
the buyer looks to the seller to make the whole shipping arrangements including those relating to
insurance, and the buyer takes delivery of the goods symbolically, commonly while they are
somewhere at sea by taking over the shipping documents relating to the consignment- including at
least, bill of lading, commercial invoice and insurance policy.
Seller’s duty
 To ship at the agreed port of shipment goods of the contract description ( or procure goods
afloat which have been so shipped)
 To procure a contract of sea carriage by which the goods will be delivered to the contact
destination.
 To insure the goods under an insurance contract which will be available for the benefit of
the buyer
 To procure a commercial invoice in conformity with the contract
 To tender the documents to the buyer or his agent

JONATHAN 43
Buyer’s duty
 To accept the documents, if they are in conformity with the contract and pay the price
 To take delivery of the goods at the agreed destination and pay all unloading cost
 To pay customs and other duties at the port of arrival
 To procure any necessary import license

The importance of shipping documents

The key feature of a CIF contract is the role played by the documents in the performance of the
contract. Once the buyer has these documents delivered to him in a way that effectively transfers
or assigns him the rights which they embody, he is in a position to assert his title to the goods
(since property normally pass on the delivery of the bill of lading) and with the it, the right to
possession; he can demand the goods at the port of arrival, and sue a wrongdoer in tort if goods
are wrongfully damaged, lost or detained
He has a contractual right against the carrier, if the goods are damaged or delayed in delivery and
he has the right to claim on the policy of insurance in the event of accidental loss or damage- say
in a storm at sea. However, since he has only the documents to go on, the law rightly says that he
is bound to complete by taking up the documents only if the documents tendered are strictly in
conformity with the contract. It must be clear from the documents that everything is in order.

ROSS T SMITH & Co Ltd v TD BAILEY, SONS & Co.

The contract in question here is a CIF contract. It is the type of contract which is more frequently
and widely in use than any other contract used for the purposes of se-borne commerce. The
essential elements of this contract are;
 The seller has to ship or acquire after that shipment the contract goods, as to which, if
unascertained, he is generally required to give notice of appropriation.

 On or after shipment, he has to obtain proper bills of lading and proper policy of insurance

 He fulfils his contract by transferring the price, less the freight, which the buyer has to pay.
The property which the seller retains while he or his agents, or the banker to whom he has pledged
the documents, retains the bill of lading is the general property, and not as a special property by
way of security. In general however, the importance of the retention of the property is not only to
secure payment from the buyer, but for purposes of finance.
By mercantile law, the bills of lading are symbols of the goods. The general property in the goods
must be in the seller if he is to be able to pledge them. The whole system of commercial credit
depends on the seller’s ability to give a charge on the goods and the policies of insurance.

JONATHAN 44
 MANBRE SACCHARINE Co Ltd v CORN PRODUCTS Co Ltd
Under two separate contracts, Corn Products sold starch and corn syrup to Manbre Saccharine on
terms CIF London. Goods answering the contracts description were shipped aboard the SS
Algonquin, which was sunk by a torpedo or mine on 12th March 1917. The seller’s tendered the
documents relating to the goods on 14th March, but the buyers refused to take them up or pay the
price.

HELD: That they were bound to do so, and that this was a breach of contract. The first question
that arises can be stated as: can a vendor under an ordinary CIF contract effectively tender
appropriate documents in respect of goods shipped on a vessel which at the time of the tender the
vendor knows to have been totally lost? The essential feature of a CIF contract and an ordinary
contract for the sale of goods rests on the fact that performance of the bargain is to be fulfilled by
delivery of documents and not by actual physical delivery of goods by the vendor. All that the
buyer can call for is the delivery of the customary documents. This represents the measure of the
buyer’s right and the extent of the vendor’s duty. The buyer cannot refuse the documents and ask
for actual goods, nor can the vendor withhold the documents and tender the goods they represents.
The position is stated with weight and clearness by Scrutton LJ, thus: the best way of approaching
the consideration of all questions on CIF is to realize that this form of sale of goods is one to be
performed by delivery of documents representing the goods- i.e., of documents .giving rights to
have the goods delivered or the possible right, if they are lost or damaged, if recovering their value
from the ship owner or from underwriters.
The plaintiffs were therefore not entitled to reject the tender documents upon the ground that, the
defendants had prior knowledge that the ship had sunk prior to the tender of the documents.

ARNOLD KARBERG & Co v BLYTHE, GREEN, JOURDAIN & Co

Blythe and Co had contracted to buy Chinese horse beans CIF Naples. The beans were duly
shipped in 1914 aboard a German ship, but before the documents were due to be tendered war was
declared against Germany, with the consequence that the contract of carriage contained in the bill
of lading became void for illegality.
HELD: It was held that documents tendered under a CIF contract must be valid and effective at
the time of tender: it is not sufficient that they were valid when issued. The Court of Appeal held
that the buyers were entitled to reject the bill.

HANSON v HAMEL & HORLEY Ltd

Hanson agreed to sell 350 tons of Norwegian cod guano to Hamel & Horley CIF Kobe or
Yokohama. Since there was no ships running directly from Norway to these Japanese parts, the
Guano was sent on a local ship, from Brattvag in Norway to Hamburg and then transshipped to

JONATHAN 45
Atlas maru for the ocean voyage to Japan. After the Atlas Maru had sailed, the sellers tendered to
the buyers in purported performance of his contract a bill of lading which related only to the
‘ocean’ leg of the of the transport.
HELD: The buyers were held entitled to insist on a “continuous documentary cover” i.e.
documentary evidence of contract covering both legs of the journey and the period of
transshipment, and to reject this tender. When documents are to be taken up by the buyer he is
entitled to documents which substantially confer protective rights throughout. He is not buying a
litigation.
BERGER & CO INC V GILL & DUFFUS SA
Bergers contracted to sell to Gill and Duffus 500 tons of Argentina bolita beans CIF Le Havre.
The contract provided for payment to be made against shipping documents, and also that a
certificate given by independent assessors as to the quality of the beans at the port of discharge
should be final. The first ship unloaded only 445 tons at the Le Havre, and carried the remaining
55 tons to Rotterdam. This part of the consignment reached Le Havre some two weeks later.
Meantime, the buyers twice rejected the documents, on grounds relating to the certificate of quality
as regards the 445 tons.
HELD: The House of Lords held the rejection to be unfounded. The buyers were accordingly
guilty of a repudiatory breach which, it was held, discharged the sellers from their obligation to
deliver the 55 tons and debarred the buyers from any right that they might have had to reject the
goods. In consequence the buyers were held liable in damages for non-acceptance in respect of the
entire 500 tons.
Accordingly, the refusal by the buyer to accept the tender of shipping documents which on the
face of them conform to the requirements of a CIF contract and upon such acceptance to pay the
contract price amounts to a breach of condition.

KWEI TELE CHAO v BRITISH TRADERS & SHIPPERS LTD

When a buyer under a CIF contract accepts shipping documents which transfers property in the
goods to him, the property in the goods that he obtains is subject to the condition subsequent that
it will revest in the seller upon examination of the goods themselves upon arrival the buyer finds
them not to be in accordance with the contract in some respect would entitle him to reject them,
and he does in fact reject them. But this is because the CIF contract remains on foot; and being a
contract for the sale of goods, the buyer has the right to reject the goods themselves for non-
conformity with the contract and retains this right until he has had a reasonable opportunity of
examining the goods after they have been delivered.

RIGHTS OF REJECTION
A buyer under a CIF contract has two rights of rejection (Kwei Tele Chao v British Traders)

JONATHAN 46
 1. If the documents are not in order, he may refuse to take them up, and treat this as a
repudiatory breach by the seller, and even after he has accepted the documents he has the
rights to reject the goods if on arrival they prove not to be in conformity with the contract.
Conversely, if the buyer rejects the documents when they are apparently in order, the seller
may elect to treat this as a repudiation on the part of the buyer, and is relieved from the
duty of delivering the goods themselves (Berger v Gill& Duffus)

In a CIF contract the property in the goods and the right to possesion normally pass to the buyer
when documents are handed over. But the risk is deemed to have passes retrospectively ‘as from’
shipment- in other words the buyer takes over the risk with retrospective effect back to the time of
shipment. This may mean that he has to pay up the documents even though the goods have been
lost. (Manbre Saccharine Co. Ltd v Corn Products Ltd)

JONATHAN 47