COMMERCIAL LAW

SUMMARY

PX SOLUTIONS

COMMERCIAL LAW

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Sources used................................................................................................................................................3

AGENCY..........................................................................................................................................................4What is Agency?...........................................................................................................................................4Distinguishing agency from other sorts of arrangements...........................................................................5Creation of Agency......................................................................................................................................6Undisclosed Principal................................................................................................................................10Rights and Duties of the Agent..................................................................................................................13The content of the duties............................................................................................................................14Principals, agents, and 3rd parties............................................................................................................18

THE SALE OF GOODS.................................................................................................................................22The Contract of Sale.......................................................................................................................................23

Legislative requirements for a valid contract of sale................................................................................23Formalities for a contract of sale..............................................................................................................26Meaning of ‘Price’.....................................................................................................................................28Where the Goods no longer exist...............................................................................................................34

TRANSFER OF PROPERTY IN GOODS....................................................................................................36Classification of goods...............................................................................................................................36The transfer of property in goods..............................................................................................................37

TRANSFER OF TITLE BY NON-OWNER – NEMO DAT........................................................................46The buyer obtains no better than the seller...............................................................................................46Conduct of owner.......................................................................................................................................49The Seller and Buyer in Possession: s29(1) and (2)..................................................................................53Seller with a voidable title.........................................................................................................................55Property in stolen goods upon conviction of offender...............................................................................57Where the seller is in possession of the goods...........................................................................................58Where the buyer is in possession of the goods...........................................................................................60

STATUTORY IMPLIED TERMS.................................................................................................................62Conditions and Warranties........................................................................................................................62Merchantable Quality – s19(3)..................................................................................................................69

PERSONAL PROPERTY SECURITY..........................................................................................................73Pledges.......................................................................................................................................................80Priorities....................................................................................................................................................86Rules...........................................................................................................................................................86

Pledges and liens............................................................................................................................................88Priorities....................................................................................................................................................95

THE LAW OF INSURANCE......................................................................................................................100

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Sources used

- Class notes

- Gail Pearson and Simon Fisher, Commercial law Commentary and

Materials, LBC Information Services, 1999.

- Robert Tong, LBC Nutshell: Sale of Goods – 3rd ed, 2000.

PLEASE NOTE: LAWSKOOL DOES NOT ENCOURAGE PLAGIARISM.

IT IS DISHONEST, UNETHICAL AND CAN BE ILLEGAL!

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AGENCY

What is Agency?

International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene

Pastoral Co (1958): “a word used in law to connote an authority or capacity

in one person to create legal relations between a person occupying the

position of principal and third parties.”

Kennedy v De Trafford [1887] per Lord Herscell: “No word is more

commonly and constantly abused than the word ‘agent’. A person may be

spoken of as an ‘agent’, and no doubt in the popular sense of the word

may properly said to be an ‘agent’. Although when it is attempted to

suggest that he is an ‘agent’ under such circumstances as create the legal

obligations attaching to agency that use of the word is only misleading.”

Three general points:

a. Substance over form - Judges have cautioned that there ‘is no magic in

the word agency’ and ‘that you cannot make a man an agent by calling

him an agent when he is not in law an agent.’ (Dal Pont, p.7);

b. Legislative Definitions;

c. Onus of proof is on the agent, or person claiming someone else was an

agent, to prove agency: Pole v Leask (1863) per Lord Cranworth. This

is to protect principals “grave injustice,” puts onus on purchaser to

check out credentials of “agent.”

Types of Agents

Mercantile Agents: A mercantile agent is an agent who acts for a principal

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in the course of business. {cf. Mercantile Law Act (ACT), Factors Act

(NSW)}. There are two types:

- Brokers : Negotiate contracts between two business principals.

- Factors : Same, but the factor has physical possession of the

object being sold.

Commission Agents are appointed to sell or to buy goods on behalf of the

principal. Only gets paid if a deal is made.

Del Credere Agents agree to indemnify the principal against any loss

arising from the failure to perform of the persons with whom the agent

contracts on behalf of the principal. Higher risk for DC agent, but higher

commission.

Power of Attorney refers to the formal instrument which confers on one

person the authority to act for or in the place of another as agent - usually

for the purposes of signing legally binding documents for that other.

{Powers of Attorney Act 1956 (ACT).}

Distinguishing agency from other sorts of arrangements

Agency and Sale

Being the sole or exclusive ‘agent’ of a product or company in name does

not automatically imply the same at law. Because there is no assumption

by the consumer that she is entering a contract with the manufacturer, but

with the ‘agent’: International Harverster Co of Australia Pty Ltd v

Carrigan’s Hazeldene Pastoral Co (1958)

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Agency and Bailment

Bailment is when the bailee grants possession of an object to a bailee.

However, the bailor has no fiduciary duty to the bailee, whereas an agent

does with the principal. May coexist.

Agency and Trust

Both involve someone acting for another person and having fiduciary

duties to that person. However, 3 things:

1. Agents take instructions from the principal. The trustee acts in the

interests of the trust.

2. Trustees must posses the goods or deeds of title to the goods. Agents

are not required to.

3. Agents make their principals personally bound at law. Trustees bind

the trust, rather than the beneficiaries directly.

Agency and Employment

An employee is only an agent when they have the right to change the

employer’s relationship with third parties. May coexist, and may be argued

in the alternative when disputes arise.

Creation of Agency

Also ask: What kind of authority has been given?

1. Agreement between the parties - Prior express or implied agreement

(whether contractual or not) between the principal and the agent.

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2. Agency by estoppel / representation.

3. Ratification.

4. By operation of law - the imposition of an agency relationship on two

parties via the law.

1. Agency created by agreement

Can be implied by the actions of Ag and P’pal even if they expressly say

“I’m/You’re not and agent.” Look to whether consent for the agreement to

exist has come from both the principal and the agent: Garnac Gran Co Inc

v HMF Faure & Fairclough [1986] as per Lord Pearson.

Actual Authority: The scope is determined by the terms of an express

agreement: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd

[1964] per Diplock LJ.

Apparent / Ostensible Authority: Apparent or Ostensible authority occurs

where a principal gives a person the appearance of having authority which

they do not have. Although this is really agency by estoppel

2. Agency by Estoppel (/representation)

3 elements {cite Freeman & Lockyer v Buckhurst Park Properties (Mangal)

Ltd [1964] per Diplock LJ}

1. A representation made by or on behalf of the principal to the third party

concerning the authority of the agent.

The representative must have actual authority to do what the agent did:

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing

Co Pty Ltd (1975). Here, signatures of two directors were a prerequisite for

a purchase to be made by the company. Hence one director representing

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that his ‘agent’ had the power to buy machinery on behalf of the company

was not sufficient, since the director could not have done so on his own.

2. Reliance by the third party on the representation made by the principal

to the third party: Egyptian International Foreign Trade Co v Soplex

Wholesale Supplies Ltd [1985]

3. The third party must rely upon the principal’s representation and alter

his or her legal position on the strength of the representation.

These two elements are typically proven by showing that the third party

entered the contract.

Scope of Ostensible Authority:

Armagas Ltd v Mundogas SA [1986, UK] per Lord Keith: The authority is

general but of a specific type. The principal is estopped from denying it.

3. Ratification

Elements of ratification ([firth v staines [1897])

a. The agent whose act is sought to be ratified must have purported to act

for the principal: Keighley, Maxstead & Co v Durant [1901, UK],

endorsed by Crowder v McAlister [1909, Qld] per Cooper CJ - “There

can be no ratification of a contract by a person sought to be made liable

as a principal, unless the person who made the contract professed to

be acting on behalf of the other at the time.”

Keighley, Maxstead & Co v Durant [1901, UK]: An agent had authority to

purchase grain up to a particular price. Ended up contracting to pay too

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much, KMCo first decide to ratify, then change their minds. Problem was

that the contract was in the name of the agent and of D. D sues, but loses.

b. At the time the act was done the agent must have had a competent

principal: Corporations Law - s 131(1).

c. At the time of ratification the principal must be legally capable of doing

the act himself.

d. The principal must have full knowledge of all material facts relating to

the act to be ratified.

e. Ratification must take place within a reasonable time of the agent’s act

unless the contract stipulates another more specific timeframe. The

principal has no right to see if market conditions improve, or similar,

before ratifying: Prince v Clark (1823)

Evidence of ratification

To ratify the agent’s unauthorised act, the principal must do so by

unequivocal language or conduct. Ratification may be express or implied,

mere acquiescence or inactivity may be sufficient: Suncorp Insurance and

Finance v Milano Assicurazioni SpA [1993, UK] per Waller J.

Limitations on ratification: What if the 3rd party repudiates the contract?

Unclear area of law. Compare and contrast:

Kidderminster Corporation v Hardwick (1873, UK): An agent acting as an

auctioneer sells property he had no authority to. Buyer repudiates before

owner ratifies. Ratification was INEFFECTIVE

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Bolton Partners v Lambert (1889, UK): The director of a company leases a

building to a third party without authorisation. Here, ratification was given

retrospective effect by “taking the parties back to the time of contract,” and

the lessee is said to have repudiated the contract.

Bolton is criticised on two bases. Firstly, it there is no reference

Kidderminster in the judgement. Secondly, it makes no sense under

contract law since there is no “meeting of the minds”: Davison v Vickery’s

Motors Ltd (in liq) (1925, HCA) per Isaacs J. Isaacs J takes the view that

the third party revokes an offer, rather than repudiates a contract. This

view supported by Hughes v NM Superannuation Pty Ltd (1993, NSW Sup

Ct).

4. Agency created by operation of law

Agency of necessity - look this up

Agency by Cohabitation – archaic.

Undisclosed Principal

What if an agent does not disclose that he or she is acting as an agent?

Use Siu Yin Kwan v Eastern Insurance Co Ltd [1994] as precedent:

(1) An undisclosed principal may sue or be sued on a contract made by an

agent on his behalf, acting within the scope of his actual authority. But

the agent must have actual express or implied authority to do so.

Otherwise, neither ratification nor ostensible authority will give the

principal the right to sue. (Think: can’t use ratification if the 3rd party

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doesn’t know you exist, ostensible auth won’t work since p’pal not

holding anybody out..)

Construction Engineering (Aust) v Hexyl (1985, HCA)

Facts: written contract between agent and principal saying agent could not

contract as an undisclosed agent. Agent did.

(2) In entering into the contract, the agent must intend to act on the

principal's behalf.

- Only relevant to relationship between principal and agent. We want

to distinguish occasion where agent is making a personal K, or was

doing so on principal’s behalf.

- Cts ask: “Did agent and principal have a common agreement that

agent would be acting for the principal?” Here, evaluate based on

facts such as K’s, what was said, etc.

(3) The agent of an undisclosed principal may also sue and be sued on the

contract. But you may only sue EITHER agent or principal, agent then

has right to sue principal. Principal’s right to sue prevails over agent’s

(so principal can take over proceedings): Atkinson v Cotesworth (1825,

English)

(4) Any defence which the third party may have against the agent is

available against his principal. Example: If agent uses deceptive

conduct. Idea is that agent is acting for principal.

(5) If the terms of the contract, expressly or by implication, make it

inconsistent for there to be an undisclosed principal, then there cannot

be one. Excluding an undisclosed principal best done by an explicit

clause in the contract.

Siu Yin Kwan v Eastern Insurance Co Ltd [1994, English]

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Facts: Employer tries get insurance for employees, hire an agent to do so

in agent’s name. Two of employer’s sailors killed in course of employment,

successfully sued. But employer goes bankrupt, and takes action against

the insurer. Insurer argues that there is nothing in the contract to disclose

the existence of an undisclosed principal.

LORD LLOYD: Ask: Is there anything in this contract that says that the agent is NOT

working for an undisclosed principal. "If courts are too ready to construe written

contracts as contradicting the right of the an undisclosed principal to intervene, it would

go far to destroy the beneficial assumption in commercial cases.”

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