COMMERCIAL LAW 1: LAW OF AGENCY
- INTRODUCTION TO THE LAW OF AGENCY
- CLASSIFICATION OF AGENTS
- FORMATION AND CREATION OF AN AGENCY RELATIONSHIP
- SCOPE OF AGENCY RELATIONSHIP
- OBLIGATIONS OF PRINCIPAL AND AGENT
- RELATIONSHIP BETWEEN PRINCIPAL AND THIRD PARTIES
- REMEDIES AVAILABLE TO THE PARTIES
- TERMINATION OF AGENCY
COMMERCIAL LAW II
SALES OF GOODS
- NATURE OF SALE OF GOODS TRANSACTION
- DEFINITION OF SALE OF GOODS
- FORMATION OF CONTRACT OF SALE
- CLASSIFICATION OF GOODS
- DISTINCTION BETWEEN SALE OF GOODS AND SIMILAR TRANSACTIONS
- CONDITIONS, WARRANTIES AND REPRESENTATION
- EFFECT OF A CONTRACT OF SALE
- DUTIES OF THE BUYER AND SELLER
- REMEDIES FOR BREACH OF CONTRACT
- EVOLUTION OF HIRE PURCHASE
- DEFINITION OF HIRE PURCHASE CONTRACTS
- FORMATION OF HIRE PURCHASE
- DISTINCTION BETWEEN HIRE PURCHASE AND OTHER SIMILAR TRANSACTIONS
- OBLIGATIONS OF THE PARTIES AT COMMON LAW
- ABUSES AND INJUSTICES OF HIRE PURCHASE TRADING SYSTEM UNDER COMMON LAW
- THE HIRE PURCHASE ACT OF 1965
- RECOVERY OF POSSESSION BY THE OWNER
- REMEDIES OF THE OWNER AND HIRER UNDER THE HIRE PURCHASE ACT
- TERMINATION OF HIRE PURCHASE CONTRACTS
INTRODUCTION TO THE LAW OF AGENCY
Due to the rapid development in the economy and technology, it has become easier for Nigerians to transact business with far away countries. However, barriers like language, lack of time, lack of technical knowledge and distance has made it necessary for one who is called the principal to appoint an agent whose sole purpose is to represent the principal in business transactions with third parties.
Who is an Agent?
In the English case of The Quenn v Kane(1901), Alverstine L.J defined an agent as
any person who happens to act on behalf of another
Professor Powell defined an Agent as
a person who is authorised to act for a principal and who has
agreed to act and who has the power to affect the legal
relationship of his principal vis.a.vis. a third party.
It should be noted that a person might be legally competent to act for himself, yet he may lawfully act as an agent for someone else.
What is Agency?
Although there have been different definitions of agency expounded by various scholars, Fridmans definition of agency in his book Law of Agency is suggested as a tentative, comprehensive and brief description of what agency involves.
According to him,
Agency is the relationship that exists between two persons
When one, called the agent, is considered in law to represent
the other, called the principal, in such a way as to be able to
effect the principals legal position in respect of strangers
to the relationship by making of contracts on the
disposition of property
The legal implication of an agency relationship is based on the fact that any act done by the agent on behalf of the principal would be binding on the principal.
CLASSIFICATION OF AGENTS
The classification of agents ensures the proper understanding and assimilation of the concept of agency relationship.
As a result of developments in trade and commerce, certain types of agents have distinguished themselves in the following ways:
- Classification according to the extent of the Principals rights
- Classification according to the nature of liability imposed on the agent
- Classification according to the terms of agents function.
- Classification According To The Extent Of Principals Rights.
- General Agent: a general agent is one who is authorized to act for and on behalf of his principal in all his affairs in a particular field or business. For example, the director of a limited liability company is an agent of his company. A lawyer is a general agent for his principal in legal matters.
- Special Agent: a special agent is one who is authorized to act for and on behalf of his principal in specific instances or on specific occasion. Such an agent may be required to do a specific act that is not within the ordinary course of his trade, business or profession.
- Classification According To The Nature Of Liability Imposed On The Agent.
- Del Credere Agent: a del credere agent is one who, in consideration of extra remuneration called a del credere commission, guarantees to his principal that third parties with whom he enters into a contract for an on behalf of the principal shall duly pay any sums becoming due under those contracts. The del credere commission is the main feature that distinguishes this type of agent from others. Thus, if the third party fails in his obligations, the del credere agent would indemnify the principal.
- Confirming House: the liability here is similar to the liability in del credere agency. The confirming house pledges to be liable to an exporter of goods if the international buyer fails to fulfil his obligations. It is mostly applicable in export business.
- Classification According To The Functions Performed By the Agent
- Factors: A factor is referred to as an agent who has been engaged to sell or deal with goods that have been consigned to him by his principal. In common law, he is referred to as a mercantile agent who has been entrusted with the possession of goods for sale only.
In Barring v Corrie, A factor is described as a person to whom goods are consigned for sale by a merchant residing abroad or at a distance away from the place of sale and who normally sells in his own name without disclosing that of his principal.
- Brokers: this is an agent who is engaged to negotiate for the sale or purchase of a property for a commission known as brokerage. However, he is not entrusted with the possession of goods and will not be personally liable if he follows his Principals instruction.
- Estate Agents: they are empowered by real estate owners to buy and sell landed property in exchange for for an estate commission.
- Bankers: Banks serves as an agent of account holders. For example, in the issuance of a cheque, the account holder is the principal, the bank is the agent while the payee is the third party.
- Commission Agents: They are agents who buy and sell property on behalf of the principal but are not authorized to create privity of contract with the third party.
- Auctioneers: This is an agent who is empowered by the owner of the goods to conduct an auction on his behalf. He may or may not have possession of the goods.
THE FORMATION AND CREATION OF AN AGENCY RELATIONSHIP
Generally, there is no particular formality required in the creation of an agency relationship. Thus, unless there is a particular stipulation to that effect, the creation of an agency relationship may be in any form, it can be in oral form, written form or implied from the circumstances of a particular case.
There are two major modes of creating an agency relationship:
- Modes where the parties consciously agree to the formation of agency relationship. They are express/written agreement and Oral agreement.
- Implied agreement where the formation of an agency relationship is implied from the acts of the parties.
- Agency By Agreement: Express or Implied Agreement:
- Express Agreement: This is a contract that has been made in writing.
There are some situations where the law stipulates that the appointment of an agent must be in writing. An example of this is a power of attorney, where an agent is required to execute a document via a deed and the agent must also be appointed by a deed. In the case of Abina and ors vs Farhat, the court held that the deed signed by an agent was ineffective because the agent was not appointed by a power of attorney.
Also, Section 172 Of The Old Companies Act 1968 provides that a contract of agency must be evidenced in writing.
- Oral Agreement:
This is an agreement where the principal appoints the agent by words of mouth. This type of agreement has been advised against because it causes ambiguity.
It should be noted that the capacity to act in an agency relationship is governed by the law of contract. This implies the following:
- The capacity that is essential is that of the principal. This is because the principal is the one who is liable for decisions made by his agent. Thus, an agent who lacks capacity can act for a principal who has capacity.
- A principal cannot appoint an agent to do an act which the law requires the principal to do himself. Section 2(2a) of the Hire Purchase Act requires that a memorandum for the contract of hire purchase must be signed by the hirer.
- An infant or an unincorporated corporation cannot appoint an agent who has capacity to act for him unless it is in respect of transactions involving necessaries.
- A person cannot appoint an agent except during his lucid interval.
- An insane person cannot act as an agent during his lucid intervals because he is presumed to lack the requisite mental capacity. See the case of Jenkins V Morris.
- Implied Agreement: This may occur without any written formality. It is not expressly authorized but is simply implied by the acts of the parties.
- Agency by Estoppel:
This occurs when a principal orally or by conduct, causes a third party to believe that the agent represents him, if on the strength of this statement, the third party alters his position, the principal will be estopped from denying the existence of an agency relationship between him and the supposed agent. This means that the principal would be bound by the agents actions. This statement is affirmed by the Supreme Court in Lukas V Ogunnusi.
In Drew V Nunn, a man gave his wife authority to deal with a particular tradesman but later became insane which was unknown to the tradesman. He was held by the court to be liable for the contract made by his wife despite the fact that he had lost the capacity to contract.
The elements of agency by estoppel are:
- There must be representation by the principal to the third party that the agent represents him.
- The third party must have relied and acted on the representation.
- The third party must have altered his position based on the representation which caused him detriment.
- Agency by Operation of the Law:
This is an agency relationship that arises as a matter of law. This occurs when the court deem a person to be an agent in the absence of an agency agreement. The law seeks to safeguard the position of someone who acted as if a relationship of principal and agent exists. This is based on operation of the law and not on the intention of the parties.
The following are two examples of agency by operation of the law:
- Agency by Necessity: This occurs in cases of emergency where a person acts as an agent for another person without prior authority. The types of agency by necessity are: agency of ship masters, agency of railway authorites and agency of salvors.
It was held in Prager vs Blastpiel and Sachs vs Miklos that a shipmaster may sell perishable goods if it is impossible to contact the true owner of the goods, in order to save them from destruction. This same rule has been extended to salvors and may be argued that it should apply to all carriers.
For the agency of necessity to apply:
- The agent must have been unable to contact his principal. See the case of Springer V Great Western Railway.
- The danger to the goods must be imminent as seen in the case of Hawtayne V Bourne, where it was held that a ship master may sell damaged cargo which through further delay may cause further ruin or damage. See also the case of Great Western Railway V Swaffield.
- He must have acted in good faith.
- Agency by Cohabitation:
There are three types of agency by cohabitation which are as follows:
- Agency of a Wife: a mans wife has actual and apparent authority to act as his agent and can pledge her husbands credit for necessaries.
- Agency of a deserted wife: a deserted wife is endowed by law to pledge her husbands credit for necessities even after cohabitation has seized. Thus, the presumption of authority cannot be easily rebutted even when there is no cohabitation.
In Prager V Blastpiel Stamp and Heacock, A wife who was deserted due to her husbands fault, had to stay in another persons house where she borrowed money from the person. The husband was held liable.
However, the deserted wife has some conditions to fulfil before she can set up an agency of necessity. It must be proved:
- That the wife was deserted by her husband
- That the money pledged by the wife was for necessaries
- That such expenditure was suitable to her standard of living and that of her husband when they were still living together.
This can be rebutted by proving that:
- The wife has enough allowance for the purchase of necessaries.
- The wife is adequately supplied with necessaries.
- That the husband had expressly warned the third party not to supply goods to his wife or mistress.
- That the goods were supplied exclusively on the wifes credit.
It should be noted the deserted wife agent of necessity has since been abolished in England but the common law rule of the agency of a deserted wife still applies in Nigeria.
- Agency of a Mistress: a mistress has the right to pledge her lovers credit as long as they are cohabiting.
- Agency by Ratification: It is rectrospective in nature. This occurs when a person acts as an agent on behalf of another person called the principal without the latters consent. The principal later acknowledges and ratifies the act of the agent and due to this action, the principal will be deemed to have initially authorized the action in the first place.
The doctrine of ratification was explained in Wilson v Tunman as
an act done, for another, by a person not assuming to act
For himself, but for such other person, though without any
antecedent authority whatever, becomes an act of the principal
if subsequently ratified by him is the known and acceptable
principle of law
The case of Koenigblatt V Sweet (1923), summarized the doctrine as being equivalent to antecedent authority for an agent.
For ratification to be valid, the following conditions must be met:
- The principal must be identifiable and must have been in existence at the time the act was performed. In Caligara vs Satiori and co.ltd, the court held that a contract entered into by a company before it was incorporated cannot be ratified by such company after its incorporation.
However, It is no longer applicable by virtue of Section 72(1)Companies and Allied Matters Act which makes it possible for a contract entered into by a company before its incorporation to be ratified by such company after its incorporation.
- The principal must have the capacity to do the unauthorized act done by the agent that needs ratification. However in brook v hook, where the directors of the company lack capacity, the contract is voidable and can be ratified.
- The act of the agent must be done on behalf of the principal.
- In Folashade vs Durotola, the court held that ratification must be done within a reasonable time of the execution of the authorized act.
- The principal must be aware of all material facts of the contract at the time of the ratification. In Marsh V Joseph, a solicitor clerk acted fraudulently on behalf of his employer. The solicitor discovered certain aspects of the fraud. The clerk gave a partial account of the fraudulent actions which the solicitor believed to be the full account. The solicitor then ratified the clerk’s action but when the full story came out, the court held that the ratification was inoperative because the principal was not aware of the material facts.
In Savery V King, X on Y’s behalf entered into an invalid mortgage and Y acted in such a way which showed that he was purporting to adopt the transaction but he didn’t know that he was invalid. It was held that Y’s purported ratification was to no effect.
- The Principal must be Ascertainable: Unauthorized acts awaiting ratification must be done in the principals name. In Keighley Maxtel & Co V Duvant, it was held that an undisclosed principal cannot ratify.
- The principal must ratify the whole of the transaction.
- The Legal Quality of The Act to Be Ratified:
The general rule is that any act that is lawful or unlawful, tortuous or contractual can be ratified. However, a principal cannot ratify acts that are illegal, criminal and are contrary to public policy. An exception to this rule can be found in Section 72(1) of CAMA 1990.
A distinction has been drawn between acts which were void an initio and avoidable acts. In the case of avoidable acts, ratification cannot affect their nullity and thus make them valid. Voidable acts not being complete legal nullities before avoidance has taken place can be ratified. It may also be ratified after attempts to avoid them has taken place.
Ratification will not be allowed if it imposes a duty on a third person who before the attempted ratification was not under such duty as held in Solomon V Davies. An exception to this can be found in the case of marine law insurance.
- Time for Ratification:
For ratification to be valid, it must be performed within the time limit as prescribed by the parties or by the circumstances of the particular case or within a reasonable time.
In Metropolitan Asylum Board Managers v Kingham and sons, it was held that a contract must be ratified within a reasonable time after acceptance by the authorized person and such contract cannot be ratified after the date fixed for performance to commence.
In accordance with the rule in Bolton and as supported by Roch L.J in the Presentaciones case A Principal will not be allowed to ratify the acts of the assumed agent, if such ratification will adversely affect rights of property which have risen in favour of the third party or others claiming through him since the unauthorised acts of the assumed agent.
- Mode of Ratification:
Ratification like other forms of agency does not need to be in any special form. It can be by express approval which is the clearest evidence of the ratification or it can be implied by conduct amounting to acquiescence.
In the case of Mutual Aid Society V Akerele, where a principal hired an auctioneer to auction off his property, and the agent mistakenly sold his neighbours property to the knowledge of the principal. The neighbours sued for libel and the principal was held guilty, as ratification could also be implied from silence or acquiescence lover the agents actions.
Ratification can also apply where the principal accepts the benefit of the unauthorized transaction done by the agent for and on his behalf.
Also, where the principal institutes an action and relies on the prior unauthorized act of his agent, he will be deemed to have affirmed it.
- Effect of Ratification:
It retrospectively creates rights and obligations between principal and third party.
It puts the principal, agent and the third party in a position which they would have been if the agents acts had been ratified from the beginning. It relates back to the time of the unauthorized act and not to the date when the principal ratified the said act. This was explained by Lord Standale in M.R Koenicablatt V Sweet as follows:
I think, it is settled law now that when once you get
Ratification it relates back. It is equivalent to an
Antecedent authority mandatespriori acquiparator-
And when there had been ratification the act that is done
Is put in the same position as if it had been antecedently
Ratification would be ineffective where it seeks to prejudice the benefit an innocent third party acquired under the transaction.
It may be ineffective where the principal is forced to ratify to prevent damage being caused to his commercial reputation.
If a principal manifests his intent not to ratify, he cannot later ratify as stated in McEvoy V Belfast Banking Co (1935).
If it is a contract, the ratifying principal can sue on the contract. If it is a tort, the ratifying principal can be liable. If it is a crime, both the principal and agent would be prosecuted. See the cases of Whitehead V Taylor and Keah V Fenwick.
SCOPE OF AGENCY RELATIONSHIP
The scope of an agency relationship is determined by what the parties intend the agent to accomplish. It is the scope of the agency relationship that establishes the agents authority and obligations to the principal.
Authority is the central feature of an agency relationship. An agents authority may be derived from both an agreement between him and his principal, express or implied, or from operation of the law. It usually differs depending on the type of agency or the way the agency is created.
Basically, there are four types of authority namely:
- Actual or Real Authority:
- Express Authority
- Implied Authority
- Apparent or Ostensible Authority
- Usual or Customary Authority.
- Presumed Authority
- ACTUAL OR REAL AUTHORITY:
This is the authority which the principal expressly or impliedly grants to the agent to do something on his behalf. Actual or Real Authority may be express or implied. Thus, it is part of an agents actual authority that he should have the power to do both what the principal expressly instructed him to do and also what the principal has by necessary implication consented that he should do.
DIPLOCK J in Freeman and Lockyer V Burkhurst Park Properties LTD 91964) 1 ALL E.R. 630, described the actual or real authority of the agent as the legal relationship which subsists between the principal and agent created by consensual agreement to which they alone are the parties. He stated that such authority may be express when given by express words or implied when it is inferred from the conduct of the parties or from the surrounding circumstances of the case.
- Express Authority: it is created when the principal explicitly tells the agent what to do. This authority can be expressed in two ways.
- In a deed (contract under Seal): The wordings of the contract will be strictly construed. For instance, authority conferred by the powers of attorney is that which is within the four corners of the deed.
- Written Authorization: A written contract is not under seal. The general rule here is that the scope of authority is fixed by drawing inference from the whole circumstances of the case.
However in Weathersby V Core, the court observed that proof of agency does not depend on written agreement.
- Implied Authority: it consists of those powers that are incidental and necessary to carry out the express authority.in this case, the principal sanctions the agency relationship not by words or writing but by conduct. For Instance, an agent who is authorized to make a binding contract for the sale of a house is by necessary implication authorized to sign a memorandum to that effect.
- APPARENT OR OSTENSIBLE AUTHORITY:
it is said to be based on the principle of estoppel which is the principle that a person will not be allowed to deny a promise or assertion which he or she previously made, where there has been a detrimental reliance on that promise or assertion. It is commonly used to avoid injustice.
Thus, apparent authority is created by the conduct of a principal which leads the third party to believe that the agent has the authority to act for the principal.
As long as the agent has apparent authority, the agents actions in dealing with third parties will affect the legal rights of the principal.
Apparent or Ostensible Authority may arise in two ways:
- Where there was no relationship between the two parties in the beginning but the relationship was later brought into existence solely by virtue of the doctrine of estoppel.
- Where the relationship between the two parties exists but the authority of the agent is limited but extended by the doctrine of estoppel.
The following are three essential elements of Apparent or Ostensible Authority:
- There must be a representation by the principal
- There must be a reliance on that representation by the third party
- There must be an alteration in the third partys position as a result of such reliance.
The main difference between Actual and Apparent authority is that in actual authority, the expression of authority is made directly to the agent while in apparent authority, the expression is made to a third party with whom the agent deals.
Apparent authority also differs from actual authority because it doesnt arise from the consent of the parties but it arises from representation and the doctrine of estoppel.
- USUAL OR CUSTOMARY AUTHORITY:
It is the authority to do whatever an agent of that type in question would usually have authority to do.Whether usual authority exists as an authority in its own right is a subject of debate. It usually arises from other kinds of authority mainly implied authority, actual authority and apparent authority.
Without actual knowledge, third parties may safely assume that the agent has the usual authority that goes with their position.
Where an agent belongs to a particular class or business, he has usual authority to do whatever is necessary in order for him to fulfil his express authority as agent. Thus, where A is engaged for P in a particular market, he is impliedly authorized to act according to the custom of that market as held in Watteau V Fenwick.
The following are some of the agents that have usual authority:
- A factor usually has power to sell goods entrusted to him for sale in his own name unless he is instructed otherwise and he may receive payment of the purchase price (Baring V Corrie).
- An Auctioneer has the implied authority to sign a contract on the part of both vendor and the purchaser but he has no authority to receive payment except if it is in cash.
- PRESUMED AUTHORITY:
Any authority of an agent that arises by operation of the law is known as presumed authority. The best illustrations of presumed authority are:
- Agency of Necessity
- Agency by Cohabitation.
These have been discussed extensively under Agency by Operation of the law.
OBLIGATIONS IN AGENCY
When the relationship between a principal and an agent is primarily consensual, the rights and duties arising from such relationship are usually governed by express and implied terms. However, in the absence of these express terms, the agent owes certain implicit duties to his principal just like the principal owes certain implicit duties to his agent.
DUTIES OF AN AGENT TOWARDS HIS PRINCIPAL
- Duty to Perform Undertaking
The primary duty of an agent is to perform the contract which he had been employed to do by the principal.
Adefarasin J in Otto Hamman V Senbanjo & Anor stated the position thus:
it is the duty of an agent to carry out the business he had
undertaken. This was his obligation unless he had in his
contract expressly excluded responsibility.
Thus, an agent will be liable for breach of contract when he fails to carry out his contractual duties or fails to do so in accordance with the terms of the contract.
In the case of Turpin V Bilton, where an insurance broker agreed for consideration to obtain a contract of insurance on the plaintiffs ship. But failed to do so. The ship was lost and the broker was held liable to the plaintiff for breach of contract.
However, a gratuitous agent will not be liable for breach of duty to perform but when he decides to perform and does so carelessly, he will be liable for negligent performance.
An agent is also not obliged to perform a contract that is illegal, null and void either at common law or by statute.
The duty of an agent to perform is not absolute. Thus, if he is unable to perform, he must inform his principal or someone who has the right to receive such information.
- Duty to Obey:
An agent is obliged to obey lawful instructions assigned to him by the principal and he must not deviate from such instructions; even though he might see them as beneficial. This statement was affirmed by the Ibadan High Court in the case of Eso West African INC V Ali.
The following are exceptions to this rule:
- In the absence of express instructions, the agent must act according to the interest of the principal. In this case, the agent is not liable, if the principal suffers a loss.
- In the case of vague instructions given by the principal to his agent, the agent must act fairly and honestly. If the principal suffers loss, the agent is not liable.
- In the absence of express instructions, A professional agent must act in accordance with the general nature of his business.
- Duty of care and skill
An agent is obliged to exercise the requisite care and skill in the performance of his duty.
The degree of skill and diligence required of an agent will depend on whether the person is a gratuitous agent (not paid for services) or a contractual agent (paid for services).
A contractual agent is expected to exercise a degree of skill and diligence which a reasonable man would expect an agent of that type to exercise. In Spiropolous Co Ltd V Nigeria Rubber and Co. Ltd, it was held that an agent who undertook to effect a policy of insurance on behalf of his principal is obliged to do so at the most economical rate.
A gratuitous agent is not obliged to act neither is he/she expected to exercise the same degree of care and intelligence as they would use in attending to their own affairs.
An agent who holds himself out to the principal as possessing some special skill or knowledge is expected to exhibit such. In Keppel V Wheeler, it was held that the agent is obliged to obtain the best price obtainable and this does not cease when the agent had procured an offer conditionally accepted by the principal.
- Duty to account:
It is the duty of the agent to keep and render an account of all the transactions he carried out on behalf of the principal for inspection. For example, travel agents and real estate agents are required by statute to keep accurate and proper accounts.
The failure of an agent to keep an account of money had and received by him for and on behalf of the principal, he would be compelled to render such account by an action in a court of law. This was stated in the case of Majekodunmi V Joseph Daboul ltd.
An agent must keep his money separate from that of his principal but the agent has a right to retain or deduct from his principals money to cover for all the expenses incurred by the agent in carrying out his duty.
- Duty to not delegate:
This is expressed in the latin maxim delegatus non potest delegare which means that a delegate cannot delegate. This rule is based on the fact that an agency relationship is a confidential one and the agent is required to act personally.
It was held in Bamigboye V University of Ilorin and ors that an agent to whom power is delegated cannot further delegate it without express authority of the principal or authority of statute.
However, there are cases where an agent may delegate his duties to a sub-agent and they are as follows:
- An agent may delegate his duties to a sub- agent if the duties are ministerial in nature i.e does not require any special skill or knowledge.
- Where the principal expressly consent to the appointment of the sub- agent. De Busshe V Alt where an agent was unable to effect the sale of a ship on behalf of his principal and gained the principals permission to appoint a sub-agent. it was held that there was no breach of duty since the delegation was expressly agreed upon.
- Where the usage or custom of the trade permits delegation.
- Delegation is permitted in cases of emergency in order to protect the principals interest.
- Delegation is permitted where there is no personal confidence reposed on the agent by the principal.
- Where delegation is allowed by a statute or legislation.
However, there is no privity of contract between a sub-agent and a principal. The sub-agent is simply the agent of the agent and cannot be sued directly by the principal. The principal may create privity of contract between a sub-agent and himself when he gives authority to his agent to appoint someone to act as agent for him. This was confirmed in the case of Calico Printers Association V Barclays Bank.
- Duty to Act in Good Faith
An agent is obliged to show good faith in his dealings on behalf of the principal. An agent must avoid the clash of his personal interest with that of his principal and he is obliged to disclose the possibility to his principal.
Upon full disclosure, it is up to the principal to decide whether or not to proceed with the transaction.
If there is a breach of the agents duty, the principal may set aside the affected contract and claim any profit which might have been made by the agent. In McPherson V Watt, a solicitor who was engaged to sell a house bought it in his brothers name in an attempt to conceal the fact that it was for him. It was held that since the solicitor had allowed a conflict of interest to arise, the sale could be set aside. It was immaterial that a fair price was offered for the property.
- Duty to protect Confidential information
An agent must not divulge confidential information. In Robb V Green, an injunction was obtained against a former manager of a business to prevent him from divulging a list of customers of the business of which he copied when he was still the manager.
- Duty not to make Secret Profit
An agent must not make secret profit in the performance of his duty. He must not sell his property to the principal without the knowledge of his principal. Failure to do so will result in loss of commission and dismissal of an agent.
It was held in Lucifero V Castel that an agent owes a duty to fully disclose and obtain principals consent, and avoid competing with the Principal.
If an agent makes secret profit, the profit must be submitted to the principal.an agent who is not being paid commission for acting on behalf of the principal, may still not secretly profit. See the case of Turnbull V Garden. He must also not receive bribes.
THE DUTIES OF PRINCIPAL TO AN AGENT
- Duty to Remunerate
It is the primary duty of a Principal to his agent to compensate him for the services he rendered for and on behalf of the principal.
The contract may expressly provide for the amount to be paid or it may be implied between the principal and the agent.
Where the agreement provides for the payment of such remuneration as should be deemed right such a term is too vague and thus it has been advised that where a contract expressly provides for remuneration, the terms of the agreement must be very clear and easy to ascertain.
However, in Bryan V Flight, where the agent let the principal decide the amount of payment he was entitled to, the court held that there was an implied term for the remuneration to be paid to the agent on a quantum meruit basis i.e what is reasonable in the circumstances.
The amount of remuneration an agent is entitled to, may be calculated by what is customary in the trade, profession or business in which the agent is employed.
The principals duty to remunerate his agent is not absolute. Thus, for an agent to be entitled to his commission, he must fulfil the following conditions:
The agent must not only prove that he had carried out his obligations but he must also show that his acts were essential and not incidental to the transaction.
An agent is entitled to be paid his commission as long as he has carried out his contractual obligations and is not in any way responsible for his principals loss of benefit. This same principle was expressed in Fisher V Drewett.
An agent who has breached his contractual duties would not be entitled to commission.
An agent will not be entitled to commission if the contract he carried out is illegal except in cases where he has no knowledge that the undertaking is illegal. In the case of Haines V Busk, a broker was still entitled to be paid even though the contract he carried out was illegal. This was because the broker relied on the charterer to obtain licenses which the latter failed to do without the brokers knowledge.
- Duty to Idemnify and Re-Imburse the Agent
It is the duty of the principal to indemnify his agent against all losses and liabilities and to reimburse him for all expenses incurred in the lawful execution of his authorized duties.
The right of indemnity exists whether the agency is contractual or quasi-contractual.
It must be noted that the principal is only liable for such damages that are direct and immediate and naturally follow the execution of the agency.
There are cases where agent will not be entitled to this right and they are as follows:
Where the agent acted in an unauthorized manner, he will not be entitled to this right unless the Principal ratifies the agents default.
Where the agent has breached his contractual duty, He would not be indemnified.
Where an agent carries out an illegal act or an act that is contrary to public policy.
Where an agent carries out an act that is null and void by statute.
Where an agent is injured or suffers loss due to his own contributory negligence, he will not be indemnified.
RELATIONSHIP BETWEEN PRINCIPAL AND THIRD PARTY
Generally, given that an agent is a representative of the principal when contracting with third parties, thus any contract entered into by the agent is binding on the principal and such an agent cannot sue or be sued under the contract as long as he acts within the scope of his authority.
In determining whether a principal or an agent can sue or be sued will depend on whether the principal is disclosed or undisclosed when the contract was made.
- Doctrine of a Disclosed Principal:
This occurs when an agent reveals the name of the principal whom he is representing to the third party.
It was said in Harper V Vigors Bros that an agent in a disclosed agency relationship is entitled to reveal the identity of his principal.
Thus, the contract is known to the third party as that of the principal and not the agent. At common law, it is the principal who can sue and be sued not the agent.
If an agent enters into a contract on behalf of a disclosed principal outside of his scope of authority as agent, that can contract can also be subsequently ratified by the principal.
However, an agent will be liable for the contract in the following cases:
- Where an agent executes a deed in his own name, he is personally liable, even though he was only acting as an agent.
- Where an agent signs a bill of exchange or promissory note in his own name without disclosing that he is acting for a principal.
- Where the agent is in fact revealed to be the principal.
- It is presumed that where the principal is a foreign principal, the agent is liable unless it is contradicted by clear terms of a contract or surrounding circumstantial evidence from the surrounding circumstances of the case.
- Where it can be implied from by the custom or usage of the business or trade to which the agent belongs that the agent is liable.
- Where the agent discloses the existence of a principal to the third party but does not disclose the principals name, the principle of a disclosed principal applies here.
Wright J expressed his view in Montgomery V UK Steamship Association, where the rule established that the contract is that of the principal and not the agent. This presumption can however be rebutted when it is shown that it is the intention of the parties that the agent should be liable.
- Doctrine Of An Undisclosed Principal:
This occurs when neither the principals identity nor the fact that the agent is acting on behalf of someone else is disclosed to the third party at the time of entering into a contract with the agent.
This means that the third party believes that he is contracting directly with the agent and it is only after the contract is made that the third party becomes aware of the circumstances.
When the third party becomes aware of the undisclosed principal, it is left to him to choose whether to enforce the contract against the principal or the agent. Once the third party chooses one, he cannot afterwards change his mind and choose another.\
This doctrine has been described as an exception to the doctrine of privity of contract.
The undisclosed principal will be held personally liable if he enforces the contract against the third party.
The following are ways by which an undisclosed principal will not be able to enforce the contract against the third party:
- The agent will be liable if at the time of making the contract, he acted for an undisclosed principal who lacked capacity.
- The agent will be liable if he acts for a non-existent principal like an unincorporated company. In Caligara V Giovanni Sartori and Kelner V Baxter, it was held in both cases that a company cannot ratify a contract when the company is incorporated.
- Where the identity of the principal is of essence to the third party in that he would not have entered the contract if he knew the principals identity. It was held in Said V Butt that no contract was made with the principal because the manager would not have contracted had he known for whom the agent is contracting.
- The agent will be liable, where the agent acts outside the scope of his authority without ratification.
- Settlement With The Agent:
- The principal is liable to pay the third party where the money meant for the third party is given to the agent who fails to pay the third party. In Heald V Keworthy, it was held that the principal was still liable to pay the third party even though he had already paid the agent. it was also held that this principle applies even where the principal is undisclosed.
It was, however, stated by Park B in Heald V Keworthy, that the seller may be estopped from claiming this right if his conduct shows that he relied alone on the agent for payment and thereby unjustly induced the principal after the debt became due to settle with the agent. The principal must prove that he was reasonably misled by the seller to settle with the agent.
- If the agent has no authority to receive money and the third party gives money for the principal to the agent and the agent fails to pay the principal, the third party is liable to pay the money, except if it is an undisclosed principal.
It should be noted that a third party cannot refuse to pay the money he owes the principal because the agent is indebted to the third party.
- Liability for Torts:
Generally, A tortfeasor is liable for his act or omission. The principal is liable for the torts committed by the agent in the execution of the agents duties and this liability is founded on the doctrine of Respondent Superior under common law.
- The principal is jointly liable for the negligent acts the agent committed against third parties in the course of his duties.
- The principal is jointly liable for the agents conversion of the third partys goods.
- The principal will be liable for the fraudulent misrepresentations made by his agent to third parties as long as the agent acted acted in the scope of his authority. See the case of Derry V Peek, ACB V Agbayin.
It should be noted that a third party can bring against an agent an action for breach of warranty when the third party discovers that the principal cannot be sued and the agent lacked authority to act.
REMEDIES AVAILABLE TO THE PARTIES
The remedy available to a principal or agent due to breach of agency relationship by either of them will depend on the terms of the agreement.
- Remedies Available To The Principal
- Dismissal: the principal may dismiss his agent from his employment without notice. In the case of Deep Sea Fishing and Ice Co V Fernham, it was held that where an agent commits a serious breach of duty, the agent can be dismissed by the principal.
Ii. Rescission and Damages: the principal may rescind any contract made by the agent with the third party on his behalf without authority and bring an aqction in damages against the agent.
III. Action in Tort: if the agent commits a tort like the tort of conversion against the principal, the principal can bring an action in conversion against the agent. the principal also has the right to sue in tort for negligence or deceit.
- Action For Account: the principal may take an action to compel the agent to render an account for all his dealings on his behalf especially in connection with secret profit. In Andrews V Ramsay and co, where the agent made secret profit, the court held that the principal was entitled to the money. Note that criminal proceedings could be taken against the agent e.g for stealing.
- If the agency is contractual and not gratuitous, the principal has the right to bring an action against the agent for breach of contract.
- Remedies Available to the Agent:
- Damages: the agent can sue the principal for any damage or loss he suffered due to the principals breach of contract.
- Action for indemnity: the principal is under legal obligation to indemnify the agent for all losses incurred by the agent in the exercise of his duties except where the agent acted outside the scope of his authority. In Christoforides V Terry, the principal contracted a broker to engage in the speculative purchase of cotton. The principal became heavily indebted to the broker due to a fall in the price of cotton. The broker, as he was entitled to do, closed the account and sold the cotton at a loss. The court held that he was entitled to be indemnified by the principal for the loss he sustained.
III. Agents Right of lien: the agent has a right of lien over the principals property which is in his lawful possession, until his commission is paid. He does not have the right to sell the goods.
A lien can be general or particular.
A general lien occurs when the agent is in possession of a lot of goods for his principal. Failure of the principal to pay him his commission will lead to the agents exercise of the right of lien on another of the principals property in his possession.
A particular lien occurs when an agent exercises his right of lien in only the specific property on which the principal has failed to fulfil his obligation.
- Agents stoppage of Transitu: where an agent stands towards his principal in the position of an unpaid seller of goods. He may exercise his right against the goods of his principal.
- Remedies available to third parties:
- The third party can bring an action for equitable remedies against the principal or agent depending on who is liable.
- The third party can bring an action for the tort of deceit against the agent and the principal.
TERMINATION OF AGENCY RELATIONSHIP
Under the law of contract, parties to an agreement usually state the modes by which their contractual relationship can be terminated. Where any of the parties fail to abide by these modes, the other party can sue for damages. This rule also applies in a contract of agency.
An agency relationship may be determined by:
- The Act of the Parties.
- The Operation of the law.
- By the Act of The Parties:
- Agreement of the parties: Since the agency relationship is created by consensual agreement between the agent and the principal, it is necessary to assume that both parties can unilaterally agree to determine the agreement. Where an agency relationship is created to achieve a particular purpose or to do so within a reasonable time, such agency ends when the purpose has been fulfilled or time has elapsed. In Esso West African INC V Alli(Supra), an Ibadan high court held that the agency relationship constituted by the agreement could be terminated by either party at the end of six months without notice.
- Revocation by the principal:
A principal can revoke a contract of agency which holds no benefit to him or whose object or purpose is no longer attainable. Express notice of the revocation must be given to the agent to avoid misunderstandings with the third party.
The revocation may be in any form whether written or oral or implied where the principal has retrieved all necessary facilities originally provided to the agent to effectively carry out his duties.
Where the agent is appointed by deed, the revocation may take the same form or it may be determined orally.
It should be noted that in a contract of service, notice is imperative before revocation.
III. Renunciation by the Agent:
An agent can unilaterally renounce his relationship with his principal but must have given notice to that effect. However, an agent may renounce his authority without notice where the principal is equally guilty of misconduct or breach of duty to the agent.
As a result of renunciation, an agent is only entitled to compensation for act done before the renunciation and not after.
The agent is liable to the principal when his renunciation is wrongful. Such an agent can renounce his/her duties by simply refusing to act, words of mouth, by notice etc.
The Doctrine of Irrevocable Agencies:
An irrevocable agency is an agency which cannot be terminated either by act of the parties or operation of the law. An agency relationship is irrevocable in the following ways:
- Where agency is coupled with interest:
This occurs when the agency relationship is created for the benefit or in the interest of the agent or third party excluding the principal. Such authority can be described as an irrevocable power of attorney. In Raleigh V Atkinson, it was held that even the principal’s death cannot terminate an irrevocable power of attorney. In this case, P entrusted goods to A for sale. From time to time, A made advances to P and received authority to dispose of the goods at market value and to repay himself to advances out of proceeds. It was held that the authority is coupled with an interest and thus it could not be revoked.
It is essential that the interest of the agency should be existing at the time of the creation of agency, if the interest was created subsequently, the agency can be revoked. This was the position in the case of Smart V Saunders, where A gave certain wheat to B to sell it on As behalf and subsequently B gave A some money in advance. A ordered B not to sell the wheat but B disobeyed and secured his advance. A sued B but B pleaded irrevocable agency but the court held irrevocable agency did not apply because the interest of the agent arose after the creation of the agency.
- Where the agent has incurred personal liability
Agency cannot be terminated when the agent has purchased goods on his personal liability.
III. Where the agent has incurred personal loss and the principal is obliged to indemnify him, the principal cannot revoke the agents authority so as to avoid the obligation of indemnifying the agent. See the case of Read V Anderson.
IV.Where the authority has been partly exercised:
The principal cannot revoke the authority given to his agent after the authority has been partly exercised.
- Where the agent has made a contract on behalf of the principal to exercise a lien over any money or goods recovered as result of such action. Thus in Drinkwater V Goodwin, a factor who became a surety for his principal was held to have a lien on the price of goods sold by him for his principal to the amount or sum for which he had to become a surety.
Vi. Where certain legislations and statute like Section 8 of the Conveying Act 1882 prohibit the revocation of am agency relationship.
- By Operation of the law:
- By Performance:
Generally, an agent is given authority by the principal to carry out a specific act. Thus, when the act has been performed, the authority given is terminated. However, there may be difficulty in ascertaining when an agents authority has been executed like in cases of an estate agent authority. It may also be possible that the apparent and ostensible authority of an agent continues when the express or implied authority has ceased.
- By Effluxion of Time:
It is generally believed that the authority given to an agent is for a specific period of time and thus, after the expiration of time, the agency relationship is terminated whether the agent performed the act or not.
Where no time has been agreed upon by the parties, the agents authority is implied by the parties to terminate at the expiration of a specific period of time. What constitutes a reasonable time would depend on the facts and circumstances of the particular case.
III. By Frustration:
An agency relationship can be automatically trerminated by the doctrine of frustration, if the authority of the agent:
A.)Ceases to exist by reason of government expropriation or compulsory acquisition or requisition.
B.) Becomes illegal or contrary to public policy.
C.) Impossible to be executed.
D.) By reason of war or disease.
- By Death:
The death of a principal or agent automatically terminates an agency relationship except in cases of irrevocable agency. It was held in Philips V Jones, that the authority of the broker, express or implied, terminated on the death of the principal.
Where the principal or agent is a limited liability company, such agency relationship terminates upon the dissolution of the company. It was held by the supreme court in Nzom & Anor V Jinadu (1987) N.W.L.R 533, that a dead person ceases to have legal personality from the date of his death and such cannot sue or be sued either personally or in representative capacity. This is so even when the agent is not aware of the principals death. He cannot sue for remuneration or indemnity.
An agency relationship can be terminated due to the mental incapacity of the principal or agent except in cases of irrevocable authority. In the case of Drew V Nunn(1879)4 A.B. 661, the defendant had given his wife authority to deal with the plaintiff who was a tradesman and had held her out as his agent and as entitled to pledge his credit. The defendant became insane afterwards and while his insanity lasted, his wife ordered goods from the plaintiff, who accordingly supplied them. At the time of supplying the goods, the plaintiff was not aware of the defendants insanity. The defendant later recovered and then refused to pay for the goods supplied to his wife by the plaintiff. The court held that the defendant was liable for the price of goods supplied to his wife during the period of his insanity. The rationale behind the decision is based on the fact that knowledge of insanity is an important ingredient in determining the existence of an agency and thus since the plaintiff was not aware of the defendants insanity and the existence of the wifes agency of necessity, the defendant was bound by the agreement.
An authority may be given to an agent which has been determined without his knowledge by the insanity of the principal. In Younge V Tonybee, it was held that a solicitor was liable for breach of warranty of authority when without his knowledge he continued with the litigation for a client, who had become insane.
The right of third parties are protected if they are unaware of the principals condition.
- By Bankruptcy:
An agency relationship terminates when either the principal or the agent become bankrupt or insolvent except in cases of irrevocable agency. This means that the authority of an agent is terminated as a new principal is created in trustee in bankruptcy. The new principal may decide to reappoint the agent and thus, a new agency relationship is created between the new principal and the agent. see the cases of Re Politt, Hudson V Granger, McCall V Australian Meat Company Ltd.
Effect Of Termination Of Agency Relationship:
- The agent is liable for breach to third parties even where he is ignorant of the principals insanity like in the case of Younge V Tonybee or when he violates his warranty even after the agency is terminated.
- The principal must notify third parties of the revocation of agency to avoid the invocation of the agency by estoppel. See the case of Raccah V Standard Company of Nigeria.
III. Where the agency is revoked by the principal, the agents authority to act is not terminated until notice of termination is given or received by agent. But where termination is involuntary like in cases of death, insanity or frustration of the agents authority, the latter ceases.
- Termination does not preclude the agent from earning his outstanding commission and neither does it deprive the principal of his right to sue for breach when necessary.
- Where the agency is created for the agents benefit or a third party rather than the principal, the agents authority cannot be revoked at will by the principal or agent. neither can it be terminated by death, incapacity or bankruptcy of either party.
NATURE OF SALES OF GOODS TRANSACTION
Sale of goods is one of the most popular and frequent transactions that exist till this day. It can be carried out at any hour of the day, at any place and in any way. One can’t do without it and this makes it necessary to understand the law governing Sales of goods transactions.
In Nigeria, the sales of goods transaction is a contractual transaction and it is codified in the Sale of Goods Act 1893 which is a statute of general application and can also be found in the different Sales of Good Laws promulgated by the states in the federation. For example, Sale of Goods Law 1958 is applicable in the western region.
Other sources of laws governing sales of goods transaction include: Factors Act 1889, Infant Relief Act, 1874, Law Reform (contracts) Acts 1961 etc.
Definition of Sales of Goods
Section 1(1) of the Sales of Goods Act 1983 and Section 3(1) of the Sales of Goods Law 1958 defines Sale of Goods as:
‘’A Contract of Sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. There may be a contract between one part owner and another.’’
A contract of sale can be an outright sale or an agreement to sell and the difference between the two was explained in Section 1(3) of the Sale of Goods Act as follows:
‘’where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale; but where the transfer of the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled; the contract is called an agreement to sell.’’
Also, a contract of sale of goods where the goods is yet to be manufactured is an agreement to sell. An agreement to sell will become a sale when the time of delivery lapses or the conditions are fulfilled.
According to Section 3(2) of the sale of Goods Law, a contract of sale may be absolute or conditional. It is an absolute sale where the parties are bound to perform their contractual obligations and cannot withdraw from it unless a breach of contract is committed. While a conditional sale are contracts which are intended to be binding on the parties and property in the goods which are to be passed only on the occurrence of some stipulated events or circumstances.
FORMATION OF A CONTRACT OF SALE
Section 5 of the Sale of Goods Law 1958 provides that:
‘’…a contract of sale may be made in writing (either with or without seal) or by words of mouth, or partly in writing and partly by words of mouth, or may be implied from the conduct of the parties, provided that nothing in this section can affect the law relating to corporations.’’
Section 3 of the Sale of Goods Act also attests to the fact that no formality is required in the creation of a contract of sale but this provision shall not affect the law relating to corporations.
- Two parties: a contract of sale is basically a contract between two parties namely a buyer and a seller. The two parties don’t have to be two individuals; it could be a corporation in a contract of sale with another corporation. Also, a part owner can sell to another part owner.
- Offer and Acceptance: Most of the times, it is the buyer who makes the offer while the acceptance comes from the buyer. Thus for instance, A makes an offer to buy wheat from B who is a Wheat seller. It is left to B either to accept or reject the offer. If B accepts then they can draw up a contract.
- Capacity of the Parties: By the provision of Section 2 of the Sales of Goods Act, capacity of parties to buy and sell is governed by the general law relating to capacity to contract.
Persons qualified to contract are natural persons with full age, sane and not drunk and artificial persons who may either be a corporation or a statutory body.
However, a minor, a mentally incapacitated person and a drunkard do not have capacity to contract except probably for necessaries. Section 2 further states that where necessaries are sold and delivered to an infant or mentally incapacitated person or drunkard, such a person must pay a reasonable price.
Section 2 defines necessaries as goods that are important and suitable to the condition of life of such persons that lack capacity and his actual requirements at the time of the sale and delivery.
- Price: There must be a money consideration called the price in a sale of goods contract. The price may be in monetary terms and in goods but excludes contracts of barter. Section 8(1) provides that price can be fixed in the following ways:
- By the contract
- In a manner agreed upon by the parties
- May be determined by the course of dealing between the parties
Section 8(2) provides that when the price cannot be fixed or determined according to any of the manner described above, the buyer must pay a reasonable price.
What constitutes a reasonable price depends on the circumstances of each case. However, this provision raises some issues and one of them is that the sale of goods cannot make a contract for the parties.
In Matco Ltd V Santerfe Development Co Ltd, where it was held that the burden was on the seller to prove whether the price he demanded was reasonable’.
The parties may agree to fix the price at a later date as seen in the case of May and Butcher V The King, where there was no subsequent agreement as to the price. The House of Lords held that the agreement between the parties did not constitute a contract since they left out a critical part of a contract. An agreement to agree is not binding.
However, Section 9 of the Sale of Goods Act provides that there may be an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party. Where he cannot make such valuation, the contract is voided. If the valuer is prevented from making the valuation by either of the parties (seller or the buyer), the non- defaulting party may maintain an action for damages against the defaulting party.
- Time: Section 10 of the Sale of Goods Act provides that time of payment is not deemed to be of essence in a contract of sale except it is stipulated by the terms of the contract. However, other time stipulations like time of delivery, shipment or opening of letter of credit are of essence to a contract.
Where the time of delivery is not stipulated, goods should be delivered within a reasonable time as provided by Section 29(2) of the Sale of Goods Act.
Thus, in Amadi V Thomas Aplin, the court held that time of delivery is of essence and since the seller failed to deliver within a reasonable time he had committed a breach as to the condition of time.
Whether time stipulation is a condition or a warranty will depend on the terms of the contract or the intentions of the parties as held in the case of Hartley V Hymans.
- Goods: The subject matter of a contract of sale is the goods. Goods are defined by Section 62(1) Of the Sales Of Goods Act and Section 2(1) Of The Sale Of Goods Law 158 as
‘’…all chattels personal, other than things in action or money; and includes emblements, industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of Sale.’’
It is clear from the definition that the term ‘’goods’’ embraces widely varying objects like clothes, cars, shoes, ships, aircraft etc. it does not include choses in action and money. However, coins that lack the negotiable attributes of money can be used as goods. Land or any interest therein is excluded from the definition of goods. Land is not included in the ambit of sale of goods.
The term ‘’emblements’’ covers crops which are planted and harvested annually such as cassava, maize etc are called chattels even before they are separated from land.
The term ‘’industrial growing crops’’ have not been judicially defined and is presumed to be under emblements and may include crops which may be harvested outside the annual period. When such crops are attached to land, they must be severed under the contract of sale to qualify as goods.
In Kursell V. Timber Operators And Contractors Ltd, it was held that trees in a forest which were to be cut and removed as timber qualifies as goods.
Also in Howell V Coupland, a sale of 200 tons of potatoes to be grown on a piece of land was held to be a contract of sale of goods.
But in Morgan V Russell, it was held that the sale of cinders and slag which were not definite or detached heaps resting on the ground was not a sale of goods but sale of an interest in land.
Also in Mills V. Stockman, a quantity of slate which had been quarried and then left on some land as waste material for many years was held to be part of land and not goods.
CLASSIFICATION OF GOODS
The different categories of goods have been provided for in Section 5 of the Sale of Goods Act 1893 and they are as follows:
- Existing goods
- Future goods
- Contingent goods
- Specific goods
- Unascertained goods
- Ascertained goods
- Existing Goods: by virtue of Section 5(1) of the Act, existing goods are goods that are owned or possessed by the seller at the time of the contract of sale i.e they were in existence when the contract was being made. It may be specific or ascertained.
- Future Goods: they are goods that are not in existence (yet to be manufactured) or goods which are in existence but not yet acquired by the seller. It is an agreement to sell. They are delivered to the buyer at a future date. For instance, in Howell V Coupland, a sale of 200 tons of potatoes to be grown on a piece of land was held to be a sale of specific goods even though they were not existing goods.
- Contingent Goods: by virtue of Section 5(2) Of the Act, they are goods whose existence or acquisition of such goods depends on contingency which may or may not happen.
- Specific Goods: it was defined by Section 62(1) Of the Act as goods that are clearly identified and agreed upon at the time the contract of sale was made.
- Unascertained Goods: these are goods that are not yet specified but are usually sold by general descriptive terms for that class of goods. For example, a contract for 50 crates of eggs that have not been seen by the buyer is one that involves unascertained goods. Other types of unascertained goods are:
- Goods to be manufactured or grown by the seller i.e future goods
- Purely generic goods i.e 1000 pounds of wheat or 100 tons of cement
- An unspecified part of specific whole i.e 100 tons from 200 tons of wheat
- Ascertained Goods: they are like specific goods. They are goods that have been identified at the time of the contract. For example: if there have been a contract for 20 crates of eggs seen by the buyer, they become ascertained goods.
DISTINCTION BETWEEN SALE OF GOODS AND OTHER SIMILAR TRANSACTIONS
A close examination of sale of goods transactions and other similar transaction will show that they are different in legal incidents but similar in context. They will be examined below:
- Sale of Goods Distinguished From Hire Purchase: the contract of hire purchase resembles that of sales of goods since its main object is the sale of goods. However, their legal incidents are different.
- In a sale, the position of the buyer is that of the owner of goods but in hire purchase, the position of the hirer is that of the bailee until he pays the last instalment.
- A contract of sale involves two parties i.e the buyer and the seller, while, a hire purchase transaction involves three parties i.e the seller, the finance company and the hirer.
- In a sale, property in the goods are transferred to the buyer immediately at the time of the contract, while in hire purchase, the property in goods passes to the hirer upon payment of the last instalment.
- In a sale, the buyer is bound to buy the goods while in Hire Purchase; the hirer has the option to purchase and thus, is not bound to buy the goods.
- In a sale, the seller bears the risk of any loss resulting from the buyer’s insolvency. While in hire purchase, the owner bears no risk and if the hirer defaults, the owner has the right to recover his goods.
- In a sale, the buyer cannot terminate the contract and is bound to pay the goods while in hire purchase, the hirer can terminate the contract by returning the goods to the owner without any liability to pay
- In a sale, the buyer can pass a good title to a bona fide purchaser while in hire purchase, the hirer cannot pass a good title to a bona fide purchaser
- In a sale, tax is levied at the time of the contract. While in hire purchase agreements, the tax is not leviable until it ripens into a sale.
- A hire purchase agreement must be in writing while a sale of goods agreement can be oral or written.
- Sale Distinguished from Gift: a gift is a transfer of property without any consideration and thus, it is not binding. For a gift to amount to a contract of sale, it must be made under deed or seal which serves as the needed consideration. But when a gift is offered in respect of transfer of property, it may amount to a collateral contract of sale.
However, problems may arise with regards to transactions in which what is regarded as ‘’free gift’’ is offered as a condition for entering into some other transaction.
In Esso Petroleum Ltd V Commission of Customs and Excise, where Esso petrol station advertised a ‘’free’’ gift of a coin(bearing of likeness of a footballer), to anyone buying four gallons. The defendant bought petrol from the petrol station and when the petrol station was required to pay taxes by the custom department, the argument was whether this transaction constituted a sale of goods or gift. The lordships were confused. It was held by the House of Lords that although the transaction was not a gift, in as much as the garage was contractually bound to supply the coin to anyone buying four gallons of petrol, it was not a sale of goods either.
- Sale Distinguished from Agency:
- Sale of goods involves two parties while an agency agreement involves three parties i.e the principal, the agent and the third party
- In a sale, there’s no privity of contract between the buyer and the seller’s own supplier while in agency, there may be privity of contract between the buyer and agent’s supplier.
- If a seller delivers less than he is bound to, the buyer can rescind the whole contract while a commission agent delivers less than he is bound to, the principal is bound to accept whatever is delivered
- Sale distinguished from Exchange:
- In a sale, the consideration is money while in exchange, the consideration is anything but money since goods are transferred in return for goods.
- Where goods are exchanged for part goods and part money, it becomes a contract of sale. For example, in Adridge V Johnson, the court held that the exchange of 52 bullocks for 100 quarters of barley and payment of 112 pounds a sale.
- Sale Distinguished From Bailment: a bailment is a transaction where the goods are delivered by the bailor to the bailee on certain specified terms that the bailee should be in possession of the goods and deal with them in accordance with the bailor’s instructions and subsequently redeliver them to the bailor.
- In sale, property in the goods passes from seller to the buyer while in bailment, there is no transfer of property in the good from the bailor to the bailee. For instance, in Chapman Bros V Verco Bros and Co, the parties to a wheat storage contract agreed that the party supplying the wheat would not receive back the wheat supplied but would have the option of receiving either payment of the value of the wheat delivered or some quantity of unascertained wheat. The storage company went into liquidation before any request had been made for a purchase or the return of the wheat. The High Court held that the property in the wheat passed to the storage company on delivery. Hence, the wheat was not held under bailment but an agreement of sale.
CONDITIONS, WARRANTIES AND REPRESENTATION
Before we delve into what constitutes a condition, warranty and representation, it is important to distinguish between a term of a contract and a mere representation. The difference between the two lies in the type of remedy available to an aggrieved party. When a term of a contract is breached, the aggrieved party can sue for breach of contract and obtain remedy in damages. He has the right to treat the contract as repudiated depending on the importance of the term breached. While if the term breached is a mere representation, the remedy the aggrieved party is entitled to is less valuable or there is no remedy at all. He can only claim damages for misrepresentation if the term breached is a representation.
HOW TO IDENTIFY A MERE REPRESAENTATION
- Statements made at the preliminary stage are usually regarded as mere representation. It is assumed that the longer the time from when the statement is made to the time the contract was concluded, the more likely it would be regarded as a mere representation.
- When an oral agreement becomes reduced in writing, what was contained in the oral agreement but was not found in the written agreement will constitute a mere representation.
- But if the party who made the statement has superior knowledge or skill as compared to the other party who relied on the statement, it will be regarded as a term of the contract.
- Conditions: it is a fundamental term of a contract, the breach of which entitles the aggrieved party to terminate, rescind and treat the contract as repudiated. Condition is not defined in The Sales of Goods Act but Section 12(1) Of the Act explains its legal implication. For instance, if B, a seller of corn breaches a fundamental term in the contract, C who is the buyer has a right to reject the goods and if he has already paid, he has a right to recover his payment.
- Warranty: it was defined in Section 62 Of The Sales Of Goods Act 1893 as:
‘’an agreement with reference to goods which … (is) collateral to the main purpose of a contract, the breach of which gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated.’’
Section 11(1)(b) confirms that they are those terms whose breach will only give rise to payment of damages and not repudiation of the contract.
For instance, mere representation and warranty was distinguished in Hopkins V Tanqueray, where a day before the sale, the plaintiff was looking at the horse in the stable and the defendant told him that the horse was perfectly stable and there was no need to examine it. The plaintiff relied on the on the defendant’s statement but the court held that there was no warranty and that it was a representation because there was a delay between the making of the statement and the creation of the contract.
One must pay attention to the construction of a contract in other to determine whether the statement made is a condition or warranty.
- Conditions are major terms of a contract while a warranty is a minor term
- Sometimes a breach of a condition may be regarded as a breach of a warranty when the buyer decides to waive the condition. The buyer may decide to treat the breach of condition as a breach of warranty – Section 11(1)(a) Of The Sales Of Goods Act.
- Breach of condition may be regarded as breach of warranty where the goods have passed to the buyer in whole or in part – Section 11(1)(c).
- Innominate Terms: this was established in the case of Hong Kong Fir shipping V. Kawasaki Kishen Kaisha, where it was decided that instead of classifying the terms of a contract as either a condition or warranty, one must look into the effect of the breach. Thus, if the innocent party was substantially deprived of the whole benefit, he will be able to treat the contract as repudiated. In this case, however, the court held that two weeks out of the two year period did not substantially deprive the defendants of the whole benefit in the contract and so they couldn’t treat the contract as repudiated.
- IMPLIED UNDERTAKING AS TO TITLE:
This is encapsulated in the latin maxim ‘’Nemo dat quod non habet’’ which translates to mean that ‘’no person can give a better title than he himself has’’. Section 12 of the Sales of Goods Act 1893 provides that before ownership can be transferred, the following requirements must be met:
- Implied condition that the seller has the right to sell the goods
- Implied warranty that the buyer shall have and enjoy quiet possession of the goods
- Implied warranty that the goods are free from any charge or encumberance.
- Right to sell:
It is the most important because without it the remaining conditions cease to exist. Section 12(1) provides that there is an implied condition on the part of the seller that in the case of a sale, he has the right to sell and in the case of an agreement to sell that he will have the right to sell at the time the property is to pass. A person to whom property has not passed would not have a right to sell.
Thus in Nibett V Confectioner Material and Co, where the plaintiff bought tins of milk from the defendant which beared labels that infringed the trademark of another manufacturer. The manufacturer persuaded the custom and excise to impound the tins. The plaintiff had to destroy the labels before he could get the tins back. It was held that the defendant was in breach of Section 12(1) because they didn’t have the right to sell in the condition in which they were even though they owned them. This was clearly the reason the plaintiff was left with a supply of unlabelled tins which would be difficult to dispose of.
Since this right is a condition, the buyer is entitled to recover any damages for the loss he suffered due to the owner’s breach. The leading English Authority on this is Rowland V Divall(1923) 2 KB 500, the court of appeal held that a more extensive remedy. The defendant honestly bought a stolen car from a thief and sold it to the plaintiff who was a car dealer for 334 pounds. The plaintiff sold the car for 400 pounds. Four months later, the car was repossessed and returned to its true owner. The defendant argued that by virtue of S11(1)(C) of the Sale of Goods Act, the plaintiff accepted and used the car was compelled to treat the breach of S12(1) as a warranty and therefore only entitled to damages. The court of appeal held that the plaintiff was not restricted to an action in damages but could sue to recover the whole price. This was based on the total failure of consideration i.e the buyer had received none of the benefit for which he entered the contract, since the main object of the transaction was that he should become the owner.
The leading Nigerian Authority on this is Akoshile V Ogidan, where the defendant sold to the plaintiff a car which he bought from an European. Subsequently, the European from whom the defendant bought the car was convicted of stealing the car. The court held that Section 12 was applicable and enabled the plaintiff to rescind and claim a refund of the money he had paid as the defendant had no right to sell the stolen car.
- Quiet Possession:
Section 12(2) provides an implied warranty that the buyer shall have and enjoy quiet possession of goods.
in Nibett V Confectioner Material and Co, where the plaintiff bought tins of milk from the defendant which beared labels that infringed the trademark of another manufacturer. The manufacturer persuaded the custom and excise to impound the tins. The plaintiff had to destroy the labels before he could get the tins back. It was held that the defendant was in breach of Section 12(1) because they didn’t have the right to sell in the condition in which they were even though they owned them. This was clearly the reason the plaintiff was left with a supply of unlabelled tins which would be difficult to dispose of.
It was confirmed in the above case, that the term ‘’right to sell’’ does not only mean the right to pass the property in the goods but also the right to confer on the buyer undisputed possession of the goods
- Freedom from Encumbrance:
Section 12(3) provides that there is an implied warranty that the goods should be free from any charge or encumbrance in favour of a third party not declared or known to the buyer before or at the time of making the contract. In Lloyds V Scottish Ltd, the defendant bought a caravan from a debtor against whom the sheriff had issued a writ of fifa. After the defendant learnt of this, he sold it to the plaintiff who let it out on hire purchase. The sheriff subsequently seized the caravan from the hirer. It was held that although the defendant obtained a good title from the debtor which they were able to transfer to the plaintiff, it was not free from the sheriff’s right and therefore transferred it in breach of the warranty that it was free from any charge or encumbrance under the provision of Section 12.
It is only false charges that the seller knows of that would implicate him. Thus, where he is ignorant of the charge, he will be excused – Udekwu V Abosi.
- OBLIGATION OF THE SELLER AS TO THE QUALITY OF THE GOODS:
There are four main implied undertakings in the Sale of Goods Act on the part of the seller as to the quality of the goods to be sold to the buyer and they include:
- Implied undertaking as to description
- Requirement for fitness of purpose
- Requirement of merchantable quality of the goods
- Undertaking in a sale by sample.
- Condition in Sale by Description:
Section 13 provides that where goods are sold by description, there is an implied condition that the goods shall correspond with the description and if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample, if the goods do not correspond with description.
A sale by description is a sale transaction where the parties have made some statements describing the goods and those statements are part of the contractual terms.
However, there are some statements that constitute mere representations which only give rise to liability for misrepresentation. For instance, in Harrison V Knowles and Foster, it was held that the sale was not by description because the description was not influential to become a condition in the contract, since there was no reliance on it by the buyer. The statement was referred to as a mere representation.
However, in Beale V Taylor, although the purchase of the second hand car was fully examined by the buyer, it was held to be a sale by description because the buyer relied on the newspaper’s advertisement issued by the seller.
It is often assumed that a sale by description should be contrasted with sale of goods but this was not maintained in Varley V Whipp, the buyer’s remedy for breach of this condition is either to claim damages or reject the goods and the right of rejection is exercisable even when the goods are merchantable. This is mostly applicable where the buyer has not seen the goods and relied only on the description.
This section also applies where the buyer has seen the goods but still relies on the seller’s assessment of goods. For instance, in Grant V Australia Knitting Mills Ltd, Lord Wright stated that there is a sale by description even though the buyer is buying something that is displayed right before him on the counter. A thing is sold by description though it is specific so long as it is sold not merely as a specific thing but a thing corresponding to a description.
It is the obligation of the seller to comply with the description as held in the case of Arcos Ltd V Ronassen and Sons Ltd
Section 13 applies to packing of goods which was held to be a sale by description in Re-Moore and Co Ltd V. Landauer and Co.
- Condition as to fitness of purpose:
Section 14 provides that there is no implied warranty or condition as to the quality of fitness of purpose of goods supplied under a contract of sale. This section seeks to protect the buyer who informed the seller that the goods being acquired was required for a particular purpose and the goods supplied were found to be unsuitable for that purpose. The following are elements that the plaintiff must prove to enjoy fitness of purpose:
- The buyer must have made known to the seller the particular purpose for which the goods are required
- The buyer must have relied on the seller’s skill and judgment
- it must be shown that the seller deals in goods of that description.
- It must be shown that the goods were not sold under a patent or its trade name.
- The buyer must have made known to the seller the particular purpose for which the goods are required:
Thus in Khalil and Dibbo V. Mastronkolis, it was held that the goods shall be reasonably fit for the particular purpose for which they are required. The buyer of goods cannot recover for breach of an implied condition where he did not make known to the seller either expressly or impliedly, the particular purpose for which the goods are required.
Priest V Last, where there is only one purpose for which the goods can be used, it must be fit for that purpose as it would have been deemed to have been impliedly known to the seller. Thus, a hot water bottle burst while in use was held to be unfit for the purpose for which it was bought.
Difficulties may arise where the goods can be used for more than one purpose, the buyer is obligated to inform the seller the particular purpose for which the goods are required. Failure to do this, the goods will be assumed to be suitable for all the foreseeable applications within the range as held in the case of Ashton Piggeries Ltd V. Christopher Hill Ltd and DIC Industries Ltd V. Jimfat Nigeria Ltd.
- Reliance on the seller’s skill and judgement: this reliance must be evident either from the terms of the contract or from the surrounding circumstances. For instance, in Grant V. Australian Knitting Mills, where a buyer went into an M.S shop to ask for some Men’s woollen underwear and chose one from the ones shown to him. When it caused him rashes, he sued. It was held that the buyer had relied on the seller’s skill and judgement to select his stock and that that since the article was not fit for his purpose, the seller was in breach.
- It must be shown that the seller deals in goods of that description: the goods are of a description which is in the course of the seller’s business to supply. Thus, if a seller is general merchant of the national brand of pressing iron and he sold a Philip’s pressing iron to the buyer. It must be proved that he deals with pressing iron and it is not necessary to show that he deals in pressing iron of that particular type.
- It must be shown that the goods were not sold under a patent or its trade name: there is no implied condition for the fitness of purpose when goods are sold under a patent or trade name. For instance, Cowbell milk. In such circumstances, the rule of caveat emptor will apply as seen in the case of Bristol Tramway Ltd V. Fiat Motors Ltd.
- Condition as to Merchantable Quality: this is provided for by Section 14(2) provides that where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that such goods should be of merchantable quality. However, if the buyer has examined the goods this provision would not apply.
If the buyer fails to examine or inspect the goods when he had the opportunity to do so, he would be deemed to have examined it. See the case of British and Overseas credit Ltd V. Animashaeun (1961) All NRL 343.
Goods are held to be un-merchantable where they are not fit for any purpose for which the goods will normally be used. In Ollet V Jordan (1918) 2KB 41 at 47-48, it was held that a hot water bottle is not expected to burst after 5 days of use nor should a new car cease functioning after a few weeks of its purchase.
See the case of Plastic Manufacturing Co. Ltd V. Toki Nig. Ltd (1976) 12 CCHCJ 2301.
- Condition as to sale by Sample: this is provided for by section 15. A contract of sale is a sale by sample where there is a term of the contract, express or implied, to that effect:
Section 15(2a) provides that there is an implied condition that the bulk should correspond with sample.
Section 15(2b) provides that there is an implied condition that the buyer would have the reasonable opportunity of comparing bulk and the sample.
Section 15(2c) provides that there is an implied condition that the goods shall be free from defects rendering it non merchantable if the defects are such that cannot be discovered on examination of the sample. In the case of Godfrey V Perry, the retailer who bought a defective catapult from the wholesaler could not reasonable have been discovered by him.
However, where the buyer has accepted the goods as being in compliance with the sample, he cannot thereafter reject them, but he may sue for breach of warranty and claim damages. See the case of West African Import and Export V. Nassar (1939) 15 LLR.
EFFECT OF A CONTRACT OF SALE
- Transfer of Property
- Transfer of Risk
- Transfer of Title
- TRANSFER OF PROPERTY:
A sale of goods transaction causes a sale of goods transfer of property in goods from seller to the buyer. Property here means property in goods. The application of this rule is different in specific goods and unascertained goods.
- Specific Goods are those goods that are identified at the time of the contract of sale. Section 17(1) provides that property in the goods will be transferred to the buyer at the time which is agreed upon by the parties. Section 18 provides the various rules for ascertaining the intentions of the parties.
One of the rules state that where goods are not in a deliverable state and the seller has to do something to the goods to make them deliverable, property in the goods passes when such things are done and the buyer is notified of such. In Underwood Ltd V Burgh Castle, the plaintiffs intended to sell a condensing machine to the defendants. The machine weighed 30tons and was bolted to the ground. Thus, the machine had to be dismantled and transferred to the defendant. After dismantling the machine; as it was about being loaded on the railway, it got spoilt. The court held that property in the goods had not yet passed to the defendant since the goods were not yet in a complete deliverable state when the machine got spoilt.
Where the buyer does not signify acceptance, the property passes when the date specified for rejection is elapsed. If no date is given, the goods will pass after a reasonable time. The determination of a reasonable time is a question of fact.
- Unascertained Goods: are nowhere defined in the act but are assumed to be in contrast with specific goods. However, Section 18 rule 5(1) provided that where unascertained goods or future goods by description are in a deliverable state, the property passes to the buyer when they have been unconditionally appropriated for such contract whether by seller with the consent of the buyer or the buyer with the assent of the seller. The assent could be given before or after the appropriation of the goods.
- TRANSFER OF RISK: this is provided for by Section 20 of the Sale Of Goods Act, which states that the risk in the goods passes from seller to buyer when property in the goods have passed, whether or not payment has been made. It is further provided that if delay of delivery is as a result of the action of the buyer or seller, such person would be liable for any damages that arose because of the delay. However, this provision does not affect the duties which accrue if the seller or buyer is the bailee or custodian of the other Party.
This rule is encapsulated in the maxim ‘’res periit domino suo’’ which literally means ‘’the destruction of a thing is a loss to its owner.’’
In the case of Warders Import and Export Ltd V. W. Norwood & Sons (1968) 2 WLR 1440, it was held that the risk was to be borne by the buyer, since the property of the goods have passed to the buyer at the time when the goods were damaged.
- TRANSFER OF TITLE:
The general rule guiding transfer of title is encapsulated in the Latin maxim ‘’Nemo dat quod non habet’’ meaning that ‘’no one can give a better title than he himself has.’’
It is generally assumed under common law that that the seller must have ownership rights which he confers on the buyer. However, due to various developments in the law of commerce, the law recognizes instances where the non-owner of goods can transfer title in goods to a buyer.
Section 21(1) of the Sales of Goods Act states that where goods are sold by a person who is not the owner, and who does not sell it with the authority, or with the consent of the owner; the buyer acquires a better title to the goods than the seller had.
However, the problem lies in discerning two conflicting interests of the owner of the goods who is seeking to recover them for their value and that of the innocent purchaser who has paid good money for the goods which he believed the seller was entitled to sell to him. Lord Denning observed in Bishop Gate Motor Finance Corp. Ltd V. Transport Brakes Ltd that:
‘’in the development of law, two principles have striven for mastery. The first is the protection of property: no one can give a better than he himself possesses. The second is for the protection of commercial transaction: the person who takes in good faith and for value without notice should get a good title.’’
Difficulty arises when the seller is not the owner of the goods. For instance, in Mordaunt V. British Oil and Cake Mills Ltd, the defendants contacted to sell oil to X who resold to the plaintiffs. Possession remained with the defendant who had not been paid. The plaintiff paid most of the price to X. Delivery orders were sent by X to the defendant directing them to deliver to the plaintiff and the defendant accepted them without comment. The defendant delivered the goods when they were paid by X but when X defaulted in payments, they refused to deliver anymore,
It was held that the defendant had not assented to the resale for the purpose of Section 47 and it is not enough to show that the sub-contract has been brought to his notice and that he has assented to it merely in the sense of acknowledging receipt of the information.
However a different decision was held in the case of D.F Mount Ltd V. Jay & Jay Co. Ltd, the defendants sold cartons of canned peaches. B made it plain that he would pay the price from moneys he would receive from his own customers when the goods were the goods were resold. The defendants agreed to sell the cartons to M and gave him a delivery order. The defendant sold the cartons to the plaintiff and never paid the defendants. The defendants claimed to still be entitled to the cartons but the court held that the defendant had assented to the sale within the meaning of Section 47 because the defendant assented to B reselling the goods in the sense that they intended to renounce their rights against the goods and to take the risk of M’s honesty.
The law has created some exceptions which are codified in Section 21 – 25 of the Sales of Goods Act, to the common law rule to ensure certainty in law in such situations and thereby ensure greater protection for purchasers. These exceptions include sale by agent, estoppel, sale by factors, sale under special powers, sale in market overt, sale under voidable title and slae by seller or buyer in possession.
- Sale by Agent: this exception is laid down by Section 21(1), where an agent sells goods on behalf of his principal, the principal is bound by the contract. This creates a direct contractual relationship between the buyer and the seller so that title in the goods passes directly to the buyer.
Section 61(2) of the Act provides that, the buyer must have been acting in good faith without notice of lack of authority of the agent. The consent of the owner is crucial and binding on the owner even if consent was given as a result of fraud perpetuated by the agent, as long as consent has been given.
No consent was given in the following cases:
In stadium Finance V. Robbins (1962) 2 QB 664, the agent was asked to obtain offers for a car with the owner retaining the key but accidentally leaving the registration book in the glove compartment. The agent acquired a second key, found the registration book and sold the car.
In Imam V. Ahmadu Bello University, it was held that where the person sold without authority or consent of the true owner, the latter can recover goods from the purchaser in an action for conversion and detinue.
However, the owner is liable to compensate the purchaser for any improvements he had effected on the goods while they were in his possession – Greenwood V. Bennet.
- Sale Under Estoppel: Section 21(2) of the Act provides an exception to the general rule that a person who is not the owner of the goods cannot sell unless the owner of the goods by his conduct is precluded from denying the seller’s authority to sell.
However, sale under estoppel differs from those under the agent’s apparent or ostensible authority. In estoppel, the representation is that the seller is the owner of the goods while in apparent authority, the seller is the agent of the owner with authority to sell the goods.
Where the owner represents the seller as the apparent owner, the owner will be estopped from denying the apparent ownership of the seller so that the buyer can obtain a good title by estoppel.
Estoppel can arise in three main ways:
- Representation by words
- Representation by conduct
- Representation by words that the seller is the apparent owner is illustrated in Henderson and Co V. Williams, where the owner of the goods lying at a warehouse was induced by the fraud of F to instruct the warehouseman to transfer the goods to the order of F the latter subsequently sold the goods to an innocent purchaser who before paying for them obtained a statement a statement from the warehouse man that he held the goods at the purchaser’s order on the discovery of F’s fraud, the warehouse refused to deliver the goods to the purchaser. It was held that the warehouse man having attorned to the purchaser was estopped from impeaching his title and that refusal to deliver was conversion.
- Estoppel by conduct is illustrated in the case of Eastern Distribution Ltd V. Golding, in pursuance of a plan to deceive a finance company, M, the owner of the car desirous of raising money on it signed and delivered hire purchase forms to C which enabled C to represent that he (the dealer) was the owner of the car and had the right to sell it so that M could take it on hire purchase.
The court held that since C was armed by M with document which enabled C to represent that he was the owner of the car with the right to sell it and M was precluded from denying C’s authority to sell it and the plaintiff who had purchased it from C, had acquired a good title thereto.
The mere handing over of a chattel to another does not create an estoppel abd there will be no estoppel unless the doctrine of ostensible ownership applies.
Mere carelessness in relation to one’s goods will not amount to conduct estopping the owner as held in Farguharson Bros and Co. V. Kings & Co.
- Estoppel by Negligence: This may be successfully pleaded when the true owner of the goods acted so negligently as to induce the buyer into believing that the seller is the owner of the goods. Thus in Mercantile Credit Co. ltd V. Hamblin, the owner of a car signed forms in blank without reading them in the belief that they would enable a car dealer who appeared to be respectable, to raise money on the security of the car.
In fact, the car dealer fraudulently used the forms to sell the car to a finance company. The Court of Appeal held that the owner did not owe a duty of care to the finance company and held further that the owner (respondent) had not been careless because it was reasonable for her to trust the dealer whom she knew socially and whom appeared respectable.
In order to establish estoppel by negligence, the plaintiffs have to show that the defendant owed them a duty of care, in breach of that duty she was negligent and her negligence was the proximate cause for the defendant loss.
- Sale by Market Overt: This is indeed the oldest exception to the general rule dating at least from the early medieval times. It mainly applies to stolen goods. Thus, where stolen goods are sold in a market overt, the buyer acquires good title under the Section 22(1) provided he buys in good faith and without notice of the seller’s lack of title or any defect.
The Sale of Goods Act does not define ‘’Market Overt’’ but was defined in Lee V. Bayes under common law as: a legally constituted market; open between the hours of sunrise and sunset and where goods are openly or publicly displayed so that standby and passers-by can see them.
It simply put as open, public and legally constituted market.
It has been recently confirmed by Oguntade JCA that virtually all village township markets situated in various parts of Nigeria are necessarily overt markets for the purpose of this purpose of this section.
For a sale to constitute a market overt, some conditions must be fulfilled as stated in Halsbury Laws of England:
- The sale must be made in the usual market place and not at night: in Bishop Gate Motor Finance Corporation ltd V Transport Brakes Ltd, a hirer having obtained possession of a car under hire purchase transaction took some to Maidstone market and handed it bovver to auctioneer to sell who after several attempts to sell it sold it to A by private treaty. It was held that Maidstone Market was a market overt and that it was the practice of the market and constituted usage of the market for the Auctioneer . A obtained the title.
- The goods must be exposed for sale and must begin and conclude in the market.
- The sale must be a real sale by a person of contractual capability
- The goods must be goods of a kind which is voidable in the market.
- Sale under Voidable Title: this exception can be found in Section 23 of the Sale of Goods Act. It occurs where a seller has a voidable title to the goods in his possession but sells them to the buyer before his title becomes void. The buyer then has a good title to the goods if he bought them in good faith.
For instance, in Lee V Averay, a rogue misrepresented himself as a popular actor to the plaintiff in order to purchase the car from him. The car was purchased with a cheque which later bounced. Before the fraud was discovered, the rogue sold the car to the defendant who bought it in good faith. After the fraud was discovered the plaintiff sued the defendant for the car. The court held that since the buyer bought the goods in good faith, he has a valid title.
- Sale by Seller in Possession: this exception is provided for in Section 25(1) of the Act. It occurs in a situation where a seller remains in possession of the goods or document of title, the second buyer will be protected if he buys in good faith without notice of the previous sale. For instance, where A, the seller, sells goods to B but the seller is still in possession of the goods or document of title in the goods and the seller sells them to C, who purchased in good faith without notice of the second sale, this second transaction passes the title to C. B will only have an action for breach of contract against the seller.
Section 8 of the Factors Act also provides that a seller who has transferred property in the goods sold but retains possession of the goods or document in title to them can pass a good title to a third party.
Thus, an immediate seller in possession of goods can only pass a good title to a bona fide purchaser under S25 if the immediate seller had bought or agreed to buy the goods from the owner.
- Sale by Buyer in Possession: this exception is contained in Section 25(2) of the Sale of Goods Act. It deals with a situation where possession of goods has passed to the buyer, before ownership has passed to him and allows the buyer to transfer ownership to sub-buyer. It would be invoked where the buyer has agreed to buy the property in the goods to be transferred to him at a future date or where he has bought under a voidable title that the seller has avoided.
It does not apply in situations where someone obtained goods without having agreed to buy them – Shaw V Comr Of Police (1987). Also a person who has obtained goods on sale or return terms or under Hire Purchase Agreement is not a person in possession of goods and does not come under this subsection.
DUTY OF BUYER AND SELLER IN A CONTRACT OF SALE
SECTION 27 provides that it is the duty of the seller to deliver the goods and it is the duty of the buyer to accept and pay for them in accordance with the terms of the contract. While Section 28 provides that the seller must be willing to deliver the goods in exchange of the price and the buyer must be willing to pay for the goods in exchange for possession of the goods.
- DELIVERY OF GOODS: Section 62(1) of the Sale of Goods Act defines delivery as the voluntary transfer of possession from one person to another. There are two major methods of delivery known as actual and constructive delivery and they will be discussed below:
- Actual Delivery: this occurs where there is an unconditional sale of specific goods and physical transfer of possession of goods to the buyer or his representative. There is generally no obligation on the seller to transfer the physical possession of the goods to the buyer.
- Constructive Delivery: it may take various forms.
- Handling over the means of control or custody over the goods to the buyer or his agent i.e by handing over the keys to the warehouse where the goods are stored – Dublin City Distillery Ltd V. Doherty.
- By attornment or acknowledgement: this occurs where the goods are in possession of a third party and delivery takes place when the third party acknowledges to the buyer that he holds on to the goods on his behalf e.g where the seller left his car at the mechanic shop and calls on the mechanic to hand over the car to the buyer and the Mechanic agrees. This is provided by Section 29(3).
- Place of Delivery: Section 29(1) provides that whether it is for the buyer to take possession of the goods or it is for the seller to send them to the buyer depends on each case on the terms of the contract express or implied by the parties. The place of delivery is the buyer’s place of business if he has one or his residence. If the contract is for the sale of specific goods that to the knowledge of the parties is at another place, that place would be the place of delivery.
- Time of Delivery: Section 29(2) provides that where no time of delivery is specified, the delivery should be done within a reasonable time.
- The delivery may be treated as ineffectual unless it is made at a reasonable hour. What constitutes a reasonable hour is a question of fact – Section 29(4).
- The seller must deliver the goods in a deliverable state, upon failure to this, he would bear the brunt of the damage – Section 29(5).
- Delivery of Wrong Quantity or Mixed Goods – this is covered under Section 30 of the Sale of Goods Act.
- Section 30(1) provides that where the seller delivers to the buyer goods that are less than the amount agreed upon, the buyer may reject them. If the buyer accepts them, he must pay for them at a contract price.
- Section 30(2) provides that where the seller delivers to the buyer a quantity in excess of what was contracted for. The buyer has an option either to accept the goods in accordance with the contract and reject the excess or to reject the whole. If he accepts the whole goods, he must pay for them at the contract price. In Shirpton Anderson and Co V. Weil Brothers, the court held that the excess delivered was so trifling and the buyer was not entitled to reject the goods.
Moreover, the seller cannot impose a burden on the buyer which he is not entitled to impose. The burden is payment of money not agreed to be paid.
Polak and Faon V. George Cohen Ltd, the plaintiff after enquiry accepted the figure of 3500 tonnes 10percent over 3500 ton and the defendant supplied less than that. The court held that where a contract of sale states the quantity followed by a given percentage ‘’more’’ or ‘’less’’ and the buyer makes no choice, the supplier is not bound to deliver the exact quantity but within the given percentage of it whether more or less.
- Section 30(3) provides that where the seller delivers to the buyer, the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest or may reject the whole. This would apply in three broad cases.
- Levy V Green, the defendant ordered some earthenware and crockery from the plaintiff to be sent to him. A crate of the goods was sent to the plaintiff including a large number of other articles of earthenware and crockery. The court held that the buyer was entitled to reject the goods because they imposed on him risk in severing the goods ordered from the rest.
- It would apply in cases where the whole contractual quality had been packed but were packed in accordance in accordance with the terms of the contract. See Moore and Co V. Landauer and Co.
- It also covers cases where the contractual quantity only was tendered but it contained an admixture of the goods sold and other descriptions. See Ebrahim Damond Ltd and Ors V. Heath Ltd and Anor.
- It can be seen that the rules stated in Section 30(1) – (4) of the Sale of Goods Act impose a strict duty on the seller to deliver the correct quantity of goods but it is open to the parties to modify this is expressly recognised in Section 30(4).
- Delivery by Instalment: by virtue of Section 31(1), unless both parties have agreed to accept delivery by instalment, the buyer is not bound to accept goods by instalments. In the case of instalmental contracts, it is open for parties explicitly to provide that defective performance byu one party in relation to any one instalment entitles the other party either to terminate or at least withhold performance until that defect is rendered. Even if it is not expressly provided for, one instalment may have this effect because of Section 31(2) of the Act. See Maplefrock Co Ltd V. Universal Furniture Product Ltd.
- Delivery by Carrier: this is contained in Section 32. Delivery of goods to the carrier is prima facie delivery to the buyer. See the case of Nads Imperial Pharmacy V. Siemgluse (1989) NLR and Thomas Young and Sons Ltd V. Hobson and Partners (1947) 6 ELR 365.
- ACCEPTANCE OF GOODS: according to S35 of the Sale Of Goods Act stipulates the conditions under which a buyer will be deemed to have accepted the goods.
- The buyer must have conveyed his acceptance to the buyer: thus, in Ajayi V Eburu, the buyer having taken delivery of the goods; sold them to sub buyers. Obaseki J as he then was held that it is on record that the defendants after months of delivery; gave exhibit B a note acknowledging the balance unpaid as debt. It is sufficient intimation. See the case of I.C Industries Ltd V. JItfat Nigeria Ltd.
- The buyer having taken delivery of the goods must have done an act that is inconsistent with the ownership of the seller. See the case of Hardy and Co V. Hillerns and Fowler.
- The buyer having taken delivery of the goods retained them after lapse of reasonable time without telling the seller that he has rejected them.
In Bendel Streety Structures Ltd V. Ogbena and Sons Ltd, the defendant kept the goods for over 8 months without Intimating to the seller that he has rejected them. It was held to be an unreasonable lapse of time in the circumstance of the case.
See the cases of D.I.C Industries Ltd V. JItfat Nigeria Ltd and Leaf V. International Galleries.
REMEDIES FOR BREACH OF CONTRACT
REMEDIES OF THE SELLER
The seller has both real and actual remedies which are in form of rights.
- Real Remedies: are those remedies that are gotten through self-help. They include:
- Right of an unpaid seller in possession
- Right of stoppage in transit
- Unpaid seller right of resale.
- Right of An Unpaid Seller in Possession: it is also known as the right of lien. Section 41 provides that the unpaid seller of the goods who has possession of the goods has the right to maintain possession until payment. Section 42 provides that where a seller makes part delivery of the goods, he may exercise his right of lien unless he has waived his right. However, Section 43 provides that the unpaid seller losses his right of lien when he has delivered the goods to the buyer or when the buyer has lawful possession of the goods or when he has waived his right of lien.
- Right of Stoppage in Transit: Section 44 provides that on the discovery that the buyer is insolvent; the unpaid seller who has parted with possession of the goods has a right to stop them in transit. That is, the seller may resume possession of the goods as long as they in course of transit and may retain them until payment. Section 45 – 46(1) deals with the intricacies and technicalities of stoppage of goods in transit. However, Section 46(2) provides that when notice of stoppage in transit is delivered to the carrier, bailee, custodian or any other person in possession, such person must redeliver the goods to the seller according to the seller’s instruction and the seller is to bear the cost of the redelivery.
- Unpaid Seller Right of Resale: Section 48(1) guarantees that the right of lien or stoppage in transit will usually result in resale of the goods by the seller, if the buyer continues to default in payment of the price. Section 48(2) provides that where the unpaid seller has exercised his right of re-sale, the new buyer has a right to the goods over the former buyer. Meanwhile, Section 48(3, 4) provides that the right is exercisable where:
- The goods are of a perishable nature
- The seller gives notice to the buyer of his intention to resell and the buyer does not within a reasonable tender the price.
- The seller expressly reserves the right of resale in case the buyer should make a default in payment. In the event of resale, the second buyer acquires a good title over the goods.
- Actual Remedies: are those remedies that are granted by court. They include:
- Action for price
- Damages for Non- acceptance.
- Action for Price: Section 49(1) provides that where under a contract of sale, the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action for the price. Section 49(2) provides that if the goods is to be paid on a particular day irrespective of whether the goods are to be delivered or not, if the date elapses and the buyer hasn’t paid, the seller can bring an action for the price whether or not property in the goods has passed to the buyer.
- Damages for Non- Acceptance: Section 50(1) provides that where the buyer refuses to accept and pay for the goods, the seller can maintain an action for price against the buyer. Section 50(2) provides that the damage is estimated in form of the natural loss suffered by the buyer’s breach of the contract. Section 50(3) provides that where there is an available market for the goods, the damages to be paid would be the difference between the market price and the contract price at the time the buyer was supposed to accept the goods. If not time for acceptance was fixed, the relevant time would be the time that the buyer rejected the goods.
REMEDIES OF THE BUYER
The buyer has the following remedies:
- Recovery of price
- Rejection of the goods
- Damages for Non- Delivery
- Specific Performance
- Damages for breach of Warranty
- Recovery of Price: if the seller fails to deliver the goods or comply by the terms of the contract, the buyer may sue the seller to recover the price of the goods.
- Rejection of the Goods: if there is a breach of condition, the buyer may repudiate the contract and reject the goods.
- Damages for Non- Delivery: S.51(1) provides that if the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue for damages for non- delivery. 51(2) provides that the measurement of damages is the estimated loss resulting naturally from the seller’s breach of contract. S.51(3)provides that where there is an available market for the goods, the damages to be paid would prima facie be the difference between the market price and the contract price at the time , the buyer was supposed to accept the goods. If no time for acceptance was fixed, the relevant time would be the time that the buyer rejected the goods.
- Specific Performance: Section 52 provides that in an action for breach of contract concerning specific or ascertained goods, the court may, on the application of the [plaintiff, order that the defendant specifically perform the contract without having the option of retaining the goods or payment of damages.
- Damages for Breach of Warranty: Section 53(1) provides that where there is a breach of warranty by the seller or where the buyer elects or is compelled to treat any breach of a condition by the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods.
THE EVOLUTION OF HIRE PURCHASE
The law of hire purchase is of recent origin in English law. It is one of the greatest contributions to the commercial development of the world.
Sir Henry Moore, the bishop’s gate piano maker, claimed to have invented the hire purchase agreements in England in 1846. This trading system became popular with the advent of sewing machines made by the singer manufacturing company which let out machines to its customers under a hiring system containing an option to purchase. The system became so popular that it extended to furniture and other commodities.
Before the emergence of the Hire Purchase Act, there was the Factors Act 1889 and the Sales Of Goods Act 1893 which contained overlapping provisions to the effect that an hirer who agreed to buy or has possession of goods with the consent of the owner can pass a valid title to a third party who is unaware of the owner’s right.
The same was held In the case of Lee V Butler, where A, who was in possession of a piece of furniture under a purported hire purchase agreement with the plaintiff, Sold and delivered the furniture to the defendant before the last instalment had been paid. The defendant received the goods in good faith without knowledge of the owner’s right. The court ruled in favour of the defendant on the ground that the sale and delivery of goods to the defendant were in accordance with the provisions of Section 9 of the Factors Act 1889. This was unfair and caused hardships to owners and sellers of goods. After this case, there were calls to protect the rights of owners and sellers and this led to the development and recognition of hire purchase.
The hire purchase system was given judicial approval in Hebly V Matthews (1895) AC 471, where the court allowed the owner to recover his possession on the ground that it was not a person who had bought or agreed to buy the piano within the meaning of Section 9 of the Factors Act. The decision in this case appeared to undermine the provisions of the Factors Act and attempts were made to reverse the decision but the attempts failed because of the hardships and loss which owners suffered and demands for legislations that would regulate hire purchase transactions.
After several attempts to regulate hire purchase transactions, a bill was passed in 1938 to regulate hire purchase transactions and that bill was called the Hire Purchase Act Of 1938.
In Nigeria, the common law rule was in operation but because of the disadvantages suffered by hirers in favour of owners, The Hire Purchase Act Of 1965 was passed into law. The Hire Purchase Act is the first act passed in Nigeria to regulate hire purchase transaction but only started operating in 1968.
DEFINITION OF HIRE PURCHASE
Despite the fact that there have been several definitions of hire purchase proffered by various author and scholars, there is no universally accepted definition of hire purchase.
Hire purchase contract was defined in Halsbury’s Laws of England Vol. 1ST Edition as
‘’a contract of hire with option of purchase under which the owner of the chattel undertakes to sell it to, or that it shall become the property of the hirer conditionally on his making a certain number of payments. Until the making of the last payment, however, no property in the chattel passes.’’
According to the provision of Section 20(1) Of the Hire Purchase Act, a contract of hire purchase is
‘’the bailment of goods in pursuance of an agreement under which the Bailee may buy the goods, or under which the property in the goods, will or may pass to the Bailee.’’
It is important to note that a Bailee is someone who receives personal property from another and has possession of it but is not the owner because he lacks title.
It can simply be deduced from the above definitions that a contract of hire purchase is an agreement whereby the owner of the goods transfers possession of the goods to the hirer for an agreed periodical payment at the end of which the hirer has the option to either buy or return the goods.
FORMATION OF HIRE PURCHASE CONTRACT
At common law, a hire purchase agreement may be in any form either oral or written. However, it is advisable for all the terms of the contract to be in writing so that the court can easily ascertain the intention of the parties. A typical hire purchase agreement usually abides by the ordinary rules of contract.
Before the creation of any hire purchase contract, it is essential that there should be consensus ad idem between the parties i.e the parties have agreed to enter into the contract and abide by it.
- Offer and Acceptance: they are the first requirement of a hire purchase agreement. The hirer offers to hire the goods by signing the hire purchase agreement while the owner signifies acceptance by executing the contract already signed by the hirer. Thus, for an agreement to be binding, there must have been an offer and a corresponding acceptance and also the acceptance of the offer must be communicated to the hirer.
- Capacity of the Parties: the general rule of capacity under the law of contract applies here. Thus, infants are not bound by hire purchase agreements except those relating to necessaries and beneficial contract.
- Consideration: under hire purchase, consideration is the periodical payment made by the hirer to the owner.
A hire purchase agreement can be terminated by on party due to the breach of the terms by the other party. The court will not enforce a hire purchase agreement that is illegal.
DISTINCTION BETWEEN HIRE PURCHASE AND SIMILAR TRANSACTIONS
Hire purchase transactions are sometimes seen as similar to other transactions and although these terms are related, hire purchase transactions have its peculiarities which differ from these other transactions. This makes it necessary to distinguish hire purchase transactions form any other similar transactions.
- Hire Purchase Distinguished From Sale Of Goods:
Although the object of hire purchase is the sales of goods, their legal incidents are different.
- Under sales of goods transaction, the buyer is bound by law to buy the goods but under hire purchase, the hirer may or may not exercise this option.
- Under sales of goods, property in the goods immediately passes to the buyer upon payment and he becomes the owner while in hire purchase, the property passes to the buyer hirer upon payment of the last instalment, thus, until he has not paid his last instalment, he remains the bailee.
- In the case of sale, the owner takes the risk of any loss resulting from, the insolvency of the buyer and can only recover the purchase price in case of sale breach but in hire purchase, the owner takes no risk and can recover the goods if the hirer fails to pay an instalment.
- A sale of goods contract involves two parties while an hire purchase agreement involves three parties namely: the owner, the finance company and the hirer.
- Hire Purchase Distinguished From Bill Of Sale: a bill of sale is a document by which property in the goods is transferred from one party to another. It is designed for transaction in which the seller or donor remains in possession of the goods after disposing of the property in them.
Since the purchaser is not given possession of the goods, it is necessary for his protection that he should have some documents evidencing his title to the goods. The hire purchase agreement is outside the scope of bill of sale since property in the goods is not vested in the hirer during the currency of the agreement.
He cannot therefore be said to have any right of seizure over the goods or make any assurance or disposition of the goods.
- Hire Purchase Distinguished from Money Lending: A hire purchase agreement is not an agreement for the loan of money. The hirer is simply paying for the use of the goods and for the option to purchase the money. In a money lending transaction, money usually passes from the money lender to the borrower.
- Hire Purchase Distinguished From Conditional Sale Agreement: conditional sale agreement involves the buyer in the legal obligation to buy and contains an express provision preventing the property from passing to the buyer until the time has paid for instalments. A conditional sale is more like hire purchase but in the eyes of the law, it is a sale because there had been an agreement to sell, both share the feature of property moving at a future date although it is more certain in conditional sales.
OBLIGATIONS OF OWNER AND HIRER AT COMMON LAW
Where there is absence of express agreement between the parties, certain duties are implied on the part of the parties and they will be discussed below:
- DUTIES OF THE OWNER AT COMMON LAW:
- Title: it is an implied condition which denotes that the person letting out the goods has title or right to dispose of the goods. This condition is satisfied only when the goods have been delivered. The condition of title is a fundamental obligation in most hire purchase agreements and if breached, the person letting out will not be able to defend himself with an exclusion clause.
For instance, in Karflex Ltd V Poole, the plaintiffs who were hire purchase dealers bought a car from a car seller and hired it out to the defendant with the option to purchase on payment of instalment. The defendant paid the deposit and took the car but failed to pay the first instalment which caused the plaintiff to commence proceedings against him. It was later revealed that the car seller was never the true owner of the4 car at all and that the plaintiff paid off the true owner and proceeded with their action against the defendant. the divisional court held that the plaintiffs action failed because they had breached the implied condition that they had the right to sell since they were not the true owners at the time of the delivery of the car, the defendant was entitled to repudiate his contract and recover his deposit even though there was no possibility of eviction since the true owner has been paid off.
- Correspondence with Sale Sample/description: when goods are let out on hire purchase by description, there is an implied condition that the goods must correspond with the description.
Section 15 of the Sales of Goods Act 1893 provides that:
‘’in a contract of sale by sample, there is an implied condition that the goods must correspond with the sample in quality. There is an implied condition that the buyer shall have the reasonable opportunity of comparing bulk with the sample; the goods shall also be free from any defect rendering them un-merchantable which would not be apparent on the reasonable examination of the sample.’’
It was held in Arcos ltd V EA Romasen and Sons Ltd, that a buyer in a contract of sale has the right to demand goods of certain specifications and is not bound to accept goods that does not conform to contractual specifications merely due to them being merchantable or commercially equivalent to that specification.
- Delivery: the owner is bound to transfer possession of goods to the hirer. Delivery is normally effected by physical transfer of possession of the goods top the hirer.
For example, in Karsales (Harrosw) ltd V Wallis, where the defendant agreed to buy a used car if the vendor was able to find a company with which the defendant could enter into a hire purchase agreement with. The vendor found Karsales and the agreement was entered into. The defendant inspected the car and found out that it was substantially altered and not in the same condition as at when he had previously seen it and agreed to buy it. He therefore refused to pay for the car. The hire purchase agreement contained an exclusion clause which stated that ‘’no condition or warranty that the vehicle is roadworthy or as to its age, condition or fitness for any purpose is given by owner or implied therein.’’ It was held that karsales was under an obligation to provide a car which was substantially in the same condition as at when Mr Wallis, inspected it.
Unless it is agreed to the contrary, the owner’s place of business if he has one or his residence is the place of delivery.
Section 37 Of The Sales Of Goods Act provides that when the owner is ready and willing to deliver the goods and requests the hirer to take delivery of the good. The hirer is obliged to do so within a reasonable time or he will be liable in damages for breach of contact.
- Fitness of purpose: there is an implied warranty that goods must fit the purpose for which they were hired. Thus, where the hirer expressly or by implication makes known to the owner or his agent the particular purpose for which he requires the goods, so as show that he relied on the owner’s skill and judgement, there is an implied term that the goods are reasonable for that purpose. This term cannot be claimed when the hirer does not make known the purpose for which he required the goods to the owner. This was confirmed by the court in Bentworth Finance V De Bank Transport. In Anoka V SCOA, the court held that the hirer cannot complain of any defects in the goods which could not have been discovered by due care and skill on the part of the owner. It must be a defect that the owner can easily discern.
- Merchantable Quality: this was defined in Bristol Tramways Carriage Co Ltd V Fiat Motors that it is ‘’quality such that a reasonable man acting reasonably would after full examination accept the goods in the performance of his offer to buy them.’’ In the absence of an agreement, this term will be implied in favour of the hirer where the goods are let by description and where the owner is a person who manufactures the goods or where he is the dealer of the goods of that description. However, if the hirer had an opportunity to examine the goods before entering into the agreement, the owner will not be liable for any defects which such examination would have revealed.
- Quiet Possession: there is an implied warranty that the owner in addition to putting the hirer in possession of the goods must leave him in peaceful possession of the goods during the currency of the agreement. This warranty is breached when the owner or a third party interferes with the hirer’s enjoyment of his possession. The hirer can only sue for damages but cannot repudiate the contract. However, the hirer can repudiate the contract if there’s a defect in the owner’s title and where the owner wrongfully repossesses the goods and repudiates the contract.
- DUTIES OF THE HIRER AT COMMON LAW:
- Acceptance of the delivery of the goods: it is the duty of the hirer to accept the delivery of goods which he agreed to take under the hire purchase agreement. The hirer will be liable in damages for breach of contract, if he wrongfully refuses to accept delivery within a reasonable time after he has been duly requested to do so. Thus, in National Cash Company V Stanley, the hirer failed to take delivery and the bailor sued for rent and arrears, the court held that the broker was only entitled to damages for breach of contract.
- Care of the Goods: the hirer is under an implied obligation to take reasonable care of goods during the currency of the hire purchase agreement. A breach by the hirer of his duty of care will not justify the owner in seizing the goods and terminating the agreement unless the agreement itself empowers him to do so or unless the hirer’s neglect is so grave as to indicate that the hirer’s neglect is so grave as to indicate that the hirer is repudiating his obligations altogether.
- Use Of The Goods In Accordance With The Terms Of Hiring: the hirer is under an implied obligation to use the goods for the purpose for which they were hired. However, the owner can recover the goods and terminate the contract, if the hirer breaches this obligation by selling the goods or by pledging the goods or using the goods for a purpose that is different from that stipulated in the agreement as in Burnard V Haggis.
- Repair: there is no implied obligation on the part of the hirer to repair the goods hired but where the agreement expressly states that the hirer should repair the goods, there is an implied authority to that effect. In Stephen Anoka V S.C.O.A Warri, the plaintiff received a lorry from the defendant’s company and found the engine to be defective and then replaced it with another one. He defaulted in payment of instalments and the defendant’s company seized the lorry and sold it. The court awarded damages to the plaintiff in respect of the conversion of the new engine.
- Payment: it is the hirer’s duty to pay the sums stipulated in the hire purchase agreement at such time and in such manner as provided for in the agreement. However, in some cases, the instalmental payment can be suspended or waived. For example, in the case of Offodile and sons Enterprises V S.C.O.A (NIg) Ltd, where there was a hire purchase agreement between the parties in respect of a motor vehicle during the civil war and understandably the rentals were not paid but the hirer enjoyed the use of the motor vehicle. After the civil war, the owners sued for arrears of rental. The court held that the owners were entitled to rentals and that the hirer’s strict liability to pay rentals during the war period was only waived or suspended during the civil unrest that should have not be regarded as destroying the right to recover the rentals. Time of payment is not of essence unless the agreement indicates so. Thus, a mere delay in payment does not entitle the owner to treat the agreement as repudiated – Section 10 of the Sales of Goods Act 1893. In practice, the agreement usually specifies the methods by which payment is made to the owner.
- Re- delivery of goods: at common law, it is the hirer’s duty to redeliver goods at the end of the period of hire if he fails to exercise his option to purchase within the reasonable time. For instance, in Bentworth Finance Ltd V Salami, the goods were stolen while in possession of the hirer. It was held that the hirer would be excused from liability for failing to redeliver the goods, since the hirer could not be in anyway blamed for the theft of the goods. The hirer is under the obligation to prove that the loss or damage to the good did not occur as a result of his recklessness and thereby not his fault. However, the hirer may be held strictly liable if the terms of the contract state that he is to bear any risk in relation to the goods.
ABUSES AND INJUSTICES OF HIRE PURCHASE TRADING SYSTEM UNDER COMMON LAW IN NIGERIA
The Common Law of Hire Purchase governed hire purchase transactions in Nigeria prior to the enactment of the Hire Purchase Act of 1965. Under common law, Hire Purchase was defined as
‘’an agreement for delivery of goods by the owner to a person (hirer) under which the latter is given an option to purchase those goods.’’
The expansion of the hire purchase system was slow in Nigeria and it brought about hardships and abuses which were beyond the purview of general contract law. Greedy Hire Purchase Dealers induced customers to incur hire purchase commitments beyond their means so that they will fall into arrears towards the end of the period of hire after most of the instalments have been paid so that the dealers could exercise their power of repossession and thus, secure for themselves a considerable profit from the goods which they supplied without parting with the goods themselves.
The following are some of the abuses and injustices of the Hire purchase trading system under common law against the hirer:
- Owners usually charged high and prohibitive interest rates.
- A rule was laid down in the case of Cramer V Giles(1883) 1 cab E 1151 which made matters worse. The rule stated that the court will not intervene to protect the hirer in default so that even if he defaulted on the last two instalments only having punctually paid all the previous instalments the owner was entitled to terminate that agreement and repossess the goods immediately the default arose without having to return any part of the money her had received.
This rule was upheld in the case of Atere V Dada Amoo, where the plantiff took a lorry on hire-purchase and completed repayment of 995 pounds out of hire-purchase price of 1000pounds but failed to pay the final instalment of 5pounds when it fell due. The court held that the failure to pay the final instalment was a breach of contract and the owner was entitled to repossess the vehicle without having to account to the hirer for the excess covered.
It is clear from above case that the owner profited from the recovery of the vehicle even more than the loss of 5 pounds.
- The hirer wouldn’t be able to redeem the hired goods after default in his instalmental payment. This would be so if he had punctually paid all previous instalments but became a day late in paying the last instalment. This was followed in the case of Bentworth Finance Nigeria ltd V. De Bank Ltd.
- Even if the hirer returned the goods to the owner before the expiration of the hire, he would still be bound to pay the rent for the entire hire period.
- Hire purchase agreements transfers no property or proprietary interest in the goods to the hirer until he has exercised his option to purchase the goods, even though he may have made substantial sums of payments towards the agreement.
- The hirer has no legal interest in the goods repossessed by the owner despite the fact that their subsequent sale by him may yield substantial surplus over and above the hire purchase price. Butler Lloyd, Acting C.J inO Williams V. U.A.C. Ltd, stated that upon termination of the agreement, the hirer’s interest in the vehicle ceased altogether and the defendants were entitled thereafter to deal with it as they pleased.
- Sometimes the owner supplied low quality goods to the hirer and relied on exclusion clauses contained in the hire purchase agreement.
- Goods were often recovered by owners through crude means like using of thugs etc.
It was due to the defects in the common law hire purchase system that led to the enactment of the Hire Purchase Act of 1965 to regulate contracts of hire purchase in Nigeria.
The following are the improvements introduced by the Hire Purchase Agreement enacted by the Federal Government.
- By the provision of Section 4(3) on the invalidity of exclusion clauses to the most of the implied conditions and warranties. The hire Purchase Agreement has protected the hirer from the possible exploits of unscrupulous owners who could supply defective goods and rely on exclusion clauses.
- Section 4(2) provides for the usual condition and warranties imposed in a contract of sale of goods. For instance, there is an implied condition that the goods is fit for part purpose for which it was hired.
- The hire purchase contract ensured by formalities required for entering into a hire purchase contract or transaction that the hirer is properly informed about the goods and the agreement before or at the time when he enters into the contract. S2 requires the owner to supply written information as to cash price, amount of deposit instalments, interests at rate, date of payment among others.
- Section 5 empowers the minister of trade and tourism to regulate the terms of the hire purchase agreement by prescribing the size of the initial cash payment, rate of instalment and the period over which instalments are payable.
THE HIRE PURCHASE ACT OF 1965
The Hire purchase Act of 1965 was modelled after the United Kingdom’s Hire Purchase Act of 1938 but a few changes were made to it in order for it to meet local needs.
At the time of its enactment in 1965, the Act only applied to Lagos but was later extended to all parts of the federation by virtue of the Hire Purchase (Application) Act of 1966 which only came into operation in 1968 by virtue of the Hire Purchase (Appointment Day) Order 1968.
The act which came into being in order to mitigate the hardships suffered by Hirer; eliminated the defects of the common law hire purchase system.
Section 1(a) of the Act states that it applies to hire purchase agreements and credit sale transactions does not exceed two thousand naira and three thousand pounds other than agreements in respect of motor vehicles.
Section 1(b) of the Act states that it applies to all hire purchase agreements; where the goods are motor vehicles irrespective of the price.
RECOVERY OF POSSESSION BY THE OWNER
Under common law, the right of the owner to recover his goods is unqualified so much that if there’s any slight default in instalment, the owner can repossess his goods even without court order. This caused hardships to the hirer and led to petitions for the creation of laws guiding hire purchase that would be fair and just.
The Hire Purchase Act of 1965 restricts the owner’s right to indiscriminately recover goods. Section 9(1) and Section 9(3) of the Act prohibits the owner from enforcing a right to repossession of the goods otherwise than by action when relevant proportion of the hire purchase price has been paid or tendered but this will not apply where the hirer had himself terminated the agreement or the hiring.
The term ‘’relevant proportion’’ has been defined by Section 9(4) of the Act as follows:
- In the case of goods other than motor vehicles, its one half (half of the price)
- In the case of motor vehicles, three fifths of the total hire purchase price.
However, when the relevant proportion is paid, the owner can only recover his goods through an action in court. Failure to do this will lead to the determination of the contract by the hirer and the hirer can recover all sums already paid under the agreement. For instance, in Adesanya V Balogun, the hirer sued the owner who seized his goods without any court order for damages. The court held the owner’s act to be wrongful and that the hirer was no longer bound by the agreement and can recover all the sums he had paid to the owner.’’
Section 9(5) restricts the owner’s right to repossession of goods even when the relevant proportion has been paid. This right exists in the case of motor vehicles only and it arises only when three or more instalments are due and unpaid and only after the owner has commenced proceedings.
Thus if an owner repossesses the vehicle while an action is not pending determination in court, his act will be held to be unlawful. For instance, in Tabansi Agencies Ltd V Incar Motors Ltd, where the hirer had paid the relevant proportions but defaulted in the payment of the first instalment. The owner repossessed the vehicle on 15th June and commenced proceedings on 22nd June for repossession and payment of arrears. It was held that the owner had not lawfully removed the vehicle under the subsection as proceedings had not actually commenced at the date of the vehicle’s removal.
REMEDIES OF OWNER AND HIRER UNDER HIRE PURCHASE ACT
- Owner’s right to bring an action for repossession: this is the major remedy available to an owner under the hire purchase act. Under common law, the owner’s right to repossess was absolute. However, Section 9 of the Hire Purchase Act lays down the strict procedure to be observed by the owner before he can repossess the goods. Section 9(1) provides that:
‘’where goods have been let under a hire purchase agreement and the relevant
proportion has been paid (whether in pursuance of a judgement or otherwise) or
tendered by or on behalf of the hirer or any guarantor, the owner shall not enforce any right to recover possession of the goods from the hirer otherwise than by action and except as provided by subsection (5) of this section.’’
It is obvious from the above provision that an owner cannot repossess his goods unless by pursuant to a court order. Section 9(2) of the Act further provides that breach of the provision of Section 9(1) and the failure to institute a court action before exercise of the right of recovery of possession would determine the agreement and the hirer or any guarantor can recover from the owner all sums already paid by them under the agreement without any deduction for any use of the goods they may have had.
In Civil Design Construction Nigeria Ltd V. SCOA Nigeria Ltd, the construction company had paid 3/5 of the purchase price but defaulted in payment of the rest. The owner sought to arbitrarily recover possession without recourse to court. The court held that the owner had to make recourse to the court he can recover his possession. Section 9 of the Hire Purchase Act 1965 seeks to protect the hirer from some of the rigors and hardships of common law rules without derogating from the legitimate rights of the owner.
- Right of the owner to interim possession: this is guaranteed by Section 9(5) of the Act:
‘’in the application of the provisions of this section to motor-vehicles, where three or more instalments of the hire purchase price of a motor vehicle under the agreement are due and unpaid, the owner may remove the motor vehicle to any premises under his control for the purpose of protecting it from the damage or depreciation and retain it there pending the determination of any action, and the owner shall be liable to the hirer for any damage or loss which may be causes by the removal.’’
It follows from this Act that when the hirer has paid the relevant proportion of the hire purchase price or more, the owner in the course of default may only recover possession of goods by legal action. It does not apply to other goods apart from motor-vehicles.
In Tabansi Agencies Ltd V. Incan Nig Ltd, the hirer paid the relevant proportion but fell into arrears with the first instalment. On or about the 15th of June 1974, the owner repossessed the vehicle and commenced proceedings on the 27th of June 10974 for possession and payment of arrears. The court held that the owner had not lawfully removed the vehicle under the sub-section as the proceeding had not actually commenced at the date of the removal.
- Damages for failure to take care of the goods: by virtue of section 8(2), the owner is entitled to damages where the hirer has failed to take care of the goods.
However, the owner’s right to recovery can be exercised without court order where:
- The hirer exercise his right ot terminate
- The substantial part or relevant proportion of the hire purchase price is unpaid
- The hirer voluntarily consents to return the goods
- If the goods are in possession of any person other than the hirer
- The goods atre abandoned or may be reasonably inferred to be abandoned.
REMEDIES OF THE HIRER
- Exercise of the hire’s right to terminate: section 8 of the hire purchase act provides that a hirer shall at any time before the final payment under a hire purchase agreement falls due, be entitled to determine the agreement by giving a notice in writing to any person entitled to recover any sums payable under the agreement.
The hirer must give a noticed of termination to the owner or his authorized agent. he must have paid at least half the purchase price and other outstanding sums and must hand the goods back to the owner.
TERMINATION OF HIRE PURCHASE
A hire purchase agreement may be terminated or determined in the following ways:
- By performance: the contract comes to an end when both parties have performed their obligations under the contract.
- By subsequent agreement: during the subsistence of the initial agreement, the parties may enter into a fresh agreement which would terminate the first agreement, provided that the first agreement is still executor. The consideration of the new agreement would consist in the covenant between both parties to release each other from their existing obligations under the previous contract. See Abdulkareem V. Incar Motorsd Nig. Ltd
- Termination by Breach and repudiation: where a party commits a fundamental breach in the contract, the other party has the right to determine the agreement. Thus, If Mr John, the hirer of a motor vehicle commits a fundamental breach, Mrs Timah, the owner, is entitled to determine the agreement and claim her outstanding payments from Mr John.
- Termination by Notice to terminate: Section 8(1) provides that where the hirer wants to exercise his statutory right to terminate, he is required to give a notice in writing to the owner or any person entitled or authorized to receive moneys payable under the agreement.
- Termination by frustration: this occurs when the contract terminates due to no fault of the parties e.g in the case of the death of the owner or hirer.
- Termination based on the terms of the contract: this occurs when the parties insert a clause into the contract that it would be terminated on certain conditions.