MODULE CUZL331
COMMERCIAL LAW 1: AGENCY AND SALES
Maureen Banda-Mwanza LLB (UNZA), ACIArb ACKNOWLEDGEMENTS
In the formulation of this module, tailored for the exclusive use of Cavendish University, the Author referred to various renown Commercial law books, quotations of which shall be minimized as much as is practicable.
The good authors of the renowned works aforementioned are fully acknowledged for the relevance of their various pieces of work in the study of Commercial Law.
CONTENTS PAGE TOPIC 1
TOPIC 1
AGENCY
AT the end of this unit, students should be able to understand: 1. The requirements in forming an agency contract, formalities and capacity,
2. Authority of an agent
3. The duties of an agent
4. The Agent’s right against the Principal
5. The Principal’s relation with third parties
6. Various types of agency
7. How to terminate an Agency agreement
Introduction
Agency is one of the essential features of Commercial law. Commercial law is the law governing business contracts, bankruptcy, patents, trade-marks, designs, companies, partnership, export and import of merchandise, affreightment, insurance, banking, mercantile agency and usages.
Agency can therefore be defined in the relationship which arises when one person (an agent) acts on behalf of another person (the principal) in a manner that the agent has power to affect the principal’s legal position with regard to a third-party.
Common law explains the basic rule of an agency relationship in the Latin maxim “Qui facit per alium, facit per se” the literal English translation of which is he who acts by another acts by himself. This rule goes to highlight just to what extent a principal is bound by an act of his agent done in the principal’s name.
The agency relationship forms a triangular set of relationships that are considered pertinent at law, viz; i. The relationship between the principal and the agent
ii. The relationship between the principal and a third-party
iii. The relationship between the agent and a third-party, which may be created in certain situations.
UNIT 1: Formation of Agency; formalities and capacity
An agency relationship between an agent and a principal can be created in any one of the following three ways:
a. By consent
b. By operation of the law
c. By the doctrine of apparent authority or agency by estoppels
a. Agency by Consent
This arises in instances where the principal authorizes the agent to do an act on his behalf and the agent does it. This is called actual authority and it is a consensual legal relationship between the principal and the agent. Such kind of authority can be:
Express or implied as was the case in Garnac Co.Inc. V. H.M.E. Faure and Fairdough Limited (1968) A.C. 1130, 1137; 2All E.R. 353, 358 where Lord Pearson stated that express authority is given by express words such as is evidenced in a power of attorney. Implied authority can be inferred from the conduct of the parties and the circumstances of the case.
Precedent or subsequent. It is precedent if the principal consents to it prior to the carrying out of the Act and it is subsequent if the principal ratifies the Act after it has been carried out.
The doctrine of the apparent authority. A third party is not expected to concern himself with the precise limit of authority of the agent. The third party is only concerned with the apparent authority, which as far as the third party is concerned is the real authority. In other words apparent authority is the authority of an agent as it appears to others. - See per Scutton L.J. in Reckitt vs Barnett Pembroke and Slater, Ltd (1928)2.K.B.244,257.
Under this doctrine therefore the principal may be bound to third parties because the agent appeared to have authority when actually there was no such authority between the principal and the agent.
ACTIVITY1: Questions for Discussion.
1. What is the definition of Agency?
2. How is an agent by Consent created?
3. Discuss the act of ratification by a Principal.
4. What is understood by apparent authority?
Formalities.
Robert Lowe in Commercial Law states that no formalities are required for the appointment of an agent. However, there is an exception to the general rule in that in conveyancing matters such as the sale of Land , an agent has to be appointed by a Deed known as the Power of Attorney to execute a Deed that can be held to be valid.
Capacity
The general rule is that a person has the capacity to appoint an agent or ratify the acts one purporting to be an agent.
Minor
A minor cannot in certain instances appoint an agent such as in the case of disposal of property. A minor cannot give a valid Power of Attorney, unless such minor is a married woman. Mental Disorder
Robert Lowe states that the general rule is that where a party to a contract is of unsound mind, the contract is binding upon him unless he can prove that he was so insane that he did not know what he was doing and this was known to the other party. See Imperial Loan Company v Stone (1892) 1Q.B 599, However, in Young v Toynbee, the agency Contract was held to terminate the agents authority automatically even though the agent was not aware of the principal’s insanity. The general rule therefore appears not to apply to agency contracts, which becomes void if the principal is of unsound mind. See Young v Toynbee (1910) 1K.B. 215
An agent can act for both parties as long as there will be no conflict of interest or breach of duties to the first principal.
An agent need not have full contractual capacity, as he is a mere link between two contracting parties, as long as he understands what he is doing-See Co. Litt 54aForeman v. W.Ry (1878) 38LT. 851, (the principal of an illiterate is in the same as he and not the agent had signed a document: Re D. Argibau (1880) 15 Ch.D.228,246 but the agent’s liability to his principal would depend on his contractual capacity.
In Zambia the Companies Act 388 of the Laws provides that if a person is an infant, or is under legal disability that person is not eligible to be appointed as a company Director. The partnership Act of England of 1890, which is applicable to Zambia states that a person can only be a partner if he has capacity to contract, thus agents such as Company Directors and partners have to have the contractual capacity, which in Zambia is the age of 1 8.
ACTIVITY2: Questions for discussions
1. For what purpose is the Power of Attorney created?
2. Can a minor be an agent? Discuss 3. Principal P. is insane. Is his agent’s action binding on him?
Agent’s relationship with third parties
Generally when an agent makes a contact on behalf of the principal, the contract is between the principal and the third party. The agent acquires no rights or obligations under the contract.
Agents of the state can never be personally liable over the state’s failure to perform a contractual obligation. In the case Stickrose (Pty) Ltd v The Permanent Secretary Ministry of Finance (1999) ZR 155 the appellant obtained judgment against the respondent for the payment of a specified sum in United States Dollars plus interest. The state was prepared to liquidate the debt in monthly installments but the payment was not being paid monthly. The appellant commenced committal proceedings against the respondent.
The trail judge refused to grant an order for committal. The Appellant appealed. It was held amongst others that the public officers need protection of the Law; they are not to be harassed by way of civil action as a means of enforcing Judgments against the state.
Sakala C.J. noted that a Permanent Secretary is only an agent who executed his duties within the budgetary allocation and if the government had no money, the Permanent Secretary cannot be expected to mint the money. The learned trial judge refused to grant the Order of Committal.
The court stated that, under the State proceeding Act, the court was not competent to issue a Committal Order against Mr. James Mtonga ( the permanent secretary) as an individual. The Court then went ahead and dismissed the appeal. Disclosed and Undisclosed Agency
Disclosed Agency
Where the agent reviews that he is acting as an agent that is disclosed. The agent’s liability to third parties may depend on whether the agency was disclosed or not. Where the principal disclosed, he and not the agent is liable on the contract and may be sued.
In Sui yin Kwan v Eastern insurance (1994) 2A.C 199 the ship Osprey was owned by Axelson. Their agent Rishstone was asked to insure the ship which they did in Richstone’s own name. The ship was destroyed by a typhoon and lost many crew. The relatives of two of the crew sued Axelson and were successful, but when it subsequently went into liquidation, they sued the insurance company who claimed they only knew Richstone and not Axelson.
It was held that the doctrine of undisclosed Principal appears. The Principal acted within its agent’s actual authority and the undisclosed principal may acquire the rights/ liability of the agent. Thus the relatives could recover from the insurance company.
Undisclosed Agency
The third party has an elective right to sue either the agent or the principal, where the agent does not disclose the principal.
Where an agent contracts with the third party without disclosing that he is acting as agent, the agency is undisclosed. Initially the contract is between the agent and the third party. However, if the third party discovers the principal’s existence, he may enforce the contract either against the agent or the principal but not both and the principal can enforce the contract against the third party as long as the agent acted within his actual authority.
In Clarkson Booker Ltd v Andjel (1964) 3A11 ER 260 an agent failed to pay for an airline ticket which he had purchased from a third party on behalf of an undisclosed principal. The third party discovered the principal and eventually served a writ on it. The principal became insolvent so the third party sought payment from the agent. It was held that this was a borderline case but the fact that a writ was served did not amount to an equivocal election. The third party was free to pursue the action against the agent.
ACTIVITY 3: Questions for Discussion.
1. How is a Permanent Secretary in Zambia an agent of the state? Discuss.
2. Agent (A) bought a car in his name on behalf of principal (P) can a third party enforce the contract against A if A had actual authority from P?
TOPIC 2: Authority of the agent
The authority of an agent generally is the power given to the agent by the principal to do acts, although there are exceptions, The basis of the principal –agent relationship is Consent.
Express Authority
An express authority by the principal may be given either orally or in writing. If it is in writing it can be under hand or under seal. Express authority given under seal is by way of Power of Attorney. A Power of Attorney can be general or specific.
A Power of Attorney is required to be executed in the presence of a witness and thereafter it must be registered in the miscellaneous Register at the Lands and Deeds Registry. The General List of the High Court also has a miscellaneous register that would duly file such documents.
If the instructions given to the agent by the principal are ambiguous then the agent will not be liable. The principal will be bound if the agent acts on reasonable constructions of the principal’s instructions, whether or not it is the instruction indeed by the principal.
Implied Authority Implied authority is reflected in acts which are necessary to be done or incidental to the execution of the express authority e.g. if an agent has authority to sale the house, he may have implied authority to execute legal documents such as the contract.
Usual Authority: Roberts law states that it is the general rule that where an agent carries on a trade, profession or business as an agent he has an implied authority to perform such acts as are usually in that trade, profession of businesses, e.g. auctioneers and estate agent, factors and brokers for instance an auctioneer has instructions to sale and therefore he has authority to sign a contract of sale.
An auctioneer’s Authority is:
a) Irrevocable
b) Is demanded to be the agent of both the purchaser and the vendor for the purpose of signing the contract.
c) To a licensed auctioneer in the employment of auctioneer.
Estate Agent
The authority of the estate agent depends on the instructions given to him e.g. he has no authority to sign a contract if he is instructed to find a purchaser. If he is instructed to sale a property , he may have powers to sign a contract depending on the authority given.
Apparent Authority
The principal in this case is liable for the acts done by this agent without real authority. This is where a principal by this representation or conduct or by word to a third party represents to that third party, that the agent has authority to act on his behalf, in such an instance, the principal may be bound by the act of the agent. The doctrine also applies where the principal allows his agent to have more authority than he has,- Rama Corpn v Proven tin and general investment limited (1952) 2QB 147, 149-150
The rules applicable to this doctrine are: a) The representation must be by the principal by way of word or conduct.
b) The representation may be intentional or negligent.
c) The representation must be made by the principal to the person seeking to hold the principal liable.
d) It must be clear that the agent has authority to do a particular act on behalf of the principal.
ACTIVITY 4: Questions for discussion
Discuss the following types of Authorities:
1. Express authority.
2. Implied authority
3. Usual authority
4. Apparent authority
Ratification
This is when an unauthorized act is done by an agent on behalf of his principal and the act is subsequently ratified by the principal. Ratification can be done expressly or it may be inferred from an act showing intention to ratify the act done by the agent.
Furthermore, the act of a person not appointed agent of an individual may be binding that individual if he expressly ratifies that act or performs an act which amounts to ratification of those acts. In the case of Waithman v Wakefied (1909) 170 ER 898, the defendant’s wife ordered some clothing from the plaintiff on her husband’s account without any authority from her husband, the plaintiff then demanded payment. The defendant initially agreed for the goods to be returned to the plaintiff but after resistance from his wife, backed down. The plaintiff sued for the price of goods. The defendant argued that he was not liable for his wife’s unauthorized act and therefore not liable to pay for the goods sold and delivered to his wife.
It was held that the defendant had ratified the transaction by keeping the goods. Ratification need not be express. It may be implied as in this case.
Ratification is subject to the following:
a) The principal must have been in existence when the act was done as a principal that was not in existence at the time an act was done cannot ratify such an act. In the case of Kelner v Baxter (1866) LR 2CP 174: 36LJ CP 94 three promoters of a company entered into a contract to purchase wine on “behalf of the proposed Gravensend Royal Alexander Hotel company”. The wine was supplied .The company was incorporated But collapsed soon afterwards. The plaintiff sued the defendant for the price of the goods.
Erle C. j Said that if the company was in existence at the time they could have signed as agents but since the company was not in existence at the time the agreement was inoperative unless it was held to be binding on the defendants personally. When the company came into existence afterwards, it had rights and obligation from that time but no rights or obligation for anything which might have been done before…..Willes J. said that ratification can only be by a person ascertained at the time the act is done by a person either in existence or in contemplation of law…..both upon principal and upon authority, therefore it seems to him that the company could never be liable upon this contract……
b) The principal must have been named or been ascertainable by the third party when the act was done. In Keighley Masted & Co. v Durand (1901) AC 240: 84LTR 527 A principal authorized an agent to buy wheat at a give price in the joint names of the principal and the agent. The agent failed to purchase wheat at that price and therefore purchased wheat in his name at a high price .The principal purportedly ratified that purchase agreement at a high price but failed to take delivery of the wheat. The seller then sued the principal. It was held that his action could not succeed because the agent’s act was unauthorized and since the principal’s identity had not been disclosed to the seller, the principal could not ratify and thus was not liable on the contract. Macnaghten L.J said that as a general rule, only persons who are a party to the contract, action either by themselves or by an authorized agent can sue or be sued on a contract. Stranger cannot enforce a contract nor can it be enforced against a stranger. c) The principal must have had capacity to do the act at the time the agent did it and at the time of ratification. In the case Grover & Grover Ltd v Matthews (1910) 2KB 401.The plaintiffs by their agent , Mr. Brows took out a Lloyd policy on the plaintiffs factory for 12 months through Mr. Dott an insurance broker at Lloyds. Mr. Brows without instructions from the plaintiff wrote to Mr. Dott about the renewal Notice in the case of insurance as the present insurance was expiring on 25 march 1909. On the 27th March the plaintiff’s factory was destroyed by fire. The plaintiff on the same day handed Mr. Brows the cheque for the insurance premium which was sent after the loss occurred. Mr. Dott refused to accept the cheque as it was sent after the loss occurred. The plaintiff then brought this action. The question arises as to whether the plaintiff could ratify after the loss occurred, a presumed valid contract of fire assurance made through Mr. Brows with the defendant Mr. Dott on behalf of the plaintiff but without their authority.
Where a contract of the fire insurance is made by a person on behalf of another without authority, it can be ratified by the party on whose behalf it is made after and with the knowledge of the loss of the thing insured. d) The act must be capable of ratification e.g. an illegal act or an act contrary to public policy cannot be ratified. In Brook v Hook (1871) LR6EXCh 89,-24LT 34 an agent forged a signature of his brother –in- law on a promissory note made out in favor of the plaintiff. Before the maturity date the plaintiff discovered the truth and threatened legal action. The brother –in –law then purported to ratify the agents act. It was held that a forgery is an illegal act which is void . It therefore could not be ratifiable. An avoidable act is ratifiable but not a void act.
ACTIVITY 5: Question for Discussion
1. A bought a fridge on the 01/02/05. P became his principal on the 02/02/05, can P ratify that act? Explain.
2. A was told by P to buy a 1950 car. He bought 1955 car in his name. Is P liable? Discuses the various Questions that arise.
3. A (Agent) insured P’s (principal) cell phone with P’s knowledge but failed to pay .The cell phone got stolen. Can P ratify his agents act after the theft?
4. Can a forged Cheque by an agent be ratified by a principal?
e) The principal must be aware of all the material facts before he can ratify. See Freeman v Rosher (1849) 18 LJQ.B.340.
Agency by Operation of Law
This situation may arise where circumstances are such that the law deems a relationship to have come into existence for example where a carrier of perishable goods has a break down and he engages another transporter to carry the goods to their destination or sell them quickly if they are perishable to avoid total loss of the goods. This is called Agency of Necessity. However there must be requirements met for the law to recognize this agency of necessity.
a) There must be an Emergency
See Great Northern railway v Swarfield (1874) LR9 where judgment was delivered in favor of the plaintiff. The plaintiff, due to no direction being given as to where the defendant’s Horse should be delivered left the horse with a livery stable keeper who charges $17 which it had paid the livery stable.
It was held that the railway company was entitled to recover the money which they had been obliged to the livery stable.
b) It must have been impractical to receive instructions from the principal.
This requirement is easier to comply with today with improvement in communication such as the internet etc.
It has to be shown that it was impractical for the person who acted on behalf of the other to obtain that person’s instructions. In case of Springer V. Great western railway ( 1921) IKB 257 24LT 79. The plaintiff instructed the defendant to transport tomatoes from the channel island to London by ship to Weymouth and by train to London . Due to bad weather the ship was detained at channel island for three days. On arrival at Welmouth the railway company’s employees were on strike and offloading was delayed for two days. The Company sold the tomatoes as they were worried that the tomatoes would go bad , without communicating with the plaintiff, as they could have done. The plaintiff then brought an action for breach of contract of carriage. The defendant pleaded Agency of Necessity.
It was held that for there to be Agency of Necessity it must have been practically impossible for the “agent “to obtain the owners instructions as to what should be done. In the circumstances the defendant should have communicated with the plaintiff when the ship arrived at Weymouth in order to get the plaintiff’s instructions. Since communication was not impossible, there was no Agent of Necessity.
c) The act must done with the principal‘s best interest in mind.
It is a requirement that the agent must have acted bona fide in the principal’s interest rather than the agents own interest and must have acted reasonably in the circumstances. However, the express instructions take priority over the best interest.
In Fray V. Vouls (1859) 120 RE 1125 an attorney who was engaged to conduct a case on behalf of his client reached a compromise which was contrary to the express instructions of the client. It was held that an attorney had no authority to enter into a compromise against the directions of instructions of his client even if he is acting bona fide in the interest of his client.
In Sacho V Miklos (1948) 2KB 23 the defendant offered to store the defendant’s furniture. The plaintiff then changed address and did not inform the defendant. The defendant’s premises where then destroyed. The defendant wanting to use the room storing the plaintiff’s furniture tried to communicate with him by post and telephone but was not successful. The defendant thus sold the furniture to create room for himself. The plaintiff then sued the defendant for damages for conversion. It was held that the defendant was liable as he had not acted in the best interest of the plaintiff but for his own convenience.
ACTIVITY 6: Questions for Discussions
1. A has express authority by P to deliver fresh fish to P from Siavonga to Lusaka.
A’s Van broke down on the way to Lusaka. He quickly sold the fish to the villagers for fear of them getting spoiled. Is this a case of agency of Necessity? Discuss
TOPIC3
DUTIES OF AGENTS
There are a number of duties that an agent has to his principal
a) Obedience b) Exercise of care and skill c) Personal performance d) Good faith or conflict of interest e) Duty to account f) Estoppel
A) OBEDIENCE An agent is bound to do what he has been contracted to do. He must carry out any express instructions from his principal. He should not depart from such instructions even though he believes that doing so would be the best interest of his principal.-See Bentram Armstrong& Co. V. Godfrey, a case in which an agent was instructed to sell stock when it stood at E85 or above that price. The price did come up to E85 but the agent failed to sell. It was held that the agent had no general discretion to wait for a higher price and was liable for not having sold as instructed.
If the agent fails to carry out an act which is illegal or void, he is not liable. See Cohen V Kittel (1889) 22 Q.B.D.680 where an agent was held not to be liable for failing to place bets.
If the instructions have two meanings and he interpret them in a sence not intended by the principal he is not liable-see Wegall V Runciman ( 1916) 85 LJ K.B 1187 or Ireland v Livingstone (1889) 27 LT 79
In Ireland v Livingstone Chelmosfield it was stated that if a principle gives an agent instructions that have two different meanings and the agent acts on one, the principal cannot repudiate the act as having been unauthorized as the principal meant it to be interpreted in another way which is also correct.
An agent will not incur liability if he embarks on a purely gratuitous agency. However, should he embark on it, he will be in the same position as an agent who has contracted to perform an act.
B.) Care and Skill
In principle, a professional agent must show the degree of care to be expected of those in his position. In Hart and Hodge v Frame, son & Co., it was stated that employers has a right to their diligence, their knowledge and skill and whether they had not so much of these qualities as they were bound to have or having them neglected to employ them, the law properly makes them liable for the loss which has accrued to their employers.
The agent has a duty to inform the principal of any material facts without delay.
In Proudfoot v. Montefior (1867) LR 2Q B 511, the plaintiff’s ship was lost .His agent knew of this but deliberately failed to inform his principal in order that the principal could insure it. I an action on the policy, it held that the agent‘s knowledge must be treated as the principal’s knowledge since it must have been communicated. Consequently the policy was voidable for non disclosure of a material fact which was deemed to be known by the principal.
In Keppel v Wheeler (1927) 136 LT203 the principal ( Keppel) instructed the agent , an estate agent . to find a purchaser for his blocks of flats . Someone offered 6150 pounds which the agent informed the principal who accepted it ‘subject to the contract’. Another offer was afterwards made for 6550 pounds. The agent did not inform the principal. it was held that the failure to communicate this information to the principal was a breach of duty to show Care and Skill and the agent was liable in damages.
ACTIVITY 7: Questions for Discussions
1) Discuss Agency of Necessity 2) Can Agent be liable to the principal for not carrying out an illegal act? 3) Ambiguous instructions to an agent .Discuss. 4) When can an agent delegate authority? 5) Professional agents must perform the highest degree of care and skill. Discuss generally but with particular reference to lawyers.
PERSONAL PERFORMANCE
The general rule is that the agent cannot delegate his function but he must perform his functions personally. There are however three exceptions to this rule.
Firstly, is where the principal expressly gives authority to the agent to delegate his powers to someone else?
Secondly, where such powers to delegate can be implied e.g. where the nature of the business which is the subject of the agency is such that it could be reasonable implied that the agent authority to delegate –see De Bussche v Set (1878) 8 CH. D 286. 311
Thirdly, the act of e.g. signing where no skill is required can be delegated.
Effect of delegation
If ,under powers given to A(agent) by P (principal) A appoints B then B becomes the agent of A and not P specifically said that A should appoint someone to act as agent for P.
Since there is no privity between P and B, P cannot sue B for not carrying out the agency nor B sue P for remuneration. Then A would be liable for any default of B or A
Good faith or Conflict of interest
The agent must always act in good faith and must not put himself in a position where his interest will conflict with that of the principal. The agent must not accept bribes or commission from a third party. This is a criminal act and can be prosecuted. He would be subject to instant dismissal and the principal can repudiate any contract made by an agent who was bribed.
An agent is not allowed to make secret profit from his agency as that would be a conflict of interest. However, he can claim his commission if there was no fraud. In Hippisley V Knee (1905) 1KB1 the agent was found guilty of making a secret profit but the breach did not prevent him from claiming his commission. In the Ugandan case of Shah V Attorney General (1969) 261 (High Court of Uganda) The plaintiff agreed to introduce a financier of the Ugandan Government to enter into an agreement with the Uganda Government to finance development projects. The plaintiff was to receive a commission. A financier was introduced but he was a shareholder. Due to change of regime the agreement fell through and the Government refused to pay any more installments as the plaintiff had made secret profit to which he was not entitled. It was said by Sheridan J. that it is trite law that an agent that makes a secret profit must account to his principal for it, and that an offending transaction cannot bind the principal. However, in this case the plaintiff was not an agent for the Government and thus the Government was not his principal. He had entered into a Contract with the Government not as an agent. Whereas, an agent who receives a bribe, is not entitled to his commission he was.
There must be full disclosure to the principal; e.g. an agent employed to sell can only sell to himself if there is full disclosure to the principal.
An agent cannot sell his own property to a principal unless there is full disclosure in which case the relationship would become that of purchaser and vendor.
ACTIVITY 8: Question for discussion
1) A is a majority shareholder in Company C. A is an agent of P. C won a contract to construct a house for P. P is not aware that A is a shareholder in C. What are the legal implications of the contract between C and P?
Duty to Account
An agent is bound to pay to his principal all moneys received by him of his principal-see Blaustein v Maltz,Mitchell & Co.(1937) 2K.B 142,151; (1937)IALL ER497,502; per Slesser L.J, regardless of whether or not the transaction from which the payment was derived was illegal or void, but not if the agency contract was illegal.
Other duties are to keep an account of transactions done on behalf of the principal and keeping the principals’ properties separate from the agent and produce the principal’s accounts to the principal.
Estoppel
The rule is that an agent is estopped or not allowed to deny or dispute the title of his principal to any property which is the subject of agency. The agent, in other words cannot take a stand with a third party relating to the right of the third party in the property against his principal-see Dadswell v Jacobs(1887) 34 Ch.D. 278 or Blaustein v Malty,Michell & Co.(1937) 2KB 142
The exception to the rule is when the agent is in possession of the property as bailee for the principal. In such a case he can repudiate the title of the principal on authority by the third party who claims it.
TOPIC 4: The Rights of agents against the principal
Indemnity
The general rule is that an agent is entitled to indemnity from the principal if he incurs liability or is forced to expend money in the performance of his agency unless the Contract excludes the right to indemnity.
The right to indemnity is subject to:
a) Authorization or ratification by the principal-see Baron Fitzgerald(1840)6 Bing (N.S) 201 b) If the agent defaults and this results in a loss to the principal or if the agent breach his duties to his principal, he cannot be indemnified -See Duncan v Hill (1840) 6 Bing (N.S) 201 c) The act being legal. If he can show that he was not aware that the act was illegal and that it was not manifestly unlawful. Remuneration
i. An agent can claim and is entitled to remuneration if there is an express term for such payment.
ii. An agent can claim and is entitled to remuneration if there is an implied agreement to pay it such as in the case of an agent acting in his professional capacity where the agent is employed to act as such and a presumption is raised to the knowledge of the principal that he expects to be paid.
In Way v Latilla (1937) 3All E.R 759 the principal and the agent agreed that the agent would send the principal information concerning goldmines in West Africa. There was no express agreement as to remuneration, but the principal led the agent to believe that a commission would be paid.
It was held that there was an implied term in the contract of agency that the agent was entitled to a reasonable remuneration on quantum meruit, i.e. payment for what the services were worth.
As regards the issue of the amount of remuneration, that will depend on the express agreement, usage of custom. If not, a reasonable remuneration is payable.
Where the payment or commission is left to the discretion of the principal, it was held that the court could not fix the rate of commission, for to do so would be to make a new contract for the parties. In the case of Kofi Obu V strauss (1951) A.C 243,PC there was an express term in an agent’s contract provided that the agent would be paid a fixed sum per month and commission would paid at the principal’s discretion. This was held to be a valid agreement. When the agent claimed that he was entitled to a reasonable commission on a quantum meruit basis, it was held that the court could not interfere with the express term of the contract which provided that commission was payable only on the principal’s discretion.
ACTIVITY 9: Question for discussion
1) Conflict of interest. Is this applicable to lawyers? Discuss
2) If an agent receives a bribe is he still entitled to his commission?
3) Can an agent retain excess money received by him on behalf of his principle? 4) Can an agent claim remuneration for work done for the principal?
TOPIC 5: Relationship of Principal with the third parties
In order to ascertain the position of the contract made by an agent on behalf of the principal, it has to be determined whether the principal was disclosed or undisclosed.
It has been shown that when an agent enters into a contract on behalf of his named principal, the contracting parties are the principal and the third party. Once the agent’s work is done he drops out. If the agents had express, implied, usual or apparent authority, or if the principal ratifies the agent’s act, the principal will be liable. The principal can also sue the third party where the agent had actual authority (precedent or subsequent).
If the agent informs the third party that he is acting on behalf of an undisclosed principal the legal rights and liabilities of both the principal and third party are same as if the principal was named.
The general rule is that if an agent under express, implied or usual authority makes a contract on behalf of a principal in which he does not disclose the existence of the principal to the third party (undisclosed principal) the principal can sue and be sued on the contract which the agent made with the third party. The exceptions are: a) Where the agent holds himself out expressly as the sole principal. b) Where the contract is not in consistence with the terms of the agency. c) Where the identity of the principal is material to the third party.
ACTIVITY 10: Questions for discussion
1) When does an agent cease being an agent for his principal?
2) When is an agent not liable to a third party under a contract?
3) If an Agent A of Principal P enters into a contract with D on behalf of P but holds himself out to D as the sole principal. Is P liable under the contract? Discuss
TOPIC 6: Other types of Agencies
Statutory provisions
Certain statutes provide for the existence of certain agency between parties.
a) The Partnership Act 1890 This act applies to Zambia. Section 5 of the Act provides that “every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member binds the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in any particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.”
b) The Sheriff’s Act Chapter 37 of the Laws of Zambia. Section 14 of the sheriff’s Act was interpreted by the Supreme Court to mean that the Sheriff and his officers in executing court process are agents of the party issuing the process notwithstanding how or by which institution the Sheriff and his officers are appointed. This interpretation was made in the case of Attorney General V E.B Jones Machinists Ltd. (Supreme Court of Zambia) 2000 ZR 114.
c) The Income Tax Act Chapter 323 of the Laws of Zambia Section 84 of the Act allows the Tax office to declare a person as an agent for the purpose of facilitating the collection of Tax.
d) The Bank of Zambia Act No. 43 of 1996. This Act that the Bank is an agent of the Government of the Republic of Zambia in certain matters. The relevant sections are 45 and 46.
e) The Companies Act Chapter 388 of the Laws of Zambia. Section 215 of the Act recognizes that the company being a legal entity must act through its directors (agents).
ACTIVITY 11: Question for discussion
1) Name 3 other types of agencies. Discuss instances where these agencies may be applicable.
TOPIC 7: Termination of Agency
An agent’s authority can be terminated in the following ways:
a) By agreement of both parties b) By revocation of the agents authority by the principal c) By performance d) By the death of either party e) By bankruptcy of the principal f) By frustration g) By the insanity of the principal or the agent h) By efflux ion of time
ACTIVITIES 12: Questions to discuss
1) How can an agency be terminated. Discuss
UNIT 2
SALE OF GOODS
Objective.
At the end of this unit you should be able to understand:
1) The nature and the definition of contract of sale of goods 2) How a contract is formed 3) The terms of the contract 4) The passing of property 5) Risk 6) Delivery, acceptance and payment 7) Remedies
Introduction The contract of sale of goods is one of the oldest and most common types of commercial transaction. Contracts of sale of goods are entered into by millions of people on a daily basis e.g. for the purchase of food, clothes etc.
The Sale of Goods Act 1893 is the act governing sale of goods in Zambia. This is an English Act which is applicable to Zambia through the English Law (Extent of Application) Act, Chapter 11 of the Laws of Zambia.
This Act is supplemented by common law principles which have been left untouched by the statute.
TOPIC 1: Nature and Definition of Contract of Sale of Goods
Section 1 (1) of the said Act states that “a contract of sale of goods is a contract whereby the seller transfers the property in goods to the buyer for a monetary consideration, called the price”.
Section 1 (3) goes on to state that, “where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where there is a condition thereafter to be fulfilled, the contract is called an agreement to sell”.
It is clear that a “sale transaction “ is different from an “agreement to sell transaction”. A sale transaction occurs where ownership of the goods is transferred from the seller to buyer, whereas where ownership of the goods is to be transferred at some time in the future this transaction is an agreement to sell.
A contract of sale of goods is distinguishable from several other transactions which are:
1) a contract of exchange 2) a contract of bailment 3) a contract of hire-purchase 4) a contract of loan on the security of goods 5) a contract for skill and labour 6) a contract of agency In a contract for the sale of goods the statute recognizes the following:
a) The contract is between the seller and the buyer b) There is property or goods to be transferred c) There is money consideration called the price
ACTIVITY 13: Question for discussion
1) Distinguish a Contract of sale transaction from an Agreement to sell transaction.
1) Sale and Exchange
In a sale, money or consideration is exchanged for goods; the consideration being the price. An exchange is normally an exchange of goods for goods.
2) Sale and Bailment
A bailment is a transaction where goods are delivered by the bailor to the bailee with the intention of the goods being returned to the bailor. Normally the property does not pass and is not intended to pass on delivery.
3) Sale and Hire Purchase
A Hire-purchase is a bailment of goods with an option to purchase them which may or may not be exercised by the bailee. If the option to purchase is exercised then it becomes a contract of sale.
4) Sale and loan on Security
A loan on security is where A borrows money from B and gives B goods as security for the money borrowed. B retains possession of the goods until A repays the loan. If A fails to repay the loan B has a right to take goods from A.
5) Sale and Skill and Labour
In a contract for skill and labour (or services) the person renders service for money. 6) Sale and Agency
If the transaction is an agency there may be privity of contract between the buyer and the agents supplier where as if it is a sale there will be no privity between the buyer and the sellers own supplier.
The Price
Section 8 of the Act deals with the ascertainment of the price.
It states that:
1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties.
2) Where the price is not determined in accordance with the foregoing provision the buyer must pay a reasonable price. What is reasonable price is a question of fact dependant on the circumstances of each particular case.
ACTIVITY 14: Question for discussion
1) What are the other types of transactions that can be distinguished from a contract of Sale?
TOPIC 2: Formation of the Contract
Offer and Acceptance
It is inferred from section 61 (2) of the Act that the principles of the Common Law are applicable to the formation of a contract of sale of goods, that is, by offer and acceptance.
Auction Sale
Section 58 of the act deals with auction sales. Subsections (1) and (2) are clear and straight forward. Under subsection (4) if the auction is subject to a reserve price or to the right of the seller to bid. The seller has a right not to sell below the reserve price or to bid himself.
In a case where an auctioneer mistakenly knocks the goods down below the reserve price by mistake it was held in McManus v. Fortescue (1907) 2KB.1 that an action against the auctioneer must fail. Since the sale was expressly subject to a reserve price the auctioneer could not be made liable for breach of warranty of authority. With reference to section 58(3) if there is no express statement made about a reserve price the auctioneer can refuse to accept any bid. Furthermore, if the owner bids the buyer may set the contract aside or may sue for damages.
Even if a reserve price is notified the owner is still not entitled to bid unless this right is expressly reserved and if he does bid and the reserve price is reached the contract may be treated as fraudulent by the buyer.
Capacity
Section 2 of the act states that, ”capacity to buy and sell is regulated by the general laws concerning capacity to contract, and to transfer and acquire property provided that where necessaries are sold and delivered to an infant, or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price thereof.
Necessaries in this section mean goods suitable to the conditions in the life of such infant or minor or other person, and to his actual requirement at the time of the sale and delivery. Section 1 of the infant Relief Act 1874 provides that contract for goods supplied or to be supplied, other than contract for necessaries with infant shall be void.
In the case of stocks v Wilson (1913) 2KB 235 an infant fraudulently told the plaintiff that he was a full age and obtained goods from the plaintiff. It was held that the plaintiff could not recover.
Formalities
Section 3 of the act generally states that a contract can be made in any form. Corporations can contract in the same way as a private person. For example a company limited by shares has legal personality. It can sue and be sued in its corporate name. Price
Section 8 (1) provides that the price in a contract of sale may be fixed in a manner agreed upon by the parties. Section 9 (1) provides for a situation where no valuation takes place even though there was an agreement for the price to be fixed by valuation. Section 9 (2) provides for a situation where one of the parties prevents valuation taking place. In such instance the party not at fault may maintain an action for damages against the party at fault.
ACTIVITY 15: Questions for discussion
1) What are the basic requirements of a contract 2) How is the price in contract fixed by the parties? Discuss.
TOPIC 3: Terms of the contract
The terms of a contract may be express or implied. Sections 12 to 15 of the Act deal with implied terms of the contract.
Section 12(1) (a) of the act implies that the seller has a right to sell.
If the buyer buys goods from a seller who does not have a good title to the goods, he must return the goods as he has a defective title. In Rowland v Divall (1923) 2KB 500; ALL E R 270 the plaintiff purchased a car from the defendant which was stolen, unknown to both parties. The plaintiff had to give it to the police. The plaintiff sued the defendant to recover the full purchase price. It was held that no property had been transferred from the seller to the buyer. There was total failure of consideration and the buyer was entitled to his money back. Section 12 (1) (b) implies a warranty of quiet possession of the goods. This normally means that the buyer should not suffer any physical interference with his possession of the goods. In Mason v Burningham (1945) 2K B 545 Lord Green, M.R. in the Court of appeal held that the warranty had been broken where the buyer was compelled to return the goods bought to the true owner.
Section 12 (3) of the act provides for an implied warranty that the goods shall be free from any charge or encumbrances in favour of any third party, not declared or known to the buyer before or at the time when the contract is made. This section was interpreted in the case of Lloyd & Scottish Finance Limited v Modern Cars & Caravans (Kingston) Ltd (1966) 1QB 764. The defendant bought a caravan from a debtor. There was a writ of fifa issued against that debtor by the sheriff. The defendant was aware of this later but proceeded to sell the caravan to the plaintiff. The caravan was subsequently seized by the sheriff. It was held that the defendant’s title was not free from the sheriff’s right and therefore they transferred it to the plaintiff in breach of the warranty contained in section 12(3).
ACTIVITY 16: Question for discussion
1) What is an auction sale? Discuss. 2) Can a limited liability company enter into a contract of sale? Discuss.
Section 13 of the act implies that the goods must correspond with the description with the description Supplied.
“Description” is defined by Robert Lowe to mean the class or type to which the goods belong as well as ingredients, thickness, packing and quantity. In other words they are the words used to identify the goods. The sale of unascertained goods can be identified by description. Specific goods can also be sold by description.
In Bowes v Shands (1877) 2AC 455 Lord Blackburn explained that:
“ if you contract to sell peas, you cannot oblige a party to take beans. If the description of the article tendered is different in any respect, it is not the article bargained for and the other party is not bound to take it”.
The descriptive statement must form a term in the contract for section 13 to be applicable.
Sale by description extends to where the buyer sees the goods. In Beal v Tailor (1967) 1 WLR 1193 the defendant sold a car which he advertised as “Triumph Herald, Convertible white, 1961”, the car however, was the front of a 1948 Triumph Herald and the rear was 1961 model. The purchaser saw the car and rode in it but neither party realized the physical state of the car. It was held that the statement constituted a contractual description of the car and section 13 is therefore applicable.
In a situation where the buyer does not see the goods but relies on the goods (unascertained) description, there is a sale by description. In the case of Varley v Whipp (1900) 1KB 513, the seller agreed to sell a second-hand reaping machine which he described as new the previous year. The buyer had not seen the machine but relied on the description given to him. On arrival it was found to be much older and the buyer rejected it. The seller sued for the price. The issue was whether it was a sale by description. Whether the words relating to the age of the machine formed part of the description. It was held that this was a sale by description and the words relating to the machine formed part of the description.
Channel J. said “ the term `sale of goods by description” must apply to all cases where the purchaser has not seen the goods but is relying on description alone. The most usual application of that section, no doubt, is to unascertained goods, but I think it also be applied to cases such as this where there is no identification otherwise than by description “.
The seller has an obligation to deliver the goods in compliance with the contract description. If section 13 is breached by the seller the buyer can either claim damages or reject the goods.
ACTIVITY 17: Questions for discussion
1) Discuss Section 13 of the sale of Goods Act which implies that the goods must correspond with the description supplied. 2) What remedy is available to the buyer for breach of section 13?
Section 14 of the Act provides that subject to the Act and of any statutes in that behalf there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale except as provided for under 14 (1)(2)(3) and (4). Section14(1) deals with implied conditions, the quality or fitness of the goods, Section 14(2) with the implied condition of merchantable quality. Section 14(3) deals with conditions and warranties implied by usage.
These are exceptions to the general rule of “caveat emptor”(let the buyer beware). Caveat emptor at common law is when the buyer of goods required no warranty. He took the risk of merchantable quality upon himself. He had no remedy available to him against the seller if he chooses to rely on the representation made to him by the seller.
The term in the course of business does not necessarily mean buying and selling the type of goods which are actually sold in the business e.g. if a clothes manufacturer sold one of its trucks this would be “in the course of business”.
Where the goods are sold in the course of business it is an implied condition that they are of merchandisable quality. However, for the buyer to rely on section 14(1) he should make it known to the seller expressly the particular purpose for which the goods are required.
In Priest v Last (1903) 2KB 148 the plaintiff bought a hot water bottle from a shop. The bottle burst when the hot water was poured into it. The Court of Appeal held that a hot water bottle is required for a particular purpose within the provisions of section 14 because it has one purpose only and the buyer could only require it for that purpose.
If on the other hand the goods can be used for a variety of purpose, the buyer in such a case is obliged to indicate the particular one of these purpose for which he requires the goods.
In D.T.C. Industries Ltd. V Jimfat Nigeria Ltd (1975) CCHJ 175 the defendant agreed orally to purchase from the plaintiffs thirteen tons of coil wire said to be of the quality of 16 British wire gauge (BWG). The defendants did not expressly indicate to the plaintiff sellers the particular purpose for which the wire coils were required. A Lagos High Court found that the wire coils supplied by the plaintiff were capable of being used for a variety of purposes and that there was no evidence that the plaintiff were informed of the particular purpose for which the defendants relied on their skill or judgment. The Court therefore held that the provisions of the sub-section were inapplicable.
If goods are fit for the purpose for which goods of that kind are commonly bought such goods are said to be merchantable. In Rodgers and another v Parish (Scarborough) Ltd and another (1987) 2ALLER237. A Range Rover car was sold as new by the defendant to the buyer. It had a number of defects such as a noisy gear box etc. due to poor storage. The buyer sued the seller for breach of contract arguing that the vehicle was not merchantable . it was argued amongst others that the defects could be repaid under the manufacturers warranty thus the vehicle was merchantable. It was held that the car was not merchantable even if the defects could be repaired.
ACTIVITY 18: Questions for discussion
1) What is “Caveat emptor 2) How does section 14(2) contrast with the rule of “Caveat emptor”?
Section 15 of the Act deals with sale by sample. A contract of sale is a contract of sale by sample where there is a term of the contract stating to that effect.
In E & S Ruben v Faire Bros & Co. Ltd. (1949) 1ALLERat the sellers agreed with the buyers to supply a certain type of rubber in accordance with a small sample. The sample provided was flat and soft but the rubber delivered was crinkly and folded, though these defects could be easily remedied by warming. It was held that the sellers were in breach of section 15 of the Act for they were not in accordance with the sample. TOPIC 4: Passing of Property
Section 16 of the Act provides that where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. In the case of Kressman & Co. v Lekhain & Another (1964) EALR 49 Supreme Court of Kenya, the second respondent bought goods from the plaintiff which were in a warehouse awaiting collection. He instructed the warehouse to redeliver the goods to the appellant. The appellants agreed to take delivery of the goods but before they could do so the first respondent obtained an attachment order against the second respondent. It was held that property in the goods had passed to the appellant since what had transpired amounted to an agreement to resale. The attachment order was ineffective.
Property can pass only after the goods have been ascertained i.e. appropriated to the contract with the consent of both parties, express or implied. Section 17 of the Act deals with the passing of the property from the seller to the buyer in specific or ascertained goods.
In Dennant v Skinner & Collom (1948) 2KB; @ALL ER 29 a swindler called King bought a car at an auction sale paid by cheque and took possession of the car. King signed a document stating that the title of the vehicle would not pass until the cheque had been cleared. King sold the car to the defendant. The cheque was dishonored and king could not be traced. The auctioneer sued the defendant. It was held that at an auction title passes at the fall of the auctioneers hammer. According to section 18 Rule 1, property passes at the time of the sale, unless a contrary intention appears.
In Clough Mill v Martin (1985) 1WLR 111 (1984) 3 ALL ER 982 Clough Mill limited contracted to sell yarn to the buyer on condition that the seller reserved title in the goods until payment had been made and in case of default by the buyer the seller could enter the buyers premises and recover the goods for resale. The Buyer became insolvent before paying in full. It was held that the retention of title clause did not create a charge on the unused yarn. The seller had retained legal title in the property as a form of security for itself. The seller’s action succeeded.
Section 18 states the rules for ascertaining the intention of the parties to the time at which the property in the goods is to pass to the buyer.
Section 18 states that:
“Unless a different intention appears, the following are rules for the sale of ascertaining the intention of the parties as to the buyer.
Rule 1.- where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.
Rule 2.- Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods, for the purpose of putting them into a deliverable state, the property does not pass until such thing be done, and the buyer has notice thereof.
Rule 3. – Where there is a contract for the sale of specific goods in deliverable state, but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing be done, and the buyer has notice thereof.
Rule 4.- When goods are delivered to the buyer on approval or “on sale or return” or other similar terms the property therein passes to the buyer;
a) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction:
b) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of reasonable time. What is a reasonable time is a reasonable time is a question of fact.
Rule 5.- (I) Where there is a contract for the sale of unascertained or future goods by description and in a deliverable state are unconditionally appropriated to the contract, either by the seller or with the assent of the seller, the property in the goods there upon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made.
(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodies (whether named by the buyer or not) the buyer is deemed to have unconditionally appropriated the goods to the contract.
Rule 1
The case of Dennant v Skinner and collom applies. The contrary intention must be shown at or before the making of the contract.
Rule 2
A “deliverable state” is defined in Section 62 of the Act.
In the case of Underwood Ltd v Burgh Cast Le Brick and cement Syndicate (1922) 1KB 343 the sellers sold a 30 ton condensing engine “free on rail London”. At the time of the sale it was embedded in the floor of a factory. The sellers dismantled it and proceeded to load it on to a truck, but in doing so part of the machine was accidentally broken. The Court of appeal held that the buyers could reject it because at the time of the contract the machine was not in a deliverable state. Section 18 rule 2 did apply as the risk was on the seller.
Rule 3
This rule applies where something has to be done by the seller.
In Turkey v Bates (1863) H & Co. 200, the seller sold clay to the buyer. The parties agreed that the buyer would load and weigh the clay to ascertain the price. It was held that the property passed to the buyer when the contract was made.
Rule 4
This applies where goods are sent on approval or on “sale or return”.
In Kikham v Attenborough (1897) 1QB 201, 204 Lopez L.J. said that a person may become a purchaser of the goods in three different ways namely:
a) He may pay the price. b) He may retain the goods beyond a reasonable time for their return. c) He may do an act inconsistent with his being other than a purchaser.
Rule 5
This rule deals with unascertained or future goods.
In the case below, the buyers and traders in Costa Rica agreed to buy bicycles from the sellers who were manufacturers (f.o.b.).The sellers were obliged under the contract to transport the bicycles to Liverpool and load them into a designated ship. The seller packed the bicycles in containers with the buyers name and address on them. Before the goods could be shipped the sellers became bankrupt.
It was held that the appropriation act is usually the last act to be performed by the seller. In this case the seller has yet to transport the goods to Liverpool and load them on the ship. Property has therefore not passed.
Plearson J. in Carlos Fidespill & Co. SAV Charles Twigg & Co. Ltd. (1957) 1 Lloyds Rep 240 255 stated that “a mere setting apart or selection by the seller of the goods which he expected to use in performance of the contract is not enough. If that is all, he can change his mind and use in performance of some other contract and use some other goods in performance of this contract. To constitute an appropriation of the goods to the contract, the parties must have had or be reasonably supposed to have had an intention to attach the contract irrevocably to those goods and no others are the subject of the sale and become the property of the buyer.”
ACTIVITY 19: Questions for discussion
1) Unascertained goods. Explain the meaning. 2) When does property pass from the seller to the buyer? 3) How is the intention of the parties determined on the question of passing of property in the goods? What is the relevant section in the Act?
TOPIC 6: Delivery, Acceptance and Payment
Section 27 to 37 of the Act deals with delivery, acceptance and payment for goods.
Delivery
Delivery is defined in section 62 as voluntary transfer of possession from one person to another.
The five ways in which delivery can take place are:
a) Physical transfer of the goods themselves. b) Delivery of the means of control e.g. handing the buyer the keys of the warehouse where the goods are stored. c) By atonement section 29(3) of the act deals with this. Atonement means acknowledgement that one holds the goods on behalf of the buyer. d) Delivery of a document of title. e) Constructive delivery e.g. where the buyer is in possession on the sale. The buyer then is in possession as buyer and not as bailee any longer.
Acceptance
Once the buyer accepts the goods he loses his right to reject the goods on the ground of breach of condition. Section 35 of the Act deals with this issue.
Payment
The buyer has to pay for the goods for there to be delivery of the said goods.
Section 27 deals with the duties of the seller and the buyer. That is, it is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale.
Section 28 deals with payment and delivery. It states that the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods.
Section 29 states the rules as to delivery. There are five sub-sections under this section.
Section 30 deals with the delivery of wrong quantity. Sub section 30 (1) states that where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate.
Sub section (2) states that where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.
Sub section (3) states that where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest the rest, or he may reject the whole.
Sub section (4) provides that this section is subject to any usage of trade, special agreement, or course of dealing between the parties. Section 31 provides that unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments which are to be separately paid for.
Section 32 deals with goods delivered to carrier.
Section 33 provides for risk involved where the goods are delivered at distant places.
Section 34 provides for situation where goods are delivered to the buyer which he has not previously examined and his right of examining such goods.
Section 35 provides for instances when the buyer is deemed to have accepted the goods.
Section 36 deals with the buyer who is not bound to return rejected goods.
Section 37 deals with the liability of the buyer for neglecting or refusing delivery of the goods.
TOPIC 7: Common Law or Statutory Power of sale
In certain circumstances, persons are allowed to sell goods although they are not the owners.
a) Disposal of Uncollected Goods Act, Chapter 410 of the Laws of Zambia.
Under this Act a bailee, in certain circumstances, is given the right as bailee to sell goods under bailment left with the bailee for repair or other treatment for which the bailor fails to pay his charges.
An example is when a person leaves his motor car with a garage for repairs. If he does not pay the repair costs and collect his vehicle within a reasonable time, the garage has a statutory right to sell the goods and recover its costs, provided that the statutory requirements are complied with by the garage before the sale of the goods. b) Sale in market overt- section 22 of the act covers this. Market overt means open market. It must be open, public and legally constituted. The buyer gets a good title if he buys the goods in good faith. c) The Factors Act 1889- Section 2
Where a mercantile agent is with the consent of the owner in possession of goods, any sale or pledge made by him when acting in the ordinary course of business is as valid as if it was expressly authorized by the owner provided that the buyer buys in good faith and without the notice of the agent’s want of authority.
A mercantile agent is a person whose business it is to sell or consign goods or to buy goods or to raise money on the security of goods e.g. a broker, a garage but not their servants. d) Writs of Execution- Writs of Fieri Facias. That is to enforce a judgment debt. The sheriff seizes the goods and sells them to a buyer who gets good title. The Sheriff derives hic powers from the Sheriffs Act Chapter 49 of the laws of Zambia.
Other persons who may have statutory or power to sell are Executors and Administrators of estates, Liquidators and Trustees in bankruptcy and Mortgages in possession, Agents, Court order.
ACTIVITY 21: Questions for discussion
1) Can the seller sue for payment of goods destroyed in his possession ? 2) Under what circumstances can a garage sell a vehicle left in its possession under a statutory power of sale? 3) Explain writ of Fieri Facias. 4) Name two other persons who have statutory power of sale.
TOPIC 8: Remedies of Seller
The seller has six remedies to compel the purchaser to pay for the goods.
1) A lien which is covered under sections 41 to 43 of the Act which covers seller’s lien, part delivery and termination of lien. 2) A right of stoppage in transit which is provided for under sections 44 to 46 of the Act which also deals with duration of the transit and how lawful stoppage in transit is effected. 3) Unpaid sellers right under section 39(2) where the property has not passed to the buyer. The seller has a right of lien, a right of stoppage of the goods in transit and a right of re-sale. 4) A right to re-sale the goods under section 48 of the Act. The seller can re-sale the goods and the buyer will obtain a good title. 5) An action can be commenced in court for the price of the goods where the buyer neglects or refuses to pay. Section 49 covers this. 6) Section 50 of the act states that an action for damages can be brought in court against a buyer who wrongfully neglects or refuses to accept and pay for the goods.
The buyer has six remedies to compel performance by the seller.
1) The buyer can reject the goods for breach of condition subject to section 11 (1) (C) if there is provision express or implied in the contract to that effect. 2) Recover the price if he has already paid for the goods, that is, commence an action for breach of warranty under section 53 and maintain an action against the seller for damages for breach of warranty. 3) Section 53 provides that an action for breach of warranty can be brought as referred to in (2) above. 4) An action for damages for non delivery can be brought by the buyer as provided for under section 51. This action can be brought in instance where the seller wrongfully neglects or refuses to deliver the goods to the buyer. 5) An action can be brought for specific performance of the contract under section 52. That is the buyer can commence an action for the contract to be performed specifically. 6) The buyer can sue the seller and the third party for possession of the goods in tort if he is entitled to such possession.
ACTIVITY 22: Questions for discussion
1) What are the remedies of the buyer?
2) What are the remedied of the seller? Disuses.
UNIT 3
HIRE – PURCHASE
Objectives
At the end of this unit you should be able to understand: a) The definition of Hire-Purchase and the basis of a Hire Purchase transaction. b) The difference between Hire Purchase and similar transactions. c) Hire Purchase at Common Law. d) The Hire Purchase Act of Zambia. Introduction
The Act which is applicable in Zambia is The Hire Purchase Act Chapter 399 of the Laws of Zambia. It came into effect in 1957.
TOPIC 1: Definition and basis of Hire-Purchase
Hire Purchase is where the owner of the goods transfer possession of those goods to another party (hirer) in return for periodic payment and that party is given an option to purchase the goods. Judicial approval was given to the modern form of Hire-Purchase agreements in the case of Helby v Matthews (1895) A.C. 471. In this case the owner of a piano agreed to let it on hire-purchase agreement to the hirer(H). The agreement gave H possession of the piano and the right to determine it at any time and provided that it should remain the property of the owner until the installments had been paid. It further gave him (H) an opportunity to own the piano after he had paid a certain number of installments. After paying a number of installments H pledged the piano to a third party.
The owner brought an action against the pawnbroker to recover the piano as it was not his property. The House of Lords decided in favour of the owner of the piano. It was held that H had not bought or agreed to buy the piano within the meaning of section 9 of the Factors Act of 1889. The pledgee therefore did not get a good title under that section.
TOPIC 2: Hire-Purchase at Common Law
At Common Law hire-purchase has the following features:
a) The owner of the goods hires out the goods and the hirer pays periodic payment. b) The goods are not sold and the hirer is under no obligation to purchase the goods and he can determine the agreement at any time. c) The owner of the goods can terminate the agreement and repossess the goods if the hirer defaults. d) When the agreement is determined, neither party has a claim against the other for past payments or future payment.
Characteristics of the Hire Purchase Agreement
The characteristics of a Hire Purchase Agreement are as follows:
a) There must be a bailment of goods in the hirer where possession passes from the owner to the hirer. b) There must be an option to purchase by the hirer but not an obligation. c) On the side of the owner there is an obligation to sell if the hirer exercises the option. d) In terms of the statute, that is, the Hire Purchase Act, the agreement must stipulate payment by two or more installments. e) The hirer is not a buyer in possession and therefore cannot pass good title. f) Hire Purchase agreement induces people to buy goods as the payment is in installments and the ownership of the goods is protected until the option to purchase the goods is exercised. The title remains in the hands of the owner.
TOPIC 3: Hire-Purchase distinguished form similar transactions
Hire purchase can be distinguished from other similar transactions.
Hire Purchase and Contract of sale
a) Under a contract of sale the buyer is bound to buy the goods whereas under a hire-purchase agreement the hirer has an option to buy the goods only after payment of all the installments. b) A contract of sale need not be formal. It can be oral or it may be written. A hire-purchase agreement must be in writing and signed by both parties and must comply with the provisions of the Hirer-Purchase Act.
Hire-Purchase and Credit Sale
A credit sale is where goods are bought and paid for in installments. Whereas hire purchase is actually a bailment of goods with an option to purchase at the end of the period for which the goods were hired.
Section 3(1) of the Hire-Purchase Act defines a hire-purchase agreement which highlights the distinction with a contract of sale.
A hire purchase agreement is defined as:
“ a) any contract whereby goods are sold subject to the condition that notwithstanding delivery of the goods the ownership in such goods shall not pass except in terms of the contract and the purchase price is to be paid in two or more installments;
c) Any contract which provides for the hiring of goods whereby the hirer has the right- (i) To purchase such goods after two or more installments have been paid in respect thereof; or (ii) After two or more installments have been paid in respect thereof, to renew from time to time such hiring at a nominal rental, or to continue the payment of a nominal amount periodically or otherwise; whether or not the agreement may at any time be terminated by either party or one of the parties; d) Any other contract which has, or contracts which together have, the same import as either or both the contracts defined in paragraph (a) or (b) of this definition, whatever form such contracts may take;”
Hire-Purchase and Conditional Sale
A conditional sale agreement is where there is an agreement to sell goods subject to condition that the transfer of property from the seller to the buyer is to take place only when the total price has been paid. Until such a time, although possession of the goods is with the buyer, they are to remain the property of the seller. The buyer is therefore bound to purchase the goods unlike a hire-purchase agreement where the hirer has an option to purchase. Hire- Purchase and Equipment Leasing
a) Equipment Leasing is a fairly recent form of leasing in Zambia where the goods are leased out without any contemplation of selling the goods unlike a hire-purchase agreement. b) Equipment leasing is contractual while hire-purchase has to comply with statutory provisions.
ACTIVITY 23: Questions for discussion
a) Distinguish Hire Purchase from: 1) Contract of sale 2) Credit sale 3) Conditional sale 4) Equipment Leasing
TOPIC 4: The Hire-Purchase Act Chapter – 399 of the Laws of Zambia
Definition and Extent of application
Section 3 of the Act defines Hire Purchase agreement.
Section 2 provides that the Act does not apply to agreements under which the Government is the seller. Section 4 also states that except for the provisions of sections 5, 23 and 24 which shall apply to every agreement or, as the case may be, to the parties to every agreement, the provision of this part shall not apply to an agreement under which the purchase price exceeds the sum of three thousand kwacha.
Formalities
Hire-Purchase agreements must comply with certain formalities as laid down in the Act. Sections 5 and 25 provide these formalities.
Section 5 and 25 provides that every Hire-purchase agreement must:
a. Be in writing and signed by or on behalf of the parties to the agreement b. Contain a statement of the cash price
The cash price is defined in section 3 as the price at which the goods may be purchased outright for cash.
Section 25 deals with financial provisions relating to agreements. Subsection (1) and (2) provide for the mode of payment; the period within which the full purchase price is payable.
Subsection (3) states the consequences if the agreement does not comply with subsection (1), viz the goods shall be deemed to have been sold to the purchaser; the seller shall not be entitled to enforce any contract of surety ship, indemnity or guarantee relating to the agreement except in the case of certain agreement mentioned therein.
Section 6 provides that a copy of the agreement shall be given to the purchaser (hirer) and also lists the consequences of not complying with the provisions of this section. One who breaches these provisions is guilty of an offence and shall be charged accordingly.
Section 7 lays down the contents of the hire-purchase agreement.
Every agreement must contain:
a) The amount of the purchase price of the goods b) The amount of each installment paid or to be paid by the purchaser under section 25(1) (a) c) The mode of each of the installments by which the purchase price is to be paid d) The rate of interest e) The date or mode of determining the date on which each installment is payable f) A description of the goods g) The terms as to the reservation and passing of ownership of the goods
Section 8 provides that certain provisions whether provided for expressly or implied, will be invalid if included in the hire-purchase agreement. This section tends to protect the hirer against the owner of the goods against unfair terms.
Section 8 (1)
Such invalid provisions are highlighted in section 8 and include the following:
a) If the seller is authorized to enter upon any premises to take possession of goods which are subject to the agreement. b) The right of the purchaser to determine the agreement is excluded c) Imposing liabilities on the purchaser, after termination by the purchaser, outside the provisions of the Act d) Subjecting the purchaser to liabilities exceeding liabilities under the Act, after termination of the agreement e) Deeming the seller’s agent to be the purchaser’s agent f) If the seller is relieved from liability for actions done by persons on his behalf in the formation of the agreement g) If the purchaser is required to pay interest on installments exceeding the maximum rate of interest under the Act.
It should be noted that if a provision is of no force and effect, it is void ab initio (from the beginning).
Section 9 states certain information that the purchaser is entitled to such as the amount paid under the agreement; the amount due and unpaid; the amount which is to become payable; a copy of the agreement.
Section 10 lays down conditions which the purchaser must comply with in relation to the removal of goods. The address of the purchaser should be recorded in the agreement or notified.
Section 11 prohibits the removal of the goods from Zambia without the seller’s consent. Such stipulation can be included in the agreement. Section 12 provides compulsory condition and warranties that must be included in the Agreement.
a) The purchaser shall have quiet possession of the property. b) An implied condition by the seller that the ownership in the goods will pass at a time when ownership is to pass. c) The goods are free from any charge or encumbrances at the time the ownership is to pass.
Section 16 states that if the outstanding balance of the purchase price is paid before it is due, he is entitled to certain concessions.
Section 17 deals with the passing of ownership to the purchaser under Hire Purchase Agreement that is ownership in the goods shall pass to the purchaser upon payment of all sums payable under the agreement.
Section 18 gives the purchaser the right to terminate the hire purchase agreement and which he is given the power not to exercise the power to purchase.
A purchaser shall before the final payment be entitled to terminate the agreement, and return of the goods, by giving notice of termination in writing.
Section 20 gives the seller the right to terminate the agreement and what the seller is required to do in relation to the purchaser if the purchaser has paid fifty percent of the purchase price and the procedure to be followed in respect of the sale by the seller.
Section 21 states the power vested in the court in respect of an action by the seller for the return of the goods under the hire purchase agreement.
Section 23 deals with Hire Purchase agreements made and its effect on the liquidators and the trustees and section 24 deals with the bankruptcy of the purchaser.
Section 23 provides that agreements entered into by the company shall be binding on the company and similarly agreement entered into by societies and clubs is binding on trustees.
Section 24 provides that in the case of bankruptcy of the purchaser the goods which are subject of the agreement vest in his trustee indicated in the agreement. ACTIVITY 24: Questions for Discussions.
1) Is government except from hire purchase Act? 2) What are the formalities required under the Act? 3) Which section protects the hereunder the Act, and in what way? 4) Can a hire purchase agreement be terminated? a) By the seller? b) By the hirer?