Week 3 Lecture / Week 4 Tutorial – Ownership and Possession of Personal Property

ELEMENTS of POSSESSION:

1. Intention to possess – to exclude others from the exercise of control (Button v Cooper)2. Physical control – exercise of factual control over the chattel

DELIVERY involves voluntary transfer of possession from 1 to another. Can be either;

1. Actual delivery. Manual delivery – actual handing over of goods from to person receiving them (Olsson v Dyson). The transferee obtains physical possession.

2. Constructive delivery. Alteration in the character of the goods – without any change in the physical possession. E.g. where seller provides buyer with a key to the warehouse where goods stored (Tas Producers’ Selling v Cumming) or the keys to the car. May be change in character of uninterrupted custody – where seller agrees to hold goods as bailee for buyer.

Defined in Sale of Goods Act 1896 (Qld) s 3 – ‘the voluntary transfer of possession from one person to another’.

FINDING. Who has better possessory title – finder or occupier of land upon which goods found?

1. Goods must be lost/abandoned2. Finder takes goods into care and control

Basic principle is that finder has best title against all except the true owner. Not absolute title, merely possessory.

GOODS FOUND IN BUILDING/ON LAND

Armory v Delamirie (1722) 93 ER 664

Chimney sweep found jewel – took it to the goldsmith to find out what it was. Goldsmith removed the stones and refused to return them. Court of King’s Bench HELD that finder of a jewel, though he does not by finding acquire an absolute property/ownership, has such property as will enable him to keep it against all but the rightful owner.

Moffat v Kazana [1969] 2 QB 152

True owner left notes in tin – forgot and left behind in house. Worker installing new stove found it. Contract for sale of land did not include chattels found there. HELD true owner did nothing to divest the can – was able to recover it.

Bridges v Hawkesworth (1851) 21 LJQB 75

Customer found roll of banknotes on floor of shop. Shop open to public – shop owner DIDN’T have rights better than the finder.

Parker v British Airways Board [1982] QB 1004

Airline passenger found bracelet on floor of executive lounge – handed to employee of licensee of premises. Left his contact details in event that owner did not reclaim. Licensee sold bracelet – finder sued for value. The airport was open to the public but by invitation – more control than in Bridges case above. But Board had no system for searching owners. HELD Parker had better possessory title than occupier at time of finding. Donaldson LJ formulated 8 principles at 1017-18.

Rights and obligations of the FINDER;

1. The finder of a chattel acquires no rights over it unless (a) it has been abandoned or lost and (b) he takes it into his care and control.

2. The finder of a chattel acquires very limited rights over it if he takes it into his care and control with dishonest intent or in the course of trespassing.

3. Subject to the foregoing and to point 4 below, a finder of a chattel, whilst not acquiring any absolute property or ownership in the chattel, acquires a right to keep it against all but the true owner or those in a position to claim through the true owner or one who can assert a prior right to keep the chattel which was subsisting at the time when the finder took the chattel into his care and control.

4. Unless otherwise agreed, any servant or agent who finds a chattel in the course of his employment any not wholly incidentally or collaterally thereto and who takes it into his care and control does so on behalf of his employer or principle who acquires a finder’s right to the exclusion of those of the actual finder.

5. A person having a finders right has an obligation to take sure measures as in all the circumstances are reasonable to acquaint the true owner of the finding and present whereabouts of the chattel and to care for it meanwhile

Private premises

ATTACHED/UNATTACHED

Where goods are found attached to land occupier generally obtains better possessory title. It is presumed that they had a general intention to control all items attached to the land. Presumption applies irrespective of whether they knew of its existence.

Where goods founds unattached occupier must show manifest intention (obvious/apparent to the finder) to exercise control over anything lying unattached on the land or in the building. Whether or not there was ... depends on the circumstances – question of degree.

Brooch found on top of window frame in house under requisition which had never been occupied (Hannah v Peel)

Money found on shop floor (Bridges v Hawkesworth)

Bracelet found in airport lounge (Parker v British Airways)

Drugs and cash found in dilapidated, disused building (Tamworth Industries v A-G)

Rings in mud at bottom of pool (South Staffordshire Water)

Prehistoric boat found six feet below surface (Elwes v Brigg Gas)

Medieval gold brooch found nine inches below surface of public park (Waverley Borough Council)

Bank notes in old safe built into wall of demolished building (Corp of London)

EMPLOYMENT

Where an employee finds goods in the course of employment, general principle is that they belong to the employer (Corp of London v Appleyard). If, however, the employment ≠ an effective cause of the finding goods do NOT belong to the employer (Byrne v Hoare).

Rights and obligations of the OCCUPIER;

1. An occupier has rights superior to those of a finder over chattels attached to that land and an occupier of a building has similar rights in respect of chattels attached to that building, whether in either case the occupier is aware of its presence.

2. An occupier of a building has rights superior to those of a finder over chattels on or in, but not attached to, that building if, but only if, before the chattel is found, he has manifested an intention to exercise control over the building and the things which may be on or in it.

3. An occupier who manifests an intention to exercise control over a building and the things which may be on or in it so as to acquire rights superior to those of a finder is under an obligation to take such measures as in all the circumstances are reasonable to ensure that lost chattels are found and, on their being found, whether by him or a third party, to acquaint the true owner of the finding and to care for the chattels meanwhile. The manifestation of intention may be express or implied from the circumstances including, in particular, the circumstance that the occupier manifestly accepts or is obliged by law to accept liability for chattels lost on his ‘premises’.

4. An ‘occupier’ of a chattel – e.g. a ship, motor car, caravan or aircraft – is to be treated as if he were the occupier of a building for the purposes of the foregoing rules.

Elwes v Briggs (1886) 33 Ch D 562

Tenant under 99 year lease. Asked landlord for permission to excavate. Found a prehistoric boat 6 feet below surface – landlord had no knowledge of the boat. Landlord entitled to boat.

South Staffordshire Water Co v Sharman [1896] 2 QB 44, 47

Defendant employed to clean pool. Found 2 rings in the mud in pool. Owner of land was entitled to them.

City of London v Appleyard [1963] 1 WLR 982

Builder’s employees preparing foundations for building, found safe built into wall – containing banknotes. Belonged to employer.

Byrne v Hoare [1965] Qd R 135

Police officer found ingot of gold while walking towards where he was to supervise traffic leaving drive in theatre. HELD although his employment provided the occasion for finding, it was NOT the effective cause. Hadn’t been conducting search at the time – nor had he been permitted access to private place. Was walking where any member of public might have walked. Fact that he was on duty at time of find was merely coincidental.

Chairperson, National Crime Authority v Flack

Tenant was occupier of the house – lived alone but gave keys to son, daughter and friend – they entered reasonably frequently. Police search warrant found locked briefcase containing $433,000 in cash in back of high cupboard. Tenant did NOT know of bag nor money. HELD occupier of house shows intention to control all chattels – known or unknown. Very little intention required as occupier of private premises. Occupier had better claim.

TRESPASSERS

Finder of goods acquires very limited rights over rights if he forms a dishonest intention of keeping them – regardless of the true owner’s rights (Parker). The person against whom he’s committed trespass will have better title (Parker). Based on a rule of public policy – wrongdoers shouldn’t benefit from their wrongdoing.

ABANDONMENT occurs where owner intentionally gives up ownership of property and no longer intends to possess them. Result: that person is divested of ownership – chattel becomes capable of acquisition by a finder/taker. If abandoned goods are found finder may, upon appropriation, acquire ownership of goods.

ELEMENTS:

1. Unilateral physical act – best evidence is for owner to throw away the goods (Re Jigrose). 2. An intention to give up rights of ownership and possession of goods.

To establish 2) owner must no longer intend to retain possession/property (Re Jigrose). Distinguish from mere loss – no intention to abandon the goods (Keene). ONUS is on party who asserts abandonment – to establish express intention to abandon from which an intention can be inferred (Moorhouse v Angus & Robertson). Look at following factors;

Value of the property – more valuable, less likely it is to be abandoned. Circumstances in which and where it was lost Length of time it was out of owner’s possession Attempts to reclaim

Title is NOT automatically transferred to the finder. Must be appropriated – taking to oneself as one’s property (Re Jigrose). Refers to a manifest intention to exercise control over the goods found (Parker v British Airways).

TRESPASS

Involves a direct interference with the Plaintiff’s actual possession of a chattel – contemplates contact, destruction and damage. Requires actual, constructive or immediate right to possession. E.g. a person who leaves their car at the garage has an immediate right to possession (Wilson v Lombank). Must result from a wilful or negligent act (Manton v Brocklebank). Defendants in National Coal Board v JE Evans didn’t know the underground cable existed – no negligence and no trespass to goods. Plaintiff receives damages in the form of compensation for the injury to the chattel. Where there is no actual damage, nominal damages (Kirk v Gregory).

DETINUE

Arises where the Defendant wrongly detains another’s goods and refuses a demand to return the goods. Must establish a demand by the Plaintiff and a wrongful refusal to comply with that demand (Pargiter v Alexander). The plaintiff is entitled to recovery of the goods themselves and/or damages – on the basis of the loss suffered by reason of having been deprived of the chattel (Pargiter v Alexander).

Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700

Author delivered manuscript to publishers 1971. Author asked for it back in 1978. No requests/inquiries in the seven year difference. Publisher claimed author had abandoned the manuscript. The agreement reserving rights of the author = evidence that they never intended to relinquish ownership rights. Inactivity ≠ an intention to abandon.

Re Jigrose Pty Ltd [1994] 1 Qd R 382

REIQ Standard Contract for sale of land (1993 version) – clause 28: Removal of Chattels. V obliged to remove the chattels; and not removed deemed abandoned. P may ... appropriate or remove or dispose of ... as P thinks fit. Vendor sold farm, left behind bales of hay – wanted them back. Contract deemed these abandoned but also required act of appropriation. Purchasers had not touched them – placed lock on gate – this amounted to appropriation – therefore ownership was not automatically acquired.

Waverly Borough Council v Fletcher [1995] QB 334

Finder used metal detector and excavated park owned by local authority. Found medieval gold brooch – finder was trespassing.

CONVERSION

Involves the intention and wrongful dealing with another’s goods in a manner repugnant to with the owner’s immediate right of possession. At the time of the alleged conversion, Plaintiff must have had a legal right to possession (Beagle v Gough).

ELEMENTS identified in Kuwait Airways Corp v Iraqi Airways;

1. The defendant’s conduct was inconsistent with the owner’s rights;2. Conduct was deliberate, not accidental;3. Conduct so extensive an encroachment on the owner’s rights as to exclude him from the use and possession of the goods.

Mere wrongful asportation of the goods is insufficient. Unless there was an intention to convert it to the taker’s own use. Or unless the act destroys or alters the chattel’s quality (Fouldes v Willoughby). The sale by an auctioneer does not amount to conversion unless there’s a subsequent delivery (Consolidated Co v Curtis). Measure of damages is normally the value of the goods – market value at the date of conversion (Curtin v Meadlow).

LIMITATION OF ACTIONS ACT 1974

Section 10 provides that an action shall not be brought after the expiration of 6 years from the date the cause of action arose.

ACCESSION

Doctrine of accession operates where one chattel becomes attached to/part of dominant chattel and receives natural increase. Where this doctrine applies, the accessory becomes part of the dominant chattel. The owner of the dominant chattel becomes entitled to the chattel in its improved state, and the owner of the accessory loses their interest.

[Clause in a contract to which owner of accessory is NOT a party cannot affect this issue (Akron Tyre v Kittson). Where dominant chattel and accessory not defined take the more expensive one as the dominant and vice versa.]

Ownership of the accessory only passes to the dominant chattel’s owner if –

1. The owner of the accessory intends to pass property to the owner of the dominant chattel; and2. The accessory cannot be detached without causing substantial damage to either chattel (Rendell v Associated Finance).

Rendell v Associated Finance Pty Ltd [1957] VR 604

R owned engine. Rented it out to Pell. Defendant owned the truck. Pell had a truck on hire. Hire purchase agreement between Pell and defendant: any accessories attached become part of goods. Engine could be detached. HELD doctrine did not operate – didn’t matter that truck was unusable without the engine – it could be removed without causing damage.

Clause didn’t affect the doctrine. The owner is only bound by a contract that they make.

Lewis v Andrews and Rowley Pty Ltd (1956) 56 SR (NSW) 439

H owned trailer. Gave security over trailer to E to secure loan. H leased trailer to A – contract provided that all parts and accessories fitted to the trailer belonged to A. A fitted parts. E repossessed on default – refused to return the parts – claimed articles passed on accession. HELD A clearly did not intend the accessories to pass – established by the contract between A and H. E could not establish that practical necessity required the transfer – articles could be detached. Doctrine did not operate.

McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303

Plaintiff owned laminated full - $1,777. Second defendant gradually did extra work piece by piece - $24,409 and constructed a yacht. Impracticable to sever hull from the rest of the yacht. HELD plaintiff obtained yacht by accession – the hull was the dominant chattel.

Page 313 – Young J

‘The test for compensation to be applied in this class of case is whether the work done conferred on the Plaintiff and incontrovertible benefit. If it did, Plaintiff must pay compensation as a prerequisite to obtaining an order for specific recovery of the chattel and the measure of that compensation is the amount of the incontrovertible benefit’.

INTERMIXTURE

Intermixture occurs where goods belonging to 2 or more people are mixed to produce an inextricable mixture. The physical or chemical state is not altered – goods are only merged.

ACCIDENTAL/AUTHORISED

If the quantity contributed by each party can be determined the contributors have an interest in common proportionate to their contributions (Coleman v Harvey). If it is not possible to determine the contributions the contributors are tenants in common in equal shares.

DELIBERATE

If goods belong to 2 different people – mixed by 3rd person 2 innocent contributors held to be entitled to be treated equally as between each other (Foskett v McKeown).

GIFT defined as the gratuitous transfer of ownership of property from one person to another. Differs from a sale because it lacks consideration. Can be gift of a chose in possession (Cochrane v Moore) or a chose in action (Norman v FCT).

ELEMENTS:

1. Donor intends to give absolute right to the exclusive enjoyment of the chattel and communicates this intention to donee;2. Donor performs acts sufficient to give effect to that intention – actual or constructive delivery (Flinn v White). Delivery

doesn’t been to be simultaneous with the words on intention (Re Cole).3. Acceptance of that gift by the donee.

Insufficient to merely promise to transfer title. Must be act of immediate disposition (Strong v Bird). Property not yet it in existence or not yet belonging to the donor cannot be the subject of a gift (Lunn v Thornton). Where it’s made through a will, delivery is not necessary (Norman v FCT). Once completed, cannot be revoked (Standing v Bowring).

Indian Oil Corp Ltd v Greenstone Shipping SA (Panama) [1988] QB 345

Shipowners deliberately mixed receiver’s crude oil with their own. Mixture of oils could not be separated. Receivers claimed all the oil. Overall quantity was short – innocent party received damages.

Owned as tenants in common Innocent party receives back contribution – any doubt as to quantity resolved in favour of innocent party Innocent party entitled to claim damages from mixer for loss suffered by missing (short delivery).

Knapp v Knapp [1944] SASR 257

H gave gift of car to W as birthday present. Condition that W registers H’s name to obtain extra petrol allowance for business. HELD due to this specific condition, H had not intended to give W absolute right. Was therefore not a gift.

Flinn v White [1950] SASR 195

Father brought piano – placed in family home. Was used by daughter A. Father said it was for A – A continued to use it as before. HELD there was no change in possession – no delivery. Daughter hadn’t taken steps to effect the reservation.

Rowland v Stevenson [2005] NSWSC 325

Birthday present made of a yacht. Sufficient to constitute delivery for donor to have hander over keys of yacht to donee, saying ‘It’s all yours, son’. Gift was perfected by donor’s similar statements that night. Donee accepted gift in acceptance speech.

Weeks 4 & 5 Lectures / Week 5 Tutorial – Agency

The term agent generally describes person authorised to conduct and enter into transactions on behalf of or as a representative of another, the principal (International Harvester Co of Australia v Carrigan’s Hazeldene Pastoral Co). Whether or not an agency relationship arises is a question of law; viewed objectively by the courts (Garnac Grain Company Inc v HMF Faure & Fairclough Ltd). The principal must, however, have the legal capacity to perform the act which the agent has carried out on their behalf (Christie v Permewan).

ACTUAL EXPRESS AUTHORITY

There are a number of forms of authority; actual authority, ostensible authority and ratification. Actual express authority arises where the principal has expressly granted the agent authority to do a particular act. This form of authority requires the consent of both the principal and agent and may be created via a written or oral contract. (Poulet Frais v Silver Fox Company). Where the agency has arisen by way of a contract, the terms of the contract construed to determine whether an agent’s acts fall within the scope of their actual express authority. (Tobin v Broadbent).

ACTUAL IMPLIED AUTHORITY

Actual implied authority, on the other hand, is inferred from the relationship between or conduct of the parties. It may arise in a number of ways;

1. Incidental authority – this involves acts where are necessarily or normally incidental to acts which have been expressly authorised.

2. Usual authority – this includes acts which an agent of the type concerned would usually have authority to do.

Usual authority of managing director includes others providing services for the company (Freeman & Lockyer v Buckhurst Park Properties) and guaranteeing loans made to a subsidiary of company and agreeing to indemnify other guarantors (Hely-Hutchinson v Brayhead). Held in Hawken v Bourne that managing directors may be impliedly authorised to do all acts necessary for the regular conduct of the business.

Where the principal confers authority to sell in general terms, it will be construed as authorising only those transactions which are reasonable and proper – consider the nature of the property, practice of the market and circumstances of the case (Moore v Nelson).

3. Customary authority – implied authority to act in accordance with reasonable business practice applicable to the particular transactions. Before this occurs, the usage or custom must be recognised as notorious, certain and reasonable (Con-Stan Industries of Australia v Norwich Winterthur).

4. Authority implied from a history of dealings between the parties. Where, for instance, the board of directors of a company allows one of its directors to enter into contracts of a particular type for a period without seeking sanction of the board, there is a finding of actual implied authority to enter into similar contracts in the future (Hely-Hutchinson).

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Ebos distributor of flu vaccine imported from UK. Alphapharm was sub-distributor in Australia. E and RT (subsidiary of E) agreed that RT look after collection, storage and regulatory approval of vaccine sent to Aus. RT, with A’s consent, arranged for Finemores to distribute vaccines to customers. RT’s employees signed contract containing exemption clause without reading it. Vaccine damaged to loss of A. A sued F for negligence. F’s liability depended upon whether, when employee of RT signed the contract containing exemption clause, he (and therefore his employer) was authorised by A.

HELD: actual express authority existed. A had authorised RT to agree upon rates of freight, terms of payment and other standard terms and conditions of a contract for storage and transportation required by F. Terms and conditions of contract signed by employee of RT were standard (including exemption clause) – RT via employer had acted within scope of their actual express authority.

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

HH was chairman and managing director of Perdio Electronics Ltd. R was chairman and de facto MD and CEO of Brayhead Ltd. HH became director of Brayhead. HH agreed to lend more $$ to assist Perdio on certain conditions, including indemnity from Brayhead in respect of further $$ lent and a release of personal guarantee given earlier. R purported to agree to these conditions on behalf of Brayhead – did not disclose this to other Board members. HH advanced the $$ and Perdio went into liquidation. HH paid the creditors of Perdio and then sued B. B denied the authority of R.

HELD: R had actual implied authority – implied from the conduct of the parties and the circumstances of the case to enter into the 2 contracts with Mr HH.

An express limitation on agent’s normal authority operates to limit that authority whether or not the 3rd party is aware of the limitation (International Paper Co v Spicer) – unless ostensible authority established on the facts. So where there are express directions from the principal to the agent to the contrary, actual implied authority cannot exist (Fray v Voules).

OSTENSIBLE AUTHORITY

This type of authority is distinguishable from the 2 forms of actual authority; it arises not upon the principal’s consent, but rather, from the words or conduct of the principal to a 3rd party. To establish ostensible authority, the following elements must be shown;

1. A representation by the principal to a 3 rd party that the agent has their authority to act for them .

It can be made by words or conduct. It must be made the principal – or by someone expressly authorised by the principal (Freeman v Buckhurst). Where the principal is a company, the representation must be made by a person with actual authority to do the act concerned, or to manage the business of the company generally (Crabtree-Vickers).

There are a number of circumstances which may give rise to a valid representation;

Occupancy of a particular position – if a person is appointed to a position which would usually authorised a person in the same position to do certain acts on behalf of the principal, the 3rd party is entitled to assume that the agent had authority (Robinson v Tyson).

Permitting business card to be used. In Prospect Industries v Anscor, a d was held NOT to constitute holding out – the 3rd party understood that the agent was not there on behalf of the company named on the card.

Use of a company seal

2. Reliance – there must be casual connection between the representation to the 3 rd party and the subsequent dealing . The 3rd party cannot hold the principal liable where;

The 3rd party was unaware of the representation (Bloomenthal v Ford) The 3rd party did not believe the representation Knew or had the power to know the truth. In Russi-Chinese Bank v Li Yau Sam, the agent didn’t have authority to accept

money but ordered its transfer. Li knew of this limitation on agent’s authority. If the 3rd party understands that the agent is acting outside the authority bestowed by their position, ostensible authority cannot be established (Alliance Acceptance Company v Oakley).

3. Detriment suffered by the 3 rd party as a result of the reliance

It will be sufficient if the 3rd party has entered a contract – that is, altered their position as a result of the reliance. In Egan v Ross, it was held that the 3rd party had clearly acted to his detriment in engaging solicitors and giving necessary instructions for the contract’s completion.

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Director acted as MD to knowledge of the Board. The director engaged architects to apply for planning permission to develop an estate. The architects did work and claimed the fees. Company refused to pay on the basis that director wasn’t authorised to enter into the arrangement.

HELD: company was liable for the architect fees. By permitting the director to act as MD, the Board had impliedly represented he had authority to bind the company to contracts within the ordinary ambit of the authority of a MD.

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Charterer of a ship suffered loss when sued by the financiers of the purchase of goods because delivery delayed. Charterer sough indemnity from seller of goods, and the seller’s bank – both of which (the charterer contended) had executed an indemnity in the charterer’s favour. Seller was undoubtedly liable but argued that the officer who executed the indemnity had no authority to bind the bank to an indemnity. HELD: the bank had granted an indemnity. Officer had ostensible authority – fact that she had affixed the stamp of the bank, had signed the documents, the bank permitted the officer to sign and stamp documents in an unqualified form.

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72

Bruce Junior had made a representation that Peter had authority by his presence at a conversation with the vendor and Peter when Peter said he was responsible for the negotiations and by supplying Peter with a blank order form. However, Bruce Junior didn’t have actual authority to make the representation (needed to by the Board or by all 3 men) nor did he have actual authority himself to enter the contract – his powers has MD were limited. As Bruce Junior only had ostensible authority, he could not invest another (Peter) with ostensible authority. HELD: contract was not binding as Peter had neither actual nor ostensible authority.

RESULT OF FINDING OSTENSIBLE AUTHORITY

If, on the facts, it is found that the agent had ostensible authority to enter into the particular transaction, the principal will be held bound to the 3rd party. The principal may also be held liable as an accessory under s 52 of the TPA 1974 (Cth) if their conduct was so closely connect with that of the agent’s. They must have aided, abetted, counselled, procured the contravention by the agent and/or had been in any way directly, indirectly, knowingly concerned or party to the contravention (Clancy v Prince).

In relation to the agent, the principal may also seek to recover damages for their breach of duty, that is, their failure to follow instructions.

RATIFICATION

Ratification occurs where authority is retrospectively granted where the agent at the time had no authority (Attorney General (NSW) v Wylde). As explained in Firth v Staines, a particular act originally carried out without authority becomes valid and effectual from the time of the agent’s act.

The agent who act is sought to be ratified must have purported to act for the principal. A contract made by someone purporting and professing to act on their own behalf cannot be ratified or adopted by a 3rd party, as illustrated:

WHO CAN RATIFY?

The only person who may ratify is the person on whose behalf the act was purported to be done. The doctrine of ratification does not apply to cases involving an undisclosed principal, that is – the principal must be in existence at the time of the act (Trident General v McNiece). They need not be specifically nor personally known by name but rather, ascertainable to the third party (Lyell v Kennedy).

An agent may, in circumstances, effect ratification where they have authority to ratify (not authority to have performed the act itself – Re Portugese Consolidated Mines).

METHOD OF RATIFICATION

The act of ratification may be express or implied from conduct. If it is express, there must be a clear manifestation by the principal that they treat the act as authorised (Bowstead & Reynolds on Agency). If ratification is implied, the words or conduct must be unequivocal and not open to any other interpretation (Peterson v Moloney). There must be no other explanation for the principal’s act. In Forman & Co v Liddesdale, ratification was not established because the principal was merely resuming possession of his own property – he had no other choice.

Ratification by acquiescence may occur where the principal has full knowledge of all the material facts (Taylor v Smith) and fails to rectify the situation (Prince v Clark) In circumstances, however, the principal need not be aware of all the material facts where they can be shown to have adopted the agent’s acts whatever they were – as was in Bayley v Fizmaurice where the principal waived his right to be notified by saying, “What he’s done for me I know”.

Where the principal does not wish to ratify an agent’s act, they must notify their dissent within a reasonable time (International Paper) to the 3rd party (Prince v Clark). They have a duty to make enquiries if they’re unsure of whom to notify (Scots Church Adelaide).

Failure to communicate dissent to purchase over 5 months HELD to be acquiescence in the contract entered into by the agent & to ratification of the action in signing her as an agent (Scots Church Adelaide)

Failure to make enquiries over a period of 2 months amounted to acquiescence (Prince v Clark) Principal became aware of the forgery but did nothing about it for over 3 years HELD that principal’s deliberate silence

amounted to ratification (Klement)

Keighley Maxsted & Co v Durant [1901] AC 240

P authorised an agent to buy wheat on a joint account for the P and A at a certain price. A was unable to buy at that price and without authority brought at a higher price. A brought in his own name though he intended it be for both. Next day P agreed with A to take wheat on joint account but both P and A later refused to take delivery of the wheat. HELD P could not be held liable for the breach of contract as A had not, when acting without authority, professed to be acting for P. the P’s purported ratification was therefore ineffective.

TIME FOR RATIFICATION

Where there is a time stipulation in which an act is to be performed – whether by statute or agreement – ratification cannot take place after the expiration of that time (Kidderminster Corporation v Hardwick). In Dibbins v Dibbins, an option to purchase was exercisable within 3 months – it was exercised without authority during this time – could not be ratified after the expiry of the period.

Where a certain time for performance is not stipulated, ratification must occur within a reasonable time (Walter v James) – that of which is a factual issue (Celthene v WKJ Hauliers). Held in Trident General v McNiece that ratification of an insurance policy after 7 years did not occur within a reasonable time.

LIMITATIONS

Where a breach or loss has occurred before ratification, the courts will not invoke the doctrine of ratification. In Grover v Matthews, the principal insured was unable to ratify an unauthorised contract of insurance after the loss had occurred.

The doctrine of ratification will generally not be invoked where to do so would cause injustice or unfairly prejudice a 3rd party (Donnelly v Popham).

Once an estate has vested, the doctrine of ratification cannot operate to divest the estate (Hughes v NM Superannuation). Supported by the case Whitehead v Taylor where the court said, “an estate once vested cannot be divested … by the application of the doctrine of ratification”.

EFFECT

An effective ratification places the parties in the positions they would have been in if, at the time of the act, the agent had had actual authority to perform the acts ratified (Union Bank of Australia v Rudder). Unless they agent has contracted to make themselves additionally liable, they will not be liable to the 3rd party (Union Bank of Australia v Rudder). If the ratified act is tortous, both the agent and principal are held liable (Stephens v Elwall).

A contract cannot be ratified in part, and repudiated in part (Wilson v Poulter). The principal is therefore obliged to either adopt or reject the whole transaction (Re Mawcon Ltd).

Week 6 Lecture / Week 7 Tutorial – Bailment

BAILMENT

A bailment arises where one person (the bailee) takes possession of chattels of another person (the bailor). It most commonly takes place where there is physical delivery of the goods by the owner to the intended bailee, with their knowledge and consent. In Hobbs v Petersham, a bailment was said to ‘come into existence upon delivery of goods of one person (bailor) into possession of another (bailee) upon a promise, express or implied, that they will be redelivered to the bailor or dealt with in a stipulated way’.

Although a bailment usually arises in a contractual context, it may occur independently of a contract (Compania Portorafti v Ultramar). In order for a bailment to exist, the following elements must be established;

1. There must be a voluntary or consensual assumption of possession of the goods on the bailee’s part.

Where the bailee receives possession of the goods without knowledge, they do not thereby become a bailee. This is so where the item is concealed on the bailee’s person. Knowledge of the goods and an assumption of responsibility are essential to a bailment.

2. There must be a delivery of possession , either actual or constructive , of the goods to the bailee (R v Bennie).

However, delivery of possession may not occur in circumstances where a person finds and keeps the goods without the owner’s knowledge or consent. Nevertheless, the finder is deemed to have taken the goods as a bailee.

3. A promise , express or implied , to redeliver the goods or deal with them in a specified way. If the goods are found , to assume responsibility for safe-keeping .

DUTIES OF THE BAILEE

Whether or not a contract exists, the CL imposes a number of duties and obligations upon the bailee. If a contract does exist, the terms will be examined to determine the duties. Additionally, the bailee may be subject to tortuous obligations.

Bailees are obliged to exercise reasonable care in relation to the bailed goods, as observed in Bowden v Lo by Hodgson CJ. Once loss or damage occurs, the onus lies on the bailee to prove that such loss or damage was not caused by their failure to take reasonable care (Bowden v Lo).

Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644

Wool broker sold wool to another – the retained possession pending payment. A store of timber, 40 years old, was surrounded by paling fence from which several palings were missing. An intruder entered and set fire from the outside. HELD the wool broker had breached his duty to take care. In considering what’s reasonable, look at the difficulty and expense of possible precaution. The provision of fencing was obvious and not expensive. Fencing was inadequate to keep out intruders.

Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994) Aust Torts Reports 81-292

Plaintiff delivered motor vehicle to defendants for repair. Defendant employees left key in ignition switch overnight (made no difference). Thieves broke in through skylight in the roof and drove it away. After the break in, security bars, and alarm system worth $3,000 and warning signs put up. Although there had been no thefts in 15 years, there was a heavy door, the premises were in a well-lit area and was opposite a 24 hour bus stop, must take into account the following:

Value and disposability of the bailed goods Location of the place of bailment Costs paid by the bailor to the bailee Extent of the bailor’s knowledge of circumstances of safekeeping Extent of theft in the vicinity of the place Availability of simple, inexpensive and easily adopted precautions

HELD: in modern times, it is reasonable to expect the bailee to take steps to prevent thefts. Security systems were simple, inexpensive. As they hadn’t taken them in advance, they were liable.

Morris v CW Martins & Sons Ltd [1966] 1 QB 716

Owner (bailor) delivered fur stole to furrier for cleaning – subcontracted to specialist fur cleaners. The employee who duty it was to clean it stole it. Bailees had taken all reasonable steps to safeguard goods; were not negligent in employing the thief. They had checked references, checked employees as they were leaving. HELD they were not negligent in employing the thief. They were, however, vicariously liable for the employees.

In addition, the bailee is also under a duty not to intentionally deal with the goods in a manner inconsistent with the bailor’s right to the property (Caxton Publishing v Sutherland Publishing). This includes not converting, nor stealing the goods.

Moreover, there is a duty to deliver the goods in accordance with the bailment agreement (Jackson v Cochrane). This duty will not be breached if the bailee has carried out their obligation with care and diligence (John F Golding v Victorian Railway).

DUTIES OF THE BAILOR

It is fundamental that the bailor has the right to bail the goods. In circumstances where the goods are supplied to another for an agreed or stated purpose, the bailor impliedly promises that it is reasonably fit for such use (Gemmell Power Farming v Nies). This extends to warning the bailee of any dangers that might arise from the operation of the bailed machine (Pivovaroff v Chernabaeff). Any fees and charges reasonably incurred by the bailee in carrying out the bailment must be reimbursed by the bailor.

SUB-BAILMENT

A sub-bailment occurs where there is a bailment by the good’s owner to the bailee, followed by a sub-bailment by the bailee to the sub-bailee (The Pioneer Container). The sub-bailee receives possession from the head bailee, rather than from the owner (Brambles Security Services). Although no contractual relationship exists between the bailor and the sub-bailee, the sub-bailee may in circumstances owe the same duties of a bailee to the original bailor (Gilchrist Watt & Sanderson v York Products).

1. The bailee had sub-bailed with the authority of the owner; and 2. The sub-bailee is aware that the goods are the property of someone other than the bailee. Not necessary who exactly the

bailor is, just that the bailment would usually require a sub-bailment e.g. international deliveries

The sub-bailee may rely on exemption clauses in their contract with the bailee which exempt them from liability, if the bailor has expressly or impliedly consented to the terms, or ostensibly authorised them (The Pioneer Container). If the sub-bailment was unauthorised, the bailee is responsible for anything that occurs. However, the bailor is entitled to directly bring an action in negligence against the sub-bailee without having to rely on the sub-bailment contract.

Edwards v Newland & Co [1950] 2 KB 534

Defendants undertook to store plaintiff’s furniture. Without plaintiff’s knowledge, subcontracted with 3rd party to store the goods. The 3rd party’s premises were insecure – the goods were stolen. HELD: the bailee was liable for parting with the goods and their complete loss.

Jackson v Cochrane [1989] 2 Qd R 23

Owner delivered caravan to bailee motor dealer for sale on consignment. Bailee induced by misrepresentation to deliver it to others. Receipt was forged, bailee delivered it to thieves. They had taken reasonable care. HELD: in cases of misdelivery, it is irrelevant whether or not there was reasonable care.

Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633

Plaintiff did fencing work for the defendant as an independent contractor. Price was agreed on the basis that the bailor/defendant would supply the electric saw. The saw had a defective guard arising from faulty maintenance and injured the plaintiff. HELD: in all contracts for the supply of goods (including a bailment) there’s an implied condition that goods are fit for the purpose where the purpose was known to the supplier. As the defendant knew the purpose was for fencing, he was liable.

Morris v CW Martins & Sons Ltd [1966] 1 QB 716

Whether or not there’s a contract between the sub-bailee and the bailor, the sub-bailee owes the same duties to the owner. HELD: the owner could sue the sub-bailee for the loss of goods because they knew the fur sole didn’t belong to the bailee, but someone else. Not necessarily the identity, just another person.

China Pacific SA v Food Corporation of India (The Winson) [1982] AC 939

Ship carrying wheat from the USA to India stranded on reef in South China Sea. The shipowner and cargo owner (resp) entered into an agreement with the salvors (apps) who were the bailees. The salvors off-loaded the wheat to lighten the ship, shipped it to Manila and incurred charter, stevedoring, storage charges to preserve the wheat. The cargo owner was aware of the arrival of wheat in Manila and failed to give instructions. HELD: the cargo owner was not entitled to possession without paying the charges. The Salvos had an obligation to look after the wheat – involved a right to recover the costs in doing so. Owner had to reimburse $.

EXEMPTION CLAUSES

Before a bailee or sub-bailee can rely on an exemption clause, they must show that it constituted part of the contract. A party will be bound by the terms of a contract by signing it, unless they were induced by misrepresentation or fraud – whether or not they’ve read the terms (Toll (FCGT) v Alphapharm).

An exemption clause will be sufficient to exclude liability for negligence if it expressly or impliedly covers such liability. The clause will be interpreted according to its ordinary and natural meaning, in light of the contract as a whole – giving due weight to the context, nature and object of the contract. In the event of an ambiguity, it will be construed against the party seeking to rely on the clause (Darlington Futures v Delco Australia).

IN CONTEXT OF SUB-BAILMENT

Where the contract between bailor-bailee includes the exemption clause – Can the sub-bailee rely on it?

Where the contract between sub-bailor-sub-bailee includes the exemption clause – can the sub-bailee rely on it?

In some circumstances, the bailor may have impliedly consented to the bailee entering into a sub-bailment containing particular conditions. It may also impliedly arise where the terms are usual within the industry. Alternatively, the bailor may have given express consent.

TRADE PRACTICES ACT

Gilchrist Watt & Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262

Confirmed decision in Morris. Owners (bailor) imported 2 cases of clocks shipped from Germany. On arrival, the shipowners (bailee) arranged stevedores (ship’s agent) to unload, sort and store clocks. Stored in shed. Bailers sought delivery – 1 case missing – stevedores/agents failed to exercise reasonable care. HELD: they knew the clocks belonged to other people. They took upon themselves a duty to the owner, despite there being no contract.

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Alphapharm (bailor) had possessory rights to goods. Agent of A engaged Toll (bailee) to transport the goods – bailee sent the agent a printed contract form – “all carriage is subject to conditions (overleaf). Please read conditions prior to signing”. Conditions were common in refrigerated transport industry. The agent signed without reading. HELD: where a party signed a contract, they are bound by the terms unless it was induced by misrepresentation, fraud, equitable relief. Do not have to show that they gave notice of the onerous terms – only where it’s an oral contract.

NZ Shipping Co Ltd v Satterthwaite & Co Ltd [1975] AC 154

Owner/bailor entered into contract with carrier/bailee which exempted bailee from liability, together with servants, agents, indep contractors. Carried sub-contracted unloading to stevedores/sub-bailees – their negligence damaged the machines. HELD: in order to take benefit from the exemption clause, the following must be shown;

Contract provides sub-bailee to be exempted Contract provides bailee contracted as agent for sub-bailee Sub-bailee gave bailee authority to make the contract or later ratify it – may be where there’s a prior history of dealings Sub-bailee gave consideration for bailor’s agreement HIMALAYA CLAUSE

Morris v CW Martins & Sons Ltd [1966] 1 QB 716

The contract between bailee-sub-bailee said, ‘all goods belonging to customers held at the customer’s risk’, ‘customers should insure against theft’, ‘company will compensate for loss or damage during processing caused by negligence but not by reason of any other cause whatsoever’. HELD: the bailor is bound by the exemption clause if she had expressly or impliedly consented to the bailee making the sub-bailment subject to the conditions. Here, she’d given implied consent to the terms – usual to industry. However, construing the clause according to its ordinary meaning, it only exempted the customer (bailee) not the owner.

The Pioneer Container (sub nom KH Enterprise v Pioneer Container) [1994] 2 AC 324

Owners/bailors – contract for carriage of goods – carriers ‘entitled to sub-contract on any terms for the handling, carriage, or storage of goods’. Carriers/bailees sub-contracted to shipowners/sub-bailees – issued a contract with exclusive jurisdiction clause so any claim to be determined in TW. Ship sank – loss of all cargo. HELD that the bailor had given express consent to the bailee arranging a sub-bailment – ‘on any terms’ – widest exemption of liability.

Section 74 of the TPA 1974 (Cth) operates in the context of services provided by a Corporaton, in the course of business, to a consumer, by implying a warranty that the services be rendered with due care and skill. This includes contemplates returning the goods and not stealing them.

However, s 74(3) provides that this warranty does not apply to services provided under a contract to transport or store goods for the purposes of a business carried on, or engaged in by the person for whom the goods are transported or stored. The effect of s 68 is to deem void any terms in a contract which purport to exclude, restrict or modify s 74.

Under s 4B(1), a person is deemed a consumer if (and only if) the price of the goods did not exceed $40,000 OR if they did exceed, were of a kind ordinarily acquired for personal, domestic or household use (private purposes). Section 4B(2) provides that the price of services is the amount paid for the services. Services is defined in s 4 to include contract for performance of work, whether with or without the supply of goods.

Week 7 Lecture / Week 8 Tutorial – Security Interests in Personal Property

A security is a right given by the debtor over property in favour of the creditor. It is commonly given to secure repayment of a debt or performance of an obligation. If the debtor fulfils the obligation or repays the debt, the security is cancelled. In the event that the debtor defaults, the security is activated. Or if the debtor becomes insolvent, the creditor is given priority over the general body of creditors.

LIEN

A lien arises by implication of the law and vests in the creditor a right to retain possession of the debtor’s property until their pecuniary demands are met. E.g. a car left a garage may be kept there until payment is given.

PLEDGE

A pledge, on the other hand, arises by way of contract and involves the debtor delivering property to the creditor as security for an obligation or debt. In the event of the debtor’s default, the creditor is expressly or impliedly authorised to sell the goods (Osborne Computer v Airroad). Upon the sale, the creditor must appropriate the proceeds towards payment of the debtor’s debt and any surplus must be accounted for.

MORTGAGE

A common law mortgage involves a transfer of property to the creditor as security got repayment of a loan, on an express or implied condition that the property is reconveyed upon repayment. The debtor usually remains in possession during the mortgage. If the debtor defaults, the creditor is entitled to sell the property or if not in possession, retake and sell the goods.

CHARGE

A charge is created by way of a trust, or by contract. The debtor charges specific property to the creditor as security for repayment. It does not involve a transfer of ownership, nor possession. Upon the debtor’s default, the chargee is entitled to have a receiver appointed, or to an order for sale. Where a specific asset is charged, it is called a fixed charged and where the asset is changing, it is a floating charge e.g. stock in trade or book debts.

NEW KINDS OF BUSINESS FINANCING

These are based on owner retaining ownership and allowing debtor have possession to use the goods in their business.

1. Leasing the goods (bailment) for equipment used in the business e.g. cars, machinery, computers. Periodic payments. Not a security idea – there is no overall debt being paid – the owner owns it and rents it out

2. Floor plan/Display plan – a consignment of goods for stock in trade e.g. motor vehicle dealers. Dealer displays the stock to make sales – holds the stock as an agent. Long-term rentals, generally for the useful life of the equipment. No loan – strictly no security. Manufacturers own the vehicles, dealer has possession.

3. Conditional sale – ownership doesn’t pass until the buyer/borrower can pay for the goods. Buyer has possession, but owner has ownership.

PERSONAL PROPERTY SECURITIES ACT (CTH) 2009

SECURITY INTEREST

‘Security interest’ defined in s 12(1) to mean an ‘interest in personal property provided by a transaction that secures payment or performance of an obligation’. Includes in s 12(2)(a)-(b) a fixed charge, floating charge, chattel mortgage, conditional sale agreement (includes agreement to sell subject to ROT), hire purchase agreement, pledge, trust receipt, consignment (whether or not commercial), lease of goods, assignment, transfer of title.

Palgo Holdings Pty Ltd v Gowans (2005) 215 ALR 253

Lender made short term loans, high interest and small amounts. Loans secured by “Bill of Sale/Goods Mortgage”. Goods were “in storage at mortgagor’s request” and lender kept goods until repayment or sale on default. HELD: it was a mortgage even though the lender retained possession. Necessary to look at the capacity in which the creditor/lender had possession – depends on the parties’ agreement.

Section 12(3) extends it to interests in personal property whether or not transaction secures payment or performance of obligation – interest of consignor who delivers goods under commercial consignment and interest of lessor or bailor of goods under PPS lease (s 13).

Grantor = corporation, partnership, individual = debtor Secured party = any lender Collateral = goods, ADI account, share certifications = pp to which S.I attached Attachment = enforceable against debtor Perfection = gives notice to 3rd parties and maximum effect against 3rd parties

ENFORCEABLE AGAINST GRANTOR – SECTION 19

Section 19(1) provides that a security interest is enforceable against a grantor in respect of a particular collateral only if the security interest has attached to the collateral. Under s 19(2), a security interest attaches when;

(a) The grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and(b) Either:

(i) Value is given for the security interest; or(ii) The grantor does an act by which the security interest arises.

If these are satisfied and attachment has occurred on the facts, it just means that a security interest has been successfully created.

ENFORCEABLE AGAINST 3RD PARTIES – SECTION 20

Section 20(1)(a) provides that a security interest is enforceable against 3rd parties only if the security interest is attached to the collateral and (b) one of the following applies;

(i) The secured party possessed the collateral;(ii) The secured party has perfected the security interest by control;(iii) A security agreement that provides for the security interest covers the collateral in accordance with sub (2)

PERFECTION – SECTION 21

Section 21(1)(b) provides that a security interest is perfected if (i) the security interest is attached to the collateral; and one of the following in sub (2) apply;

(a) Registration of financing statement about security interest; or(b) The secured party has possession of the collateral (not as result of seizure or repossession); or(c) In the case of an ADI, the secured party has control of the collateral

If the grantor becomes insolvent (bankrupt, wound up and the security interest is not perfected, then the security interest vests in the grantor (s 267(2)) – the property becomes available for distribution. In the event that the debtor defaults, the secured party may seize the collateral (s 123) or dispose of it by sale (s 128). This carries a duty to take reasonable care in obtaining a market value of best price reasonable obtainable (s 131).

ATTACHMENT OF PROCEEDS – SECTION 32

Section 32(1) provides that if a collateral gives rise to proceeds, the security interest

(a) Continues in the collateral – unless the secured party expressly or impliedly authorised a dealing giving rise to the proceeds; and

(b) Attaches to the proceeds – unless the security agreement provides otherwise.

UNPERFECTED SECURITY INTEREST – SECTION 43

Section 43(1) provides that a buyer of personal property, for value, takes the personal property free of an unperfected security interest in the property. Under s 43(2), sub (1) does not apply if the unperfected security interest was created or provided for by a transaction to which the buyer is a party – unless the personal property concerned is of a kind prescribed by the regulations for the purposes of this subsection.

X obtains loan form Bank A to buy a forklift. Gives a mortgage over the forklift to the bank. The Bank does not register the security interest on the PPS register and lets X have possession. X sells the forklift to Y. Does Y take the forklift free of Bank A’s security interest?

The sale from X to Y is wrongful – but Bank A didn’t protect themselves. They didn’t register and give public notice of it’s interest in the forklift. THUS Y takes the forklift free of the security interest.

SERIAL NUMBERED PROPERTY – SECTION 44

Section 44(1) provides that a buyer of personal property takes the pp free of a security interest in the pp if;

(a) Regulations provide that pp of that kind may, or must, be described by serial number in a registration; and(b) Searching the register – immediately before the sale by reference only to the serial number – would not disclose a

registration that perfected the security interest.

This provision does not apply if sub (2)(a)(i) the buyer holds the pp as inventory; or sub (2)(a)(ii) on behalf of a person who would hold the collateral as inventory. Also doesn’t apply if sub (2)(b) the buyer has actual knowledge that the sale/lease constitutes a breach of the security interest.

MOTOR VEHICLES – SECTION 45(1)(2)

Section 45(1) provides that a buyer, for value, of a motor vehicle takes it free of a security interest if;

(a) Regulations provide that motor vehicles of that kind may, or must, be described by serial number; and(b) Time during period between start of previous day and time of sale/lease – by reference to which a search of the register

would not disclose a registration that perfected the security interest; and(c) The sellor is:

(i) The person who granted the security interest; or(ii) Another person if the person who granted it has loss right to possess MV etc

This provision does not apply if sub (2);

(a) The secured party is in possession of the MV immediately before the time of sale; or(b) The MV is brought at a sale held by or on behalf of an execution creditor; or (c) The buyer holds the MV as inventory (i); or(d) The buyer buys the MV with actual or constructive knowledge of the security interest

MOTOR VEHICLE DEALERS – SECTION 45(3)(4)

Section 45(3) provides that a buyer, for value, of a motor vehicle from a motor vehicle dealer/trader takes it free of a security interest if;

(a) Regulations provide that motor vehicles of that kind may, or must, be described by serial number; and(b) The seller is in a class of persons prescribed by the regulations for the purposes of this subsection.

This provision does not apply where (4)(a) the secured party is in possession of the motor vehicle immediately before the sale. Or where (4)(b) the motor vehicle is brought at a sale held by/on behalf of an execution creditor; or (4)(c)(i) where the buyer holds the MV as inventory. Also does not apply if the buyer buys the MV with actual or constructive knowledge that the sale constitutes a breach of the security agreement.

ORDINARY COURSE OF BUSINESS – SECTION 46

Section 46(1) provides that a buyer of pp takes its free of a security interest (given by the seller) if it was sold in the ordinary course of business of selling pp of that kind. This contemplates everyday sales – but if the seller is selling under financial stress, it is not in the ordinary course of business. This provision does not apply where (2)(a) the pp is of a kind which must be described by serial number and the buyer holds the pp as inventory. Also does not apply where the buyer buys the pp with actual knowledge that the sale constitutes a breach of the security agreement.

Gerry Grantor owns 2 boats. Fast Finance lends to Gerry and perfects its security interest by registering against all Gerry’s boats generally but not by its serial number. Bob Buyer buys a boat, searches by reference to Gerry and finds the security interest but thinks its ok for Gerry to sell. Bob only knows about the security interest, not the possible breach. THUS he takes the boats free of a security interest.

Gerry Grantor owns a motor vehicle. On Monday, Fast Finance lends to Gerry and its security interest attaches to the vehicle. On Tuesday Gerry offers to sell the vehicle to Bob. Bob searches by reference to the serial number on Tuesday afternoon – isn’t there. On Wednesday morning, FF registers by reference to the serial number – Bob pays on Wed afternoon.

FF have done everything right, but were too slow. THUS Bob takes it free of security interest. Would be the same outcome if Bob hadn’t made the search – as long as there was a time in the day and a half in which registration wasn’t there – objective test.

Harry is in the business of buying, repairing, improving boats and selling them. Harry gives charge over his stock to FF – FF registers a security interest over each boat by reference to serial number. Bob buys boat from Harry without searching register. THUS Bob takes the boat free of security interest, provided Bob didn’t know that the purchase amounted to a breach. FF now has a security interest over the proceeds of sale.

PERSONAL, DOMESTIC, HOUSEHOLD PROPERTY – SECTION 47

Section 47(1) provides that a buyer of pp, for new value, intended for personal, domestic or household purpose takes it free of a security interest if (1)(a) the market value of the total new value given does not exceed $5,000. This provision does not apply if (2);

(a) The pp is of a kind required to be described by serial number in a registration; or (b) The buyer buys the pp with actual or constructive knowledge that the sale constitutes a breach of the security interest; or(c) The buyer believes, and is actually the case, that the market value of the pp is more than:

(i) $5,000

In Jan Harry leased a ride-on mower for 2 years from FF. FF paid $3,000 for this mower and registered its security interest over this chattel. Harry advertised the lawnmower in the Trading Post for $1,000. Bob brought the mower from Harry to mow his own lawn (personal use) without searching. THUS Bob takes free from security interest as long as he doesn’t believe it’s worth more.

Week 8 Lecture / Week 9 Tutorial – Transfer of Property and Risk in a Contract for the Sale of Goods

Section 4 of the SGA provides that a contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. Section 8(1) states that the subject of a contract of sale of goods may be either existing goods (those which are owned/possessed by the owner) or future goods (defined in s 3 as those to be manufactured/acquired by the seller).

Existing goods comprises of two categories; specific and unascertained goods. Specific goods are defined in s 3 to cover those identified and agreed upon at the time a contract of sale is made. Unascertained goods, on the other hand, are not yet identified/agreed upon at the time a contract of sale is made. Once the goods are identified and agreed upon after the date of contract, they become ascertained.

Section 19 states in absolute terms that in a contract of sale for unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. This provision overrides any express intention of the parties (Jansz v GMB Imports). Once the goods are ascertained, property will pass in accordance with the parties’ intention, or in accordance with s 21. Section 20(1) specifically provides that where there is a contract of sale for specific or ascertained goods, property in them is transferred at such time as the parties intended it to be transferred. Regard ought to be had to the terms of the contract, the parties’ conduct and the circumstances of the case – s 20(2).

SPECIFIC GOODS IN DELIVERABLE STATE

This rule applies where the contract of sale is unconditional, that is, not subject to any condition suspensive of the passing of property (McPherson v Dench Bros). Specific goods, as mentioned above, are those identified and agreed upon at the time the contract is made (s 3). Includes future goods. Goods are in a deliverable state when they are in such state that the buyer would be bound to take delivery of them (s 3(4)). If certain work is to be done prior to delivery, the goods will not be in a deliverable state until the work is done (Underwood v Burgh Castle Brick).

SPECIFIC GOODS NOT IN DELIVERABLE STATE

This rule applies to contracts involving specific goods where the seller is bound to do something to the goods to put them in a deliverable state. Property in the goods does not pass until such thing is done and the buyer has notice thereof. In some cases, however, the parties may intend property to pass as soon as they’re in a deliverable state, without a need for notification (Joseph Reid v Schultz).

In Wallace v Safeway Caravan Mart, a caravan was purchased on the condition that the seller install a shower and deliver it. The caravan was stolen before the work was completed. It was held that the caravan was not in a deliverable state at the time of theft and therefore, neither property nor risk had passed to the buyer.

SPECIFIC GOODS TO BE WEIGHED, MEASURED OR TESTED TO ASCERTAIN PRICE

This rule applies to contracts involving specific goods in a deliverable state where the seller is bound to weigh, measure, test or some other act for the purpose of ascertaining the price (not merely for the buyer’s satisfaction). Property passes once such act is done and the buyer has notice thereof. The obligation to weigh, measure or test the goods must be required to be done by the seller, not the buyer or 3rd party (Nanka-Bruce v Cth Trust). In this case, a provision in the contract permitted goods to be weighed to determine whether the weight was correct – it was not a condition precedent to property passing.

RULE 1 – When 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, is or are postponed.

RULE 2 – When there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.

RULE 3 – When there is a contract for the sale of specific goods in a 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 is done and the buyer has notice thereof.

GOODS DELIVERED ‘ON APPROVAL’ OR ON ‘SALE OR RETURN’

A ‘sale on approval’ contract exists where the goods are delivered to the buyer with the intention that they be brought if the buyer approves, but not if they disapprove (London Jewellers v Attenborough). A contract ‘on sale or return’ exists where the recipient has an option to sell the goods (if not rejected), unless they are returned to the seller within a fixed or reasonable time (Kirkham v Attenborough). Whether the buyer intends to buy, keep or merely on-sell the goods is irrelevant (Poole v Smith’s Car Sales).

1. Where the buyer indicates their approval or acceptance of the goods. Section 37 provides that the buyer is deemed to have accepted the goods when they;

Intimate to the seller that they’ve accepted them; or When the goods have been delivered to the buyer, and the buyer does any act in relation to them inconsistent with the

seller’s ownership; or When after the lapse of a reasonable time, the buyer retains goods without intimating to seller that they’ve rejected them

2. When buyer does any act adopting the transaction

It was held in Kirkham v Attenborough that this includes any act consistent only with their being the purchaser, or by which they put it out of their legal power to return goods. Selling or pledging the goods will amount to adopting the transaction. In Astley Industrial Trust v Miller, a motor vehicle was delivered to the buyer on ‘sale or return’ terms. A receipt of the log book issued by the local authority was held to be an act adopting the transaction.

A mere offer to sell the goods to someone else, or a forward of the goods to a 3rd party, however, will not constitute an act adopting the transaction – unless the 3rd party adopts the transaction themselves (Genn v Winkel).

3. When the buyer retains the goods without giving notice of rejection beyond the fixed time, or upon expiration of a reasonable time.

It may be relevant to look at the seller’s conduct (Poole v Smith’s Car Sales). If the recipient has given notice within a reasonable time, but does not return the goods, they will not be liable for the price (Price v Fraser). It is possible for the parties to agree that return of the goods is necessary for a valid rejection (Ornstein v Alexandria Furnishing).

In the event that the goods are damaged, without the buyer’s fault, after the expiry of the fixed time or a reasonable time, the buyer will not be liable for the price or damages (Elphick v Barnes).

UNASCERTAINED OR FUTURE GOODS

RULE 4 (1) When goods are delivered to the buyer on approval or ‘on sale or return’ or other similar terms, the property therein passes to the buyer –

a) When the buyer signifies their approval or acceptance to the seller, or does any other act adopting the transaction;b) If the buyer does not signify the buyer’s approval or acceptance to the seller but retains the goods without giving notice

of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.

(2) What is a reasonable time is a question of fact

Poole v Smith’s Car Sales (Balham) Ltd [1962] 1 WLR 744

The plaintiffs and defendants were motor dealers. In August 1960, the plaintiff left his car with the defendants for sale at £325. From October, the plaintiff asked for the return of the car and told the defendants they were holding a customer’s deposit on it. On November 7, plaintiff wrote a letter requiring the return within 3 days, or the price. At the end of November, the car was returned damaged – from the defendant’s employees’ unauthorized private use. HELD that if the loss or damage occurred through the buyer’s fault and the goods are in the buyer’s possession, they are liable. If it isn’t their fault, the seller runs the risk, provided the fixed date or a reasonable time has not elapsed.

RULE 5

(1) When there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer.

(1A) Such assent may be express or implied, and may be given either before or after the appropriation is made.

This rule covers generic goods (a certain quantity of goods in general without any specific identification of them), future goods and any unidentified part of a larger bulk of goods. Goods are in a deliverable state when they are in such state that the buyer would be bound to take delivery of them (s 3(4)). If certain work is to be done prior to delivery, the goods will not be in a deliverable state until the work is done (Underwood v Burgh Castle Brick).

Unconditional appropriation commonly involves the selection of goods by one party, and the adoption of that act by the other. The mere setting aside of goods expected to be used in the contract does not amount to appropriation – Carlos Federspiel v Charles Twigg – constructive delivery is usually required as well;

Where goods are set aside, later branded or marked and then the buyer notified (Tasmanian Producers v Cummin) Where goods are ordered by POST, the posting of the goods (Badische v Basle Chemical) The selection of goods by the seller and notification of this to buyer, who says that they will arrange to collect the goods

(Rohde v Thwaites) Placing of petrol into a tank where it’s mixed with other fuel (Edwards v Ddin)

In Aldridge v Johnson, appropriation was agreed to before it took place where the buyer inspected barley then forwarded bags to be filled. Assent was implied in Sparkes v Marshall where the buyer, upon being informed of the seller’s appropriation, immediately insured the goods. Alternatively, assent may be inferred from the buyer’s silence where they retain possession for a period of time without objection (Pignataro v Gilroy).

Exhaustion occurs where the buyer purchases an undivided portion of specified bulk and the rest of the bulk is sold then delivered to other purchases. Ultimately, the seller is left with only the buyer’s portion – this amounts to appropriation.

RESERVATION OF RIGHT OF DISPOSAL – SECTION 22

Section 22 provides that in a contract of sale for specific goods or when goods are subsequently appropriated, the seller may reserve the right of disposal until certain conditions are fulfilled. As a result, the seller retains property rights until the conditions are met (Hardy Wine v Tasman Liquor). The condition most often takes the form of payment – so until payment is made, the seller is the owner and the buyer acts as a bailee of the goods. In the event that the buyer becomes insolvent, the seller is entitled to reclaim the goods because they own it.

RETENTION OF TITLE CLAUSES

The object of retention of title clauses is to protect the seller where the buyer is in possession of the goods but have not paid. In its basic form, a ROT usually provides that the buyer may take possession of the goods, but property in the goods does not pass until the price is paid. The risk of loss, however, passes upon delivery. It is also common to extend the clause to cover instances where the buyer incorporates the product into other goods and where they resell the goods to a sub-buyer.

RULE 5

(1) When there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer.

(1A) Such assent may be express or implied, and may be given either before or after the appropriation is made.

Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240

Defendant sellers were manufacturers of children’s bicycles – sold it to plaintiff buyers merchants in Costa Rica – the goods were to be manufactured, at a price ‘fob British port’ with insurance and freight extra. The buyers paid the price. The correct quantity and description was manufactured, packed and these packages were marked in accordance with the contract ‘CF&Co, Costa Rica’ and the sellers asked agents to book shipping space – this did not amount to unconditional appropriation.

HELD that in FOB contracts, the natural time for property to pass is when the documents are sent to the buyer or when the ships are loaded.

Karlshamns Oljefabriker v Eastport Navigation Corp (The Elafi) [1982] 1 All ER 208

There was a contract for sale of 6000 tonnes of copra out of a shipment of 22,000 tonnes to one buyer. Seller sent the sale docs. 16,000 tonnes was off-loaded at an intermediate port – this was the time at which the property passed. The rest of the goods were sold and shipped to other buyers.

Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676

Sellers sold aluminium foil to the buyer. The buyer went into liquidation and owed the sellers £122,000. The receiver had foil to the value of £50,000 untouched and a bank account with £35,000 being proceeds from the sale of sellers’ product – was kept separate from the other money. The sellers claimed a charge on this account. HELD that the seller was entitled to reclaim foil and to trace in equity the bank account. The buyer was selling on behalf of the seller (as an agent) and therefore stood in a fiduciary relationship – they must account to the principal the £35,000.

PPSA

Section 12(1),(2)(d) provide that a security interest includes an interest in relation to personal property provided by a conditional sale agreement (including an agreement to sell subject to retention of title). The seller becomes the secured party and the buyer becomes the grantor.

Section 19(1) provides that a security interest is enforceable against a grantor in respect of a particular collateral only if the security interest has attached to the collateral. Under s 19(2), a security interest attaches when;

(a) The grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and(b) Either:

(i) Value is given for the security interest; or(ii) The grantor does an act by which the security interest arises.

Section 20(1)(a) provides that a security interest is enforceable against 3rd parties only if the security interest is attached to the collateral and (b) one of the following applies;

(i) The secured party possessed the collateral;(ii) The secured party has perfected the security interest by control;(iii) A security agreement that provides for the security interest covers the collateral in accordance with sub (2)

Section 21(1)(b) provides that a security interest is perfected if (i) the security interest is attached to the collateral; and one of the following in sub (2) apply;

(a) Registration of financing statement about security interest; or(b) The secured party has possession of the collateral (not as result of seizure or repossession); or(c) In the case of an ADI, the secured party has control of the collateral

SECURED PARTY DOES NOT REGISTER

Section 43(1) provides that a buyer of personal property, for value, takes the personal property free of an unperfected security interest in the property. If the secured party does not register the security interest and the grantor sells the secured property, then the buyer takes the property free of the security interest. Due to the application of s 32(1)(b), the security interest will attach to the proceeds – it will not, however, prevail over other creditors without registration.

SECURED PARTY DOES REGISTER

Section 46(1) provides that a buyer of pp takes its free of a security interest (given by the seller) if it was sold in the ordinary course of business of selling pp of that kind. Therefore if the grantor sells the secured property, then the buyer who buys the property under ss 44-47 takes it free of the security interest. Under s 32(1)(a), the security interest will be lost if the secured party authorised the sale. The security interest will, however, attach to the proceeds under s 32(1)(b).

RISK

Section 23(1) provides that, unless otherwise agreed, the goods remain at the seller’s risk until the property is transferred to the buyer. Once the property is transferred to the buyer, the goods are at the buyer’s risk, whether or not delivery has occurred. If, however, the delivery has been delayed through the fault of either the buyer or seller, the risk lays with the party in fault (s 23(2)). Fault is defined in s 3 to mean a wrongful act or default.

Associated Alloys Pty Ltd v Metropolitan Engineering and Fabrications Pty Ltd (2002) 171 ALR 568

AA delivered steel to MEF and provided 3 invoices. Buyer MEF used AA’s steel to manufacture industrial equipment and sent it to a 3rd party buyer. Buyer MEF received payment from the3rd party from these and other steel products. But it was not possible to identify any payments received from 3rd party as being related to AA’s steel. HELD that there was a trust over the payments received (proceeds). However the seller could not prove that the $ receives was directly attributable to their steel.

A security interest will only attach to the proceeds if it is identifiable as coming from the particular collateral.

If the goods are at the seller’s risk, they will be liable for non-delivery. The buyer will not be liable for the price – if they’ve paid the price in advance, it will be refunded.

If the goods are the buyer’s risk, they will be liable to the seller for the price, even though the goods are damaged or destroyed.

GOODS PERISH AFTER AGREEMENT TO SELL BUT BEFORE SALE

In the case where there is an agreement to sell specific goods and, without fault of either party, the goods perish the agreement will be avoided under s 10 provided the risk has not yet passed to the buyer. The term perish does not require total destruction – it is sufficient if the goods are so altered in nature by damage or deterioration that they become something other than that described in the contract (Asfar v Blundell). The contract comes to an end and the parties are discharged from future obligations although any accrued liabilities will remain unaffected (Chandler v Webster). If the buyer has paid for the goods, they will be entitled to recover it (Fibrosa Spolka v Fairbairn).

The contract will be void if at the time of sale, the goods were already perished without knowledge of either. This does not apply if the goods never existed (McRae v Cth Disposals Commission).

Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26

Sale of 130 tonnes of linseed meal in store at the seller’s place of business. Parties agreed that delivery to take place in February – the seller breached this and failed to deliver 100 tonnes. In March, a fire in the shed where the linseed was stored. HELD that the 100 tonnes was at the seller’s risk – as they’d breached the agreement. If they had complied, the goods wouldn’t have been where the fire occurred. As the goods were specific and in a deliverable state, property had passed. The seller was therefore a bailee of the goods – liable for failure to take reasonable care.

Sterns Ltd v Vickers Ltd [1923] 1 KB 78

The defendants sold plaintiffs 120,000 gallons of white spirit – it was part of 200,000 in a tank of storage company (3rd party). Defendants gave plaintiff a delivery warrant – 3rd party agreed to deliver that quantity to plaintiff. The buyer delayed and before severance from the bulk, the spirit deteriorated in quality. HELD property had not passed – the 120,000 hadn’t been ascertained. It was at the buyer’s risk, because they had delayed, even though the quantity was unascertainable.

Lecture Week 9 / Tutorial Week 10 – Transfer of Title to Personal Property by a Non-Owner

It is well accepted that no one can transfer better title than they possess (Hollins v Fowler). This is reflected in the latin maxim, nemo dat quod non habet which states that a seller who doesn’t have title to goods can only give possession of the goods. This fundamental rule is also incorporated into the Sale of Goods Act 1893 Qld). Section 24(1) provides that, subject to the act, a person who is not the owner and does not sell the goods with the authority or consent of the owner, cannot pass ownership rights to the buyer, unless the owner is by his/her conduct, precluded from denying the seller’s authority to sell.

This provision is, however, subject to a number of exceptions – those of which are necessary to balance two competing principles; the protection of the property and the protection of commercial transactions (Bishopgate Motor Finance v Transport Brakes).

ESTOPPEL EXCEPTION

The effect of estoppel is to prevent the true owner from denying the ownership of the 3rd party buyer. The true owner is bound and the 3rd party buyer acquires good title (Eastern Distributors v Goldring). It is essential that the 3rd party believed that the seller was the owner, or was authorised to sell the goods. Estoppel may take one of two forms; estoppel by representation and estoppel by conduct.

Estoppel by representation arises where the owner represents that the seller is the owner, or has authority to sell the goods on any terms. The 3rd party buyer must prove that there was a clear and unequivocal representation, and that they reasonably relied on it to their detriment (Eastern Distributors v Goldring). The representation must be made by the owner, or someone authorised by the owner to make the representation (Moorgate Mercantile v Twitchings).

Held in Central Newbury Car Auctions v Unity Finance that the mere entrusting of goods is insufficient to amount to a representation – unless the owner authorised the seller to sell and knew that the seller would sell as the owner.

Estoppel by conduct arises where the owner, by an act or omission, enables the seller to represent that the seller is the owner.

The delivery of goods or of documents of title does not constitute conduct sufficient to raise the estoppel exception. Moreover, a failure to register the security interest in the goods where it is not compulsory is insufficient to give rise to estoppel (Moorgate Mercantile). Where the owner has acted carelessly without prudence e.g. allowing the goods to be stolen or lost – the estoppel exception will not arise (Central Newbury Car Auctions).

SALE BY MERCANTILE AGENT

Found in s 3(1) of the Factors Act 1982 (Qld) and preserved by s 24(2)(a), this exception provides that when a mercantile agent is in possession of the goods, with the owner’s consent, any sale, pledge or other disposition of the goods in the ordinary course of business of a mercantile agent is as valid as if expressly authorised by the owner, if the

Example of estoppel by representation

A owned a van but signed documents representing that B owned it. A did this to assist B to mislead a finance company into hiring a second vehicle to A. B sold the van to the finance company even though the finance company refused to finance a second vehicle; B told A the transaction was cancelled. A sold the van to D. HELD that the finance company acquired title by estoppel. A had armed B with the documents, allowing B to represent to the finance company that B had authority. A gave indicia title to B with the intention that B deal with the property. A is bound by the representation – wasn’t an authorised sale for purposes of s 24.

Example of estoppel by conduct

The owner of a motor vehicle lends it to a friend. The friend renewed the registration in her own name. The owner finds out but did not retake possession – they will be estopped from denying the friend’s authority to sell. Once the owner became aware the the friend had registered the vehicle in her own name and allowed them to retain possession, this constituted conduct which estopped her from denying friend’s authority. There was a duty to speak up because she knew of the dishonesty.

buyer buys the goods in good faith and without notice of the lack of authority. The onus of establishing the elements of this exception is on the 3rd party buyer (Oppenheimer v Attenborough).

1. Mercantile agent

A mercantile agent is defined in s 3 of the Factors Act as a person having, in the customary course of business, authority to sell goods or consign them for sale or buy goods or raise money on security of goods. This definition has been applied widely; the relevant time for determining whether the seller stood in the position of a mercantile agent being the time they obtain possession (Heap v Motorists’ Advisory Agency).

2. In possession of the goods, with the owner’s consent

It is necessary that the mercantile agent was in possession of the goods or the documents of title. Section 2(2) of the Factors Act deems a person to be in possession when the goods or documents are in their actual custody. It is also necessary to show that goods were in possession with the consent of the owner. This requirement is satisfied if, for instance, the owner of a car leaves it with the dealer for the purposes of sale – but not if for repair (Pearson v Rose). In the absence of contrary evidence, consent is presumed under s 3(4) of the Factors Act.

3. In the ordinary course of business

The disposition must have taken place in the ordinary course of business. This normally involves employing proper business methods, within business hours, at a proper place and on usual terms. In Oppenheimer v Attenborough, this requirement was not met where the sale was for a value substantially less than the value of the goods, occurring outside normal business hours and not from proper business premises.

4. The buyer buys in good faith and without notice of the lack of authority

Under s 3(2) of the SGA, a thing is deemed to be done in good faith when it is done honestly, whether negligently or not. Honesty alone is insufficient – the 3rd party must not have had notice of the mercantile agent’s lack of authority. The 3rd party may be deemed to have had notice if a reasonable person in the circumstances would not have taken the goods without making enquiries (Robinson Motors v Fowler). This may also be the case where the 3rd party has deliberately turned a blind eye to the transaction (Worcester Works Finance v Cooden Engineering).

EFFECT OF THE PPSA

If the goods are in possession for the purposes of repair or storage, it will not constitute a security interest. If, however, the goods are leased for use in a business, it will amount to a security interest under s 12(1),(2)(i). Accordingly, the security interest must be registered – in the event of a sale in breach of the lease agreement; the goods may be taken free of the security interest.

SELLER IN POSSESSION AFTER SALE

This exception is contained within s 27(1) of the SGA and provides that; where a person having sold goods, continues or is in possession of the goods or documents of title, the delivery or transfer by the seller of the goods or documents of title under any sale, pledge or other disposition to a 3rd party in good faith and without notice of the previous sale, is as valid as if the seller was authorised by the owner. The true owner is penalised for leaving the goods with the seller, thereby placing them in a position to sell the goods again.

Associated Midland Corporation v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395

Plaintiff was the owner of a vehicle – leased it to T, a property development company. T was controlled by O’C – who also controlled KSM (a car dealer). O’C registered the car in the name of KSM and sent it to an interstate wholesaler for undervalue. HELD that the car was only entrusted for rent – not as a mercantile agent. This element was therefore not satisfied.

Pacific Motor Auction Pty Ltd v Motor Credits (Hire Finance) Ltd (1965) 112 CLR 192

Finance company (owner) of motor vehicles had given possession to dealer but authority to sell was withdrawn. The dealer was in debt to a 3rd party (another dealer) and the dealer’s cheques were dishonoured. The 3rd party went to the dealer’s premises after hours and brought 29 cars at specific prices to make up £16510; agreed sell back if cheques were dishonoured within 7 days. HELD that a forced sale entered into to discharge a debt already owed was not in the ordinary course of business.

Associated Midland Corporation v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395

Owner leased their vehicle to a property developer. The developer gave the car to a car dealer who then sold it to an interstate wholesaler below value. They were entrusted as a lessee, but a security interest was created. If the owner hadn’t registered, s 43 of the PPSA would apply and the vehicle would be taken free of the security interest. If the owner did register, the wholesale buyer took it as inventory, so could not rely on ss 44-46.

1. Seller to continue or is in possession of the goods – The seller must have continuous possession (Pacific Motor Auctions v Motor Credits).

2. The delivery or transfer by the seller to a 3 rd party – it is sufficient if the seller gives constructive delivery of the goods to the 3rd party (Michael Gerson v Wilkinson).

BUYER IN POSSESSION AFTER SALE

This exception is contained within s 27(2) of the SGA and provides that where a person, having brought or agreed to buy goods, obtains possession of the goods with the consent of the owner, the delivery or transfer by the buyer under any sale, pledge or other disposition to a 3rd party buyer in good faith and without notice of the rights of the owner, is as valid as if the buyer was a mercantile agent in possession of the goods with the owner’s consent.

The purpose of this provision is to protect those to whom goods or documents are delivered by a buyer who has not actually acquired property in them. The true owner is penalised for having given possession to the buyer before they’ve obtained title. It is not necessary that the transaction took place in the ordinary course of business.

1. Person having brought or agreed to buy goods

This exception in fact only applies where there is an agreement to buy the goods. If the contract between the true owner and seller contains a retention of title clause, the contract is an agreement for sale and this ‘buyer in possession’ exception may apply (Four Point Garage v Carter).

2. Buyer obtains possession with the consent of the owner

The issue of what is sufficient to constitute possession has not been determined in Australia. In England, however, it is sufficient for the buyer to have constructive possession of the goods (Four Point Garage v Carter).

The possession must be at the owner’s consent – this exception therefore does not apply where the goods are stolen by the buyer then onsold to an innocent 3rd party (National Employer’s Mutual General Insurance Australia). Consent obtained by fraud will nevertheless constitute consent for the purposes of this provision (National Employer’s).

3. Delivery or transfer by the buyer to the 3 rd party

Delivery is defined in s 3 to mean a voluntary transfer of possession from one to another. It will be sufficient for the buyer in possession to instruct the owner to deliver the goods directly to the sub-purchaser (Four Point Garage v Carter). However, it is insufficient where there is a mere change in possession without any act or acquiescence by the buyer (The Saetta).

SALE UNDER VOIDABLE TITLE

This exception is contained within s 25 of the SGA and provides that; when the seller of goods has a voidable title, but their title has not be avoided at the time of the sale, the buyer acquires good title to the goods, if the goods are brought in good faith and without notice of the seller’s defect of title. A voidable title exists where a contract is vitiated by fraud, misrepresentation, mistake, unconscionable conduct or undue influence. The contract is not void, but voidable at the innocent party’s option. The court in Lewis v Avery held that goods sold under a mistake as to the buyer’s identity is also

Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd (1965) 112 CLR 192

Motor vehicle dealer sold cars to finance company (owner) for 90% of the price. After the sale, they continued to hold them as bailee with authority to sell them for owner. HELD that this section (27) applies where the possession remains unchanged but the character/title under which they’re held has changed.

The dealer sells to the finance company and finance company let the dealer have possession of the cars on a floor plan – it was either a mortgage to finance company (SI) or a sale followed by a consignment to the dealer as an agent (SI). SP should register the interest. The sale by the dealer will transfer goods free of SI if ss 43-46 apply.

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236

E agreed to buy motor vehicles from Gamer and to pay 7 days after delivery. Gamer delivered possession to E but retained pp rights. E sold the vehicles to Natwest for 90% of the value – E retained possession of the vehicles as bailee under a floor plan but sent Natwest delivery receipt giving details of the vehicles. E tried to sell the vehicle to customers. Had E delivered the goods to 3rd party Natwest? HELD that the delivery of receipts signed by E constituted a voluntary transfer of possession to the financiers – Natwest had therefore acquired title under s 27(2) despite the Romalpa clause.

The transaction between E and Gamer was a conditional sale – therefore an SI. The transaction between E and Natwest was a mortgage or a sale followed by an agreement to sell as an agent on consignment – either an SI.

a voidable contract. The innocent buyer may obtain good title provided the sale occurs before the original contract has been avoided.

If, however, the contract is entered into under a fundamental mistake, the contract will be void. The innocent buyer in this case will obtain no title (Ingram v Little). The seller may at any time, upon learning of the vitiating factor, elect to avoid or affirm the contract. This is subject to an unreasonable lapse of time; after which the seller may be presumed to have affirmed the contract (Chao v British Traders). Generally, the avoidance must be communicated to the original buyer – although this may not be possible nor practical in some circumstances.

Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525

Caldwell owned a Jaguar – sold to a thief (N) whose cheque was dishonoured on January 13. Caldwell notified police and Automobile Association. On January 13, N sold the vehicle to M, who knew of the fraud. On January 15, M sold it to G&C in good faith. HELD that it will be sufficient avoidance if the seller takes all reasonable and practical steps to regain the property and it’s unnecessary to notify the fraudulent party. Here, the owner had effectively rescinded the contract in time by notifying the police. G&B, despite purchasing in good faith, had not acquired title.

Lecture Week 10 / Tutorial Week 11 – Tenure, Ownership and Estates in Land

FEE SIMPLE

A fee simple is the largest estate that the Crown can grant to an individual, and continues for an indefinite duration. The word ‘fee’ connotes the capacity of the estate holder to pass the estate by inheritance and ‘simple’ means that there are no restrictions as to who may take the land. Provided there are no conditions attached to the grant, a fee simple is absolute – a tenant holding an estate in fee simple enjoys a range of benefits including; possession the land, a right to transfer the land, create lessor interests and to divise the land according to their will.

CREATION

Traditionally, a fee simple was created where the estate holder granted land to a person and his or her heirs. The creation of a fee simple now governed by the Property Law Act 1974 (Qld). Section 29(1) provides that a disposition of freehold land without words of limitation shall pass the while interest the disponer had, unless a contrary intention appears. It will be sufficient if the disposition states, ‘to A’, ‘to A in fee simple’ or ‘to A and his or her heirs’.

FEE TAIL

A fee tail is smaller than a fee simple and lasted only while the specified line of descendants continued. Fee tails are now obsolete in Queensland under s 19 of the PLA. Section 22(1) instead provides that any instrument coming into operation after 1 December 1975 that would have created a fee tail estate will result in a fee simple being created. This provision applies to both legal and equitable estates in land. Section 22(2) converts any existing legal or equitable fee simples into estates in fee simple.

LIFE ESTATE

A life estate is an interest in land that gives a right to possession for the duration of the named person’s life. It exists indefinitely and is not capable of being inherited. Two types of life estates exists in Queensland; an ordinary life estate which exists for the duration of the grantee’s life and a ‘pur autre vie’ estate which exists for the duration of a 3rd person’s life other than the grantee.

‘To A for life’ – A is the life tenant and the measuring life ‘To A for the life of B’ – A is the life tenant; B is the measuring life

A life estate is capable of being transferred to another. Pursuant to ss 6, 7, 31 and 32 of the Trusts Act 1097 (Qld), a life tenant who holds a life estate may; sell the fee simple, lease the land, mortgage the fee simple. This is subject to the court’s approval and any capital received must be preserved for the benefit of the fee simple owner.

DETERMINABLE AND CONDITIONAL INTERESTS

A determinable fee simple or life estate continues until the occurrence of an event, which may or may not occur. The event cannot be one which is bound to occur and the grantor has a possibility of reverter. A grant of this particular kind of interest may, take the form: ‘to A in fee simple for as long as the land continues to be used for hospital purposes’. It usually includes the words; ‘while’, ‘during’ and ‘until’.

If the specified event is uncertain or void as contrary to public policy, the determinable fee simple will fail completely as the limitation is invalid. For instance, the specified event may place an undue restriction on marriage, or a total or partial restraint on alienation. The court in Hood v Oglander held that such a restraint is repugnant to the right to sell or otherwise dispose of the property and is therefore void. Where the restraint is imposed for no valid reason, it will also be invalid (Hall v Busst). On the other hand, it may not be invalid if it is imposed for a legitimate collateral purpose (Elton v Cavill).

A conditional fee simple or life estate, on the other hand, is granted in absolute terms but qualified by a super-added condition of defeasance. An example of this interest; ‘to A in fee simple provided that the land continues to be used for hospital purposes’. It usually includes the words; ‘but if’ and ‘on condition that’.

If the specified event is uncertain or void as contrary to public policy, the condition falls away and the fee simple will take effect absolutely. For instance, the specified event may place an undue restriction on marriage, or a total or partial restraint on alienation. The court in Hood v Oglander held that such a condition is repugnant to the right to sell or otherwise dispose of the property and is therefore void.

REVERSION

This form of future interest arises by operation of law where the owner of a freehold interest grants a smaller estate to another person. There is no remainder and upon the expiration of the smaller estate, full title to the land reverts to the original owner; or if they have died, to their representative.

VESTING

An interest that is vested in possession confers a present right to possession. Here, A has a present right to possess and enjoy the land for the duration of her life. On the other hand, an interest that is vested in interest covers a present right to take possession presently or at some time in the future. Here, B has a present right to possess and enjoy the land but at a future time for the duration of his life. A reversion is vested in interest during the life estate and vests in possession upon termination of the life estate.

REMAINDER

A remainder interest exists where the grantor has specifically granted the remainder of the estate, upon expiry of the life estate, to another person not previously entitled to the land. It differs from a reversion in that it is expressly created by the grantor. Such an interest vests in the future upon the expiry of the prior estate. A future remainder may take 1 of 2 forms; a vested or contingent remainder.

A vested remainder arises where the following conditions are met;

1. The estate in remainder and the preceding estate must be created by the same instrument;2. The estate in remainder must become vested in possession immediately upon termination of the prior estate – there must

be no condition precedent attached to the estate in remainder other than termination of all preceding estates; 3. The person(s) who are to take the estate in remainder must be ascertained at the date of the grant.

There may be several estates created in the same land. The remainder may be vested even if the quantum of each grantee’s interest is unknown at the date of the grant.

A contingent remainder arises where the following conditions are met;

1. There are conditions precedent attached to the vesting in possession of the estate in remainder – other than termination of all prior estates; or

2. The person(s) who are to take the estate in remainder are not ascertained at the date of grant.

B’s interest does not vest in interest until B fulfils the age requirement (on the happening of the contingency) and does not vest in possession until A dies.

DOCTRINE OF WASTE

The doctrine of waste concerns any action or inaction of the estate owner which permanently alters the physical character of the land, whether for better or for worse. It seeks to balance the rights of the person presently entitled to possession (life tenant) and any person(s) entitled to possession in the future. Any liability of the estate owner will depend on the category of waste. The remedy is normally calculated according to the diminution in value of the land as a result of the life tenant’s acts.

AMELIORATING WASTE

EXAMPLE – G grants Blackacre to A for life, then to B for life

EXAMPLE – To A for life, remainder to B in fee simple if B attains the age of 25

Ameliorating waste involves any alterations to the land which increase its value. An example is converting disused corn storehouse into dwelling houses. This form of waste is nevertheless unauthorised and the remainderman may be entitled to nominal damages, but not an injunction (Doherty v Allman).

PERMISSIVE WASTE

Permissive waste involves a failure to keep the land in satisfactory repair and concerns omissions rather than positive acts. An example is leaving a farm uncultivated. The life tenant will not be liable to the remainderman for this form of waste unless the instrument creating the life estate imposes an obligation to repair (Re Cartwright; Avis v Newman).

VOLUNTARY WASTE

Voluntary waste involves a positive and deliberate action which occasions injury to the land. An example is pulling down or altering buildings (Marsden v Edward Heyes), opening a new pit or mine (Saunder’s Case) and cutting timber (Honywood v Honywood). Section 24(1) of the PLA expressly provides that a life tenant shall not commit voluntary waste. If, however, the instrument creating the life estate makes the life tenant unimpeachable for waste, or the life tenant is licensed within s 24(2), the voluntary acts of waste will be permissible. If not, they will be liable in damages to the remainderman under s 24(3).

EQUITABLE WASTE

Equitable waste involves wantan acts of destruction – those of which a prudent man would not do in the management of his own property (Turner v Wright). An example is cutting down trees which were planted to provide ornament or shelter. Even if the life tenant is unimpeachable for waste, s 25 expressly prohibits this form of waste – unless the instrument creating the life estate expressly confers such a right. Such an intention must be unequivocal (Micklethwait v Micklethwait).

Lecture Week 11 / Tutorial Week 12 – Possession of Land and Adverse Possession of Land

Where a person is in possession of land for a sufficiently long period of time, the true owner’s rights to bring action to recover the land may be extinguished. This concept of adverse possession is fundamental in law because once a person occupies a property for a sufficient length of time, they develop certain expectations and it would be unfair to subject them to a state of uncertainty. Sir Thomas Plumer MR in Marquis Cholmondeley v Lord Clintin articulated the policy reasons underlying this concept; to ensure that property owners enforce their rights, to prevent endless litigation and to protect occupational rights against uncertainty.

In order to establish title by adverse possession, the following must be shown;

1. The requisite common law elements of adverse possession must be established (Re Johnson);2. The provisions of the LAA – requiring the pp to be held in adverse possession for a specific period of time – must be satisfied

(Re Johnson); and3. The statutory procedure to procure registration of the adverse possessor as the registered proprietor set out in the LTA

must be followed.

Adverse possession refers to possession of the land without the true owner’s consent in a manner adverse to their interests. Under the common law, possession comprises of 2 elements; factual possession and an intention to possess (Buckinghamshire County Council v Moran).

FACTUAL POSSESSION

To prove factual possession, there must be an appropriate degree of physical control, which is single and exclusive (Powell v McFarlane). The possession must be actual, constant and visible, to the exclusion of the owner (McConaghy v Denmark). Possession must have be acquired openly, peacefully and without the consent of the owner (Mulcahy v Curramore). If the claimant is in possession of the property with the owner’s consent, but this consent is revoked, the possession becomes adverse from this moment onwards (Hyde v Pearce).

The question of whether factual possession arises is always a question of fact. (Quach v Marrickville Municipal Council). Factors relevant to this determination include; the character and value of the property and the natural mode of using it (Lord Advocate v Lord Lovat).

INTENTION TO POSSESS

The possessor must also have intended to possess the land, rather than occupy it temporarily or occasionally use it. It must be an intention to exclude the word at large, including the documentary owner (Powell v McFarlane).

Fencing of council land and maintaining the garden was held to be sufficient control and intent in Buckinghamshire CC v Moran. The defendant had changed the lock, had complete physical control and dealt with the land as owner would. Construction of a fence with an intention of occupying the land was held sufficient control and intent in Monash CC v Melville.

JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419

The adverse possessor knew that the owner had no present use for the property – they fenced it, developed and used it. They were prepared to pay for it if they could have gotten hold of the owner. It was an intention to possess not own. THUS not necessary to show the possessor intended to acquire ownership or intended to own the land, nor is it necessary to show the possessor’s acts are inconsistent with the future use that the registered owner intends to do. It’s only necessary to show an intention to occupy and use the land as one’s own.

Paying rates is strongly indicative but not conclusive (Bank of Victoria v Forbes). Adverse possession may be established without paying rates (Monash CC v Melville). Young J in Shaw v Garbutt noted that a failure to pay rates would not preclude a claim to adverse possession – particularly where the possessor was willing to pay them but was precluded from doing so because the true owner had already done so.

Cultivation of the land is strongly indicative but not conclusive (Buckinghamshire CC v Moran). However, it was held sufficient in JA Pye (Oxford) Ltd v Graham where the possessor had fenced and cultivated the farming land for 14 years.

Camping from time to time and occasionally paying rates is not sufficient (Re Johnson). Entry into possession is not sufficient on its own (Mulcahy v Curramore). Construction of high fence around the tennis court did not reveal an intention to dispossess the owner because it was

necessary for the enjoyment of the tennis court (Riley v Pentilla).

CONTINUITY OF POSSESSION

As required under s 19(2), the adverse possession must have continued unbroken for the entire 12 years. If, for instance, the land is adversely possessed for less than 12 years and another adverse possessor enters the land, the two periods cannot be added together – instead, time starts running all over again. In some circumstances, the possession may be continuous even though there are periods in which the property is not being used. The court in Bligh v Martin held that the adverse possessor still remained in possession despite having taken vacations – in which period the property was used as a ‘week-ender’. Short intervals in which the claimant was not in possession do not, however, conclusively prove abandonment.

There are situations in which two separate periods of possession can be added together. If the adverse possessor has assigned, given away or devised their possessory interest in the land to another, the periods can be added together; provided the possession is continuous and uninterrupted. The two separate series of adverse possessors are said to have derived title through each other. (Mulcahy v Curramore).

LIMITATION OF ACTIONS ACT 1974 (Qld)

The LAA effectively confers an absolute defence on the possessor of any claim by the real owner, provided the property has been adversely possessed for the relevant period of time. Section 13 provides that an action shall not be brought by a person to recover land after the expiration of 12 years, from the date on which the right of action accrued. This provision is supplemented by s 19(1) which provides that a right of action to recover the land does not accrue unless the land is in possession of some person in whose favour the period of limitation can run (the adverse possessor). Upon the expiration of the 12 years, the documentary owner’s title will be extinguished under s 24(1). The date upon which the right of action accrues depends on whether the interest claimed is present or future.

PRESENT INTEREST

If it is a present interest in land, s 14(1) states that the right to recover the land is deemed to have accrued on the date the owner was dispossessed or discontinued possession. If the interest arises under a will or intestacy, and the deceased was in possession on the date of death, the right of action is deemed to have accrued on the date of death under s 14(2). In the case of an assurance otherwise than by will, the right of action is deemed to have accrued on the date the assurance took effect (s 14(3)).

FUTURE INTEREST

If the claimant is the holder of a vested remainder, with a present right to possession at a later time, the relevant provision is s 15 of the LAA. Section 15(1) provides that where the adverse possession occurs after the expiration of the previous life estate, the right to recover the land is deemed to have accrued on upon the expiry of the previous estate.

If the adverse possession started during the previous life estate, the right to recover the land expires 12 years from the start of the adverse possession, or 6 years after the expiry of the previous estate – whichever is the later (s 15(2)).

In the event that the owner has a disability, the limitation period may be extended under s 29(1) by 6 years from the date the disability ceased, or from the date the owner died – whichever occurs first. Section 5(2) provides that a person shall be taken to be under a disability is they are an infant, or of unsound mind. Under s 29(2)(b), however, the maximum period for recovery is 30 years. Where the adverse possessor has fraudulently concealed the right of action, s 38(1) applies and right of action is deemed to have accrued from the date the owner discovered, or could have discovered (with reasonable diligence) the fraud.

LAND TITLE ACT 1994 (Qld)

Must note the following;

Section 98(1)(a) provides that an application by an adverse possessor may not be made where it relates to only part of a lot. Section 98(1)(c)(i) and (ii) provide that an application by an adverse possessor may not be made where the registered owner is the State or a local government.

Lecture Week 12 / Tutorial Week 13 – Co-ownership of Land

JOINT TENANCY

A joint tenancy arises where each joint tenant holds an identical right, shared with the other joint tenants, to the whole of the property. None of the joint tenants have a distinct or separate interest or title of possession – the interest of each joint tenant is indistinguishable (Aoun Investments v Chief Commissioner of State Revenue). The essential characteristics of a joint tenancy include the right of survivorship and the presences of the four unities.

Each joint tenant is subject to the right of survivorship as a matter of law, which operates automatically on the death of one joint tenant. When a joint tenant dies, their interest is extinguished and the interests of the surviving joint tenants is correspondingly enlarged. Ultimately, sole ownership of the property passes to the last surviving joint tenant. The operation of this right of survivorship can only be avoided if the joint tenancy is terminated in the joint tenant’s lifetime.

The four unities consist of; unity of title, time, possession and interest. Unity of title requires all joint tenants to have derived their interest from the same source – e.g. one conveyance under which all joint tenants took title or a simultaneous taking of adverse possession. If one co-owner acquired their interest by way if a difference instrument, their relationship with the remaining co-owners cannot amount to a joint tenancy. Unity of time requires that the interests of each joint tenant vest at the same time, by virtue of the same event. Unity of possession refers to each joint tenant being equally entitled to possession of whole property. Finally, there where be a unity of interest – that is, the interests of each joint tenant must be the same in nature, extent and duration.

TENANCY IN COMMON

A tenancy in common will arise where 2 or more people hold separate shares in a property. Each tenant in common is entitled to possession of the whole land and holds a distinct share in the property – an ‘undivided’ share. There is no right of survivorship; on the death of a tenant in common, their interest passes pursuant to their will of in accordance with the rules of intestacy.

CREATION OF CO-OWNERSHIP

COMMON LAW

If the four unities are present, and there is no evidence to the contrary – in the form of a clear expression or words of severance – the common law assumes a joint tenancy. This presumption may be rebutted where the instrument of transfer or conveyance includes words of severance – that is, words which indicate that the co-owners have separate shares instead of having a joint interest in the property. Examples include;

‘In equal shares’ ‘To be divided between’ ‘Share and share alike’ ‘Respectively’

‘Among’ ‘To be distributed among them in joint and equal

proportions’

EQUITY

Equity will generally follow the common law, so where the co-ownership is a joint tenancy at law, equity will agree. There are, however, 3 situations where equity will not follow the law;

1. Where there has been unequal contributions to the purchase price of the land. 2. Where there are investment contributions by mortgagees under a mortgage 3. Where the land is purchased as a partnership asset – proportionate to the shares contributed.

In these circumstances, equity will deem the co-owners joint tenants at law holding legal estate on trust for themselves as tenants in common.

STATUTE – PROPERTY LAW ACT SECTIONS 35 & 36

Section 35(1) of the PLA 1974 (Qld) provides that a disposition of the beneficial interest to 2 or more persons in any property with or without the legal interest will be construed as made to them as tenants in common and not as joint tenants. Disposition is defined in Schedule 6 to include a conveyance or transfer of property by any instrument other than by will and devise in a will. This provision does not apply where there the disposition clearly provides that the persons are to take it as joint tenants. For instance, the words ‘as joint tenants’ must be used unequivocally.

Where, however, this provision does apply – the joint tenants at law will hold the legal estate on trust for themselves as tenants in common in equity – unless subsection (2)(a),(b) apply where the tenors are executors, trustees, mortgagees.

Section 36 provides that; where 2 or more persons are entitled beneficially as tenants in common to an equitable estate become entitled to the legal estate co-extensive with the equitable estate, whether as joint tenants or tenants in common, then – they hold the legal and equitable estate as tenants in common.

The effect of s 36 is to reverse the former rules so that when a legal joint tenancy and equitable tenancy in common are held by the same co-owners, they are entitled to the legal estate as tenants in common.

RIGHTS OF A CO-OWNER

RIGHT TO OCCUPY PROPERTY

All co-owners have a fundamental right to occupy the whole of the premises in common with the other co-owners (Oates v Oates). One co-owner cannot, therefore, object to the owner co-owner bringing a stranger onto the property (Thrift v Thrift). If one co-owner chooses not to occupy the property, they cannot charge the other co-owners who are in occupation (Henderson v Eason). The position if different, however, if they have been forced out of possession, or ousted from the property.

Where one co-owner has been ousted from the property, they may be entitled to an occupation rent (Pascoe v Swan). This requires one co-owner to have wrongfully excluded the other co-owner from using the property (Luke v Luke). Actual force is not necessary (Wilkinson v Haygarth) and the installation or changing of lacks is indicative but not necessarily conclusive (Marriott v Franklin).

In Biviano v Natoli, there was an express denial of rights of the co-owner under a trust deed. There was apprehended violence against 1 co-owner which precluded his right of entry. However, this did not amount to ouster because the exclusion was pursuant to an express statutory power – there had been an injunction against his entry. In Dennis v

Delehunt v Carmody (1986) 161 CLR 464

Ms D and Mr C contributed equally to the purchase price of the land. Mr C had the legal title. Mr C died and Ms D claimed beneficial title as joint tenants but Mr C’s estate claimed beneficial title as tenants in common (in equal shares). HELD that even though s 35 referred to a conveyance to ‘2 or more’ persons, it also applied to conveyances to 1 – equity would impose a resulting trust for all. The equitable estate was held by Mr C in trust for both parties in tenants in common in equal shares. Mr C’s estate was therefore entitled to receive 1/2 of the title.

Ryan v Dries (2002) 10 BPR 19,497

Ms D and Mr R brought a house in 1990 as tenants in common – the legal interest was 1/7 and 6/7. The court found that the equitable interest was 43% and 57%. In 1990-1997 Mr lived there – Ms D only on the weekends. In 1997 the relationship ceased and Mr R changed locks – Ms D had no access. HELD that Mr R had virtually sole possession by agreement – his greater use of the property wasn’t forced on him – it was his wish and intention. Once he changed the locks, that was ouster and he was liable to pay an occupation fee for the period of 7 years.

Forgeard v Shanahan (1994) 35 NSWLR 206

Ms S and Mr F brought a house as joint tenants in 1975 and lived in the house together. In 1981 Mr F moved out. From 1981-1990 Ms had sole use of the house. HELD that where one co-owner just moves out of possession, but there had been no outser, the law treats the one who left as having chosen not to exercise their rights of possession. If, however, 1 had forced the other out, the co-owner who remained in possession would be liable at law – for an action for means profits (loss of right to enjoyment of the land).

MacDonald, there was ouster where the violence and threatened of violence made it unreasonable to expect the other to exercise their rights of occupation. In Re Thurgood, the application was asked to leave 4-5 times and was threatened with a call to the police if he returned. This was held to amount to ouster.

If an occupation rent is payable, it will be calculated according to a fair market rent (Kangas v Tsangaras).

INCOME AND PROFITS FROM LAND

It is necessary to distinguish between 2 distinct categories of income. If the income is derived from use of the property by a 3rd party, then s 43 of the PLA may be relevant. Section 43(1) provides that an action of account may be brought against a co-owner who receives more than their just or proportionate share according to the co-owner’s interest in the property. In this situation, the income would be divided between the co-owners in proportion to their interests.

If, on the other hand, the income is primarily attributable to the work of 1 co-owner, they will be entitled to retain the income and will not have to account for the use of the property.

CLAIM FOR IMPROVEMENTS

A co-owner who makes improvements to the property, while the co-ownership continues, cannot recover contribution from the other co-owners (Leigh v Dickeson). There are, however, a number of exceptions to this rule;

Where the parties have entered into an agreement to the contrary Where the parties are under a joint or common obligation to make the improvements (Squire v Rogers) Where there is an equitable lien on termination of the tenancy

Upon termination of the co-ownership, a claim may be made for the improvements if they have resulted in an increase in the property’s value. It is necessary to distinguish improvements from mere repairs or maintenance. If a co-owner carries out repairs without agreement from the others, they are not entitled to a proportionate amount even if the repairs were entirely reasonable and necessary (Leigh v Dickeson).

Henderson v Eason (1951) 17 QB 701

Two brothers tenants in common of farm from 1833-1838. One was in sole occupation – he cultivated the land, planted crops, obtained produce and sold on his own account. He had run the risk of loss and invested his time and effort. HELD that a co-owner receives more than their just share only when they receive $$ from a 3rd party that all the co-owners are entitled to simply by being a co-owner. This would include the situation where the property was rented out. It did not, however, cover the situation where 1 party had invested their capital and industry in cultivating the land.

Squire v Rogers (1979) 27 ALR 330

In 1962 S and Q obtained a joint interest – a perpetual interest. A covenant in the lease required the construction of some buildings. In 1963 Q left Australia. S complied with the covenant and made improvements. S provided accommodation through a business on the land – flats, rooms, caravans and maintenance services and rented equipment. In 1976 Q applied for the sale of the land and a share of the income derived from the accommodation. HELD that S was liable to account for the rent from the common property itself – this included income from the accommodation he’d provided. But the profits he’d made from his use and occupation i.e. renting out equitable and providing services himself – he was entitled to keep himself.

Brickwood v Young [1905] 2 CLR 387

Land under a will – a life tenant and several tenants in common in fee simple. P bought a life interest and ¼ share tenants in common and erected houses on the land thereby improving the value. P sold the life interest to B and ¼ share as tenant in common in fee simple. The land was resumed – the other tenants in common claimed a share in compensation and rents from the houses received since the life tenant’s death. HELD that the claim P had to contribution was not personal – enabled a person who brought P’s interest to claim. Because B had to pay the increased value, he was entitled to make a claim against the others. The other co-owners cannot share in the increased benefit unless they’ve contributed to the improvements.

Forgeard v Shanahan (1994) 35 NSWLR 206

In 1981-1990 Ms S paid all the mortgage repayments, water rates, council rates, insurance and pest control. HELD that the mortgage and water/council rates were debts incurred by reason of just being joint parties under a contract – they were actually joint debts. If 2 are liable for a debt, and 1 makes them – the other has action for contribution in equity.

Mortgage repayments do constitute improvements and a claim can be made. But the insurance and pest control were only maintenance and didn’t improve the property. As Ms S had made a claim for the improvements, and she was entitled to contribution for the mortgage repayments and rates, she was then liable for an occupation fee – ordinarily ½ of the market rent BUT here, the court decided to limit the occupation fee to the improvements – it was limited to the extent of the claim she made.

The quantum of recovery was considered in Brickwood v Young. Where the court is satisfied that the acts amount to improvement, or one of the exceptions apply, the co-owner will be entitled to either the cost of improvements or the increase in value of the land – whichever is the lesser. If, however, the improvements actually result in a decrease of the property’s value, the co-owner is charged with the amount of devaluation (Marriott v Franklin).

SEVERANCE OF A JOINT TENANCY

Severance refers to the dealing of a share under a joint tenancy so as to sever it and convert it into an undivided share of a tenant in common. There are a number of ways in which severance may be achieved – the most common being alienation either to a 3rd party, another co-owner, to oneself or by gift.

ALIENATION TO 3RD PARTY

The effect of an alienation to a 3rd party is that it terminates the joint tenancy because the utilities of title and time are destroyed.

ALIENATION TO A CO-OWNER

Alienation need not always be to a stranger.

ALIENATION TO ONESELF – SECTION 59 PLA

Section 59(1) provides that the registered owner of a lot subject to a joint tenancy may unilaterally sever the joint tenancy by executing and registering a transfer to himself/herself. Once this occurs, the four unities no longer exist and the joint tenancy is severed. Section 59(2) requires that a copy of the instrument is given to all other joint tenants and upon registration, the registered owner becomes entitled as a tenant in common with the other registered owners. If there are more than 2 joint tenants, the joint tenancy of the others is unaffected.

If the joint tenant seeking to sever dies after having given instructions for the preparation of the necessary documentation but before the instructions are carried out – the is no severance at law nor in equity. Similarly, there will be no severance if the joint tenant dies after the documentation has been prepared and notice is served upon the other joint tenants but before the transfer is lodged. In both cases s 181 of the LTA will prevent an effective severance because the transfer has not been lodged (McCoy v Estate of Caelli).

Where, however, the joint tenant dies after the transfer is lodged for registration and notice is served upon the other parties, but before registration – could go both ways pp 245-246.

ALIENATION BY GIFT – SECTION 200 PLA

Squire v Rogers (1979) 27 ALR 330

S complied with the covenant and made improvements – spent $100,000 but due to the cyclone, the value only increased by $15,000. Ordinarily, the rule is that the lesser of 1) the cost of improvements or 2) the increase in the value. Applied here, S would only have received $15,000. But here, the improvements actually generated income – since Q was claiming a share of the rent, she’d only be entitled if she contributes to the improvement costs. THUS a co-owner who wants the benefit of the rent must make an allowance.

A and B are joint tenants of estate in fee simple. A enters into a contract to sell her interest to X. At this stage, the joint tenancy is severed; A and B holding legal estate as joint tenants on trust for X and B as tenants in common in equity. Then X registers the transfer – joint tenancy severed at law – X and B hold as tenants in common.

A, B and C are joint tenants of estate in fee simple. A transfers her interest to X – joint tenancy is severed. X holds as tenant in common with 1/3 share with B and C holding 2/3 share as tenant in common with X and as joint tenants between themselves.

Wright v Gibbons (1949) 78 CLR 131

Olinda, Ethel and Bessie were joint tenants. Olinder transferred her interest as joint tenant to Ethel. Result: Ethel held 1/3 tenant in common; Ethel and Bessie 2/3 tenant in common but joint tenant in relation to each other – Olinda was now a stranger to the ownership of the land. Ethel transferred her interest as joint tenant with Bessie to Olinda. Then, Ethel was 1/3 tenant in common; Olinda acquires 1/3 tenant in common; Bessie left with no joint tenancy but 1/3 as tenant in common. Each therefore could deal with their interests through wills.

Section 200(1)(a),(b) provide that a voluntary assignment is effective and complete in equity when the assignor has done everything to be done by the assignor necessary to transfer for the property to the assignee – even if something remains to be done, as long as that remaining thing can be done without the assistance of the assignor.

It was held in Corin v Patton that a gift of Torrens land will be complete in equity when the donor has executed and delivered the transfer in a registrable form, together with the relevant certificate of title, to the donee. The delivery must be coupled with an intention that property pass to the donee (Cope v Keene). It is insufficient for the mere execution to occur without delivery (Brunker v Perpetual Trustee). Similarly, execution and delivery without the certificate of title is insufficient (Corin v Patton).

INVOLUNTARY ALIENATION

Severance by alienation also occurs where 1 joint tenant becomes bankrupt. The effect is that the bankrupt joint tenant’s interest is vested in the trustee, thereby destroying the unity of time and title (Re Weber).

MORTGAGES

A common law mortgage has the effect of severing the joint tenancy – the legal fee simple is held by the mortgagee and the non-dealing joint tenant as tenants in common in equal shares (Guthrie v Australia NZ Banking Group).

A mortgage of registered land held under the Torrens system operates as a statutory charge only (s 74 of the LTA). It was held in Lyons v Lyons that this does not sever the joint tenancy. The mortgagor retains ownership of the estate, which is charged with the repayment of the debt or other liability.

MUTUAL AGREEMENT

A joint tenancy may be severed in equity where all joint tenants agree to hold the estate as tenants in common. Consideration is found in each party’s agreement to relinquish their interests as joint tenants and the right to acquire all by survivorship, in exchange for a share as tenant in common. A formal binding contract is not necessary – as long as a common intention to sever can be ascertained (Saleeba v Wilke). Severance takes effect automatically from the time the agreement is made, and once the interest is registered, the joint tenancy is severed at law. If, however, the agreement is conditional upon the occurrence of an event, and the event does not occur, there will be no severance (McVey v Denis).

COURSE OF DEALING

A joint tenancy may also be severed in equity by a course of conduct which indicates a commonly held belief that all parties hold their interests in shares or separate portions and without the right of survivorship. The intention must be common to all (Sprott v Harper). It was held in Lennon v Bell that unconcluded negotiations for settlement of the property had not progressed to a significant extent – hence there was not a course of conduct sufficient to allow an inference to be made. This may be contrasted with Sprott v Harper where an informal settlement agreement was found to have been concluded so as to allow severance.

A and B are joint tenants of an estate in fee simple. A complies with s 200 of the PLA to give her interest to X. The joint tenancy is severed in equity – A and B hold the legal estate as joint tenants on trust for X and B as tenants in common in equity. A registers the transfer of her interest to X by a gift – ss 180, 181 of the LTA. The joint tenancy is severed at law – X and B hold as T in C.

Corin v Patton (1990) 169 CLR 540

Mr and Mrs P were joint tenants of land. Mrs P executed a transfer of her interest to Corin, subject to mortgage to the bank – the bank had their certificate of title. She did not ask the bank, or authorize the donee to ask the bank, to produce the certificate to enable the donee to be registered. Corin declared as holding land as tenant in common with Mr P on trust for Mrs P. HELD that all Mrs P had done was make a statement of intention – she could only sever the joint tenancy if she actually transferred the interest. Although she’d delivered the registrable interest, she had not done everything necessary for her to do to make the gift. She had not equipped the donee with what he needed to get the certificate. THEREFORE the gift was incomplete.

Williams v Hensman (1861) 1 J&H 546

Fund devised to trustee – income for life tenant and then principal for her 8 children. The trustee lend 1 child the estimated amount of their share. The other children jointly and severally covenanted for themselves and their estates if the share had been overpaid, not to sue the trustee and to indemnifythe trustee for any losses suffered as a result. HELD that the arranged showed that each child would have their own share – it was a course of conduct sufficient to sever.

TERMINATION BY COURT ORDER

Section 38(1) of the PLA provides that; where any property is held in co-ownership, the court may, on the application of one or more co-owners, appoint trustees of the property and vest it in the trustees to be held on the statutory trust for sale or partition. A partition is more common, and it is given some primacy in s 38(4) which provides that if any of the co-owners satisfies the court that partition of the property would be more beneficial for the co-owners interested to the extent of more than half than a sale, the court may order partition – if the mortgagee of the whole consents. What is beneficial is determined objectively, taking into account economic benefits and emotional considerations.

In the case of a statutory trust for sale, the property vests in the trustees on appointment under s 38(3A). The co-owners lose their interest in the land itself, and acquire a right to have the trustees carry out the statutory trust and to receive shares of the sale proceeds. The trustees then sell the property and divide it between the co-owners in accordance with their shares, after expenses have been paid (s 37A). Section 42(b) allows the court to direct accounts to determine and adjust the rights of the parties – refers to the claims for contributions.

Magill v Magill [1997] NSW ConvR 55,795

F and B were joint tenants and sought to end it. F wanted to sell the land but B did not agree. B offered to purchase F’s interest and said they may transfer to their son ‘to free himself of worry of present joint tenant situation’. F made a counter-offer. There was no agreement. HELD that there was no agreement to sever. The parties wished to sever and explored methods to do so, but none of them occurred. There was never any mutual recognition of distinct shares.

Sprott v Harper [2002] ANZ ConvR 54

H and W were joint tenants of a property. The were separated and negotiated towards a property settlement. The drew up and agreement – allocated values to items of property. W would be entitled to $72,000 and the property to be sold if H cannot afford to pay W out. HELD that the making of the agreement showed a clear interest that the parties intended to put to an end – there was therefore a binding agreement.

Permanent Trustee Nominees v Coral Sea Resort Motel Ltd

The appellant sold half a share in land and motel. Each gave the other a pre-emption right to purchase the other’s right. In clause 6, they agreed that neither would apply to the court for an appointment of statutory trustees for sale unless they gave the other 12 months prior notice. HELD that this did not oust or fetter upon the court’s jurisdiction. There was no public interest in preventing the clause.

Nullargine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635

Nullargine and Club were tenants in common. Entered into an agreement that neither party sell their share in the land unless they first offer it to the other and follow a price mechanism. If the offer was not accepted, may sell the share to a 3rd party but before doing so, must procure the 3rd party’s agreement to this deed. N sought a court order for sale and division of the property. HELD that the agreement just dealt with a share – it didn’t attempt to deal with the land itself. It didn’t purport to prevent an application to the court. To be valid to not apply under s 38, an agreement must make some other provision for termination of the co-ownership.