Commercial Law

Recommended Text: Commercial Law – Robert Bradgate

January 10, 2018

Agency
The primary role of an agent is to negotiate and conclude contracts on behalf of a principal.
Agency, in and of itself, is the relationship arising from the consent of both the principal and
the agent to act in those capacities. Simply put, what this means is that the principal must
have given his permission for the proposed agent to act on his behalf, and the agent ought to
have accepted such proposal. It must be noted that this is a fiduciary relationship (a
relationship of trust and confidence). This gives rise to important obligations between the
principal and the agent.

The consent will be held to exist if the relationship amounts in law to one of agency. The
courts can do this even if the parties are unaware that this relationship exists.

Garnac Grain v Faure & Fairclough (1968) AC 1137

The Board was asked what was necessary to establish the relationship of principal and agent.
Held: In the essence of agency is the element of consent.
Where there is an available market for the goods, the market price is determined as at the
contractual date of delivery, unless the buyer should have mitigated by going into the market
and entering into a substitute contract at some earlier stage.

Lord Pearson said: ‘The relationship of principal and agent can only be established by the
consent of the principal and agent. They will be held to have consented if they have agreed to
what amounts in law to such a relationship even if they do not recognise it themselves and
even if they have professed to disclaim it. The consent however must be given by each of
them either expressly or by words and conduct. Primarily one looks to what they said and did
at the time of the alleged creation of the agency. Earlier words and conduct may afford
evidence of a course of dealing in existence at that time and may be taken into account more
generally as historical background.

❖ The actions of an agent can make the principal criminally responsible.

Gardner v Akeroyd (1952) 2 ALL E R 306
In this case, the respondent, a butcher, left an assistant in charge of his shop in his absence,
during which parcels of meat were prepared and tickets attached, giving the names of
purchasers and showing prices in excess of the maximum prescribed by the Meat (Prices)
Order. The butcher and his assistant were charged with doing acts preparatory with the
commission of an offence contrary to Regulation 90 of the Defence Regulations. The
assistant was convicted and the information against the respondent were dismissed by the
justices, their opinions being sustained by the Divisional Court.
It is clear that if the parcels had actually been sold, then an offence would have been
committed by both the principal and his agent. The prohibition against selling above the
maximum price is absolute, and had the sale been effected, the butcher would have been
guilty of the full offence, it being no defence that the acts had been done in his absence and
without his knowledge.
For him to have been guilty of such an offence, mens rea would have to be present.

A comparison is usually made with a situation of vicarious liability in tort and the situation
wherein the agent (in the form of a third party) makes the decision on his own accord and the
employer is found liable if it can be proven that he is indeed an agent.

Principal, provided that he is in the scope of the agent’s power (power derived from the
agent’s authority – authority may either be actual or apparent).

Who is an agent?
It is more important to recognize an agency situation than to define it. However, the agent’s
acts are treated as though they were the acts of the principal. Thus, it can be said that the
agent is a person who is recognized by law as having the power to affect the legal rights and
liabilities of the principal with another person. This definition deals with relationships
between the principal and the third party, whereby the agent can create legal relationships.
Examples of agents are:
➢ Company directors and officers – while they aren’t called agents, they act on the
company’s behalf and can bind the company.
➢ Partners in a firm – a partner is able to bind the other partners when he does work or
carries out acts which are consistent with the carrying on of the firm’s business in the
usual way; whatever he does is consistent with what usually happens at the firm.
➢ Employees – an employee can have the power to bind the employer legally. However,
this depends on the status he is given.
➢ It is thought that where one has a finance company in credit transactions, then the finance
company’s agent is the dealer. Eg. Courts may be the agent of another entity where you
purchase a furniture from them.
Lease Management Services v Purnell (1994) CCLR 127
Canon Southwest Ltd supplied photocopier through a typical triangular arrangement: they
sold it to Lease Management Services, who in turn leased it to Canon’s customer, Purnell.
The photocopier was delivered directly from Canon to Purnell. However, it did not function
as the demonstration model had. Purnell tried to reject the machine for breach of collateral
warranty. However, LMS sought, inter alia, to rely on the exclusion clause in the lease
agreement which provided that LMS would not be liable for:
i. Any express or implied conditions or warranties;
ii. Any loss of damage arising in connection with the photocopier;
iii. Any representations (express or implied) or warranties given by the supplier (Canon)
or any other person.
It was held that the clause was unreasonable because: (a) it nullifies any express warranty
given, and which would be relied upon by the customer; (b) it nullifies implied terms (as to
quality and fitness for purpose) which were fundamental to the transaction; (c) under the
clause, acquisition by hire from a finance company rather than by purchase from a supplier
is a trap: a customer would not expect his rights regarding defects to differ according to
which of these two acquisition routes he chooses to follow.
See also hire purchase examples.

➢ A professional acting on behalf of a client may become an agent of the client.

Waugh v HB Clifford (1982) 1 ALL ER 1095 – lawyer had implied authority by virtue of his
position.
Builders sold houses to two purchasers who sued them in respect of allegedly negligent
construction of the houses. Discussions ensued between solicitors for both sides about a
possible compromise under which the builders would repurchase the houses from the
purchasers at a valuation. Without actual authority to do so, the solicitors for the builders
purported to enter into contracts of repurchase on their behalf. The English Court of Appeal
held that the builders were bound by the contracts because they had invested the solicitors
with ostensible authority to enter into a compromise of the litigation even in the form of entry
into contracts for the purchase of land. Brightman LJ said, at p387:
“All that the opposing litigant need ask himself when testing the ostensible authority of the
solicitor or counsel, is the question whether the compromise contains matters ‘collateral to
the suit’.”

➢ Sometimes, there are persons described as agents in sale transactions where they have the
power to buy and sell in their own account and to make profit. In these cases they are
usually not defined as agents.

See Welsh Development Agency v Export Finance (1992) BCC 270

Agency Relationships
➢ General and Special Agents – the distinction lies in the nature of the authority given to
the agent by the principal. General agent has the power or authority to act for the
principal in a particular trade or class of transactions, whereas the special agent is
authorized to act in one particular transaction.
➢ Factors and Brokers – A factor is an agent whose business it is to dispose of goods on
the principal’s behalf where the goods are in his possession, whereas the broker can sell
goods on behalf of the principal and can negotiate on the sale of such goods where the
goods are not in his possession.
➢ Del Credere Agent – This is a person who contracts for the principal and guarantees to
the principal that the third party will pay any sum due under the contract, and for this he
charges an extra commission.
➢ Commercial Agent – Creature of the EU. Such an agent has a continuing authority.
➢ Commission Agent – he can act and is authorized to act to buy or sell property on the
principal’s behalf, but he is not authorized to create privity of contract between the
principal and the third party.
➢ Confirming house – plays a part in international trade and will act on behalf of an
overseas client who wishes to import goods, etc.
Commercial Marketing
Distributorship – different from Agency because the distributor is not entitled to the rights or
subject to the duties of an agent. Principal and agent are in a fiduciary relationship, but a
distributor is governed by a contract made between himself and a manufacturer. The terms of
their relationship therefore are governed by that agreement.

Lamb v Goring Brick Co (1932) 1 KB 710

Goring Brick Company were manufacturers of bricks and other building materials. Lamb &
Sons were builders’ merchants. An agreement was made under which Lamb were appointed
‘sole selling agents’ of GBC’s bricks and other materials. Following a change of ownership
of GBC, it became important to establish the exact effect of this agreement. The Court of
Appeal held that it did not create a relationship of agency. The arrangement was that GBC
sold its bricks to Lamb, and that Lamb then sold them on to others. In a true agency
relationship, Lamb, as agent, would simply have brought GBC into a contractual relationship
with the purchasers, and would not themselves have bought and sold the bricks.

➢ Franchises - The authorization by one business to another to sell its goods and services in
exchange usually for a franchise fee. This usually enables the buyer of the franchise to
use the trade name, logo, style and even design their place of business like the original.
➢ Licensing - Where a manufacturer gives another business the license to sell or
manufacture its business. E.g. Juici Beef
➢ Subsidiaries - The company might use a network of subsidiary companies to market or
sell its goods and services. The subsidiary can act as a parent company.

The relationships therefore are:

-Principal and Agents
-Principal and third party
-Agents and third party

Lecture 2
Agency Continued – chapter 4 always comes
Types of Authority
Expressed Actual Authority – that authority where the principal consents to the agent
exercising authority on the principal’s behalf.
Ireland v Livingston (1872)
The principal had asked the agent to buy around 500 tons of sugar. The letter specified that
the quantity could be “fifty tonnes more or less of no moment”. The agent bought 400 tons
because that was all he could get. The principal sought to repudiate the contract, contending
that the quantity was much too less than he originally ordered.
Held: The departure from principal’s intention was all his fault, that he should have given his
order in clear terms. The agent acts bona fide interpret differently from the principal, and the
transaction made by the agent was binding on the principal.

It is important to note that the relationship between principal and agent is not necessarily
contractual, but must be consensual. Most of the times, there will be a contract where agent
remuneration is stated but consideration can be gratuitous. There are no formalities required
for the appointment of an agent, but if there is an agreement, it can be expressed or implied.
If expressed, this may be done orally, in writing or by deed. Anyone can act as an agent, even
a minor, but the minor cannot be sued. A minor has power to bind the principal where he is
an agent. The scope of the agent’s authority depends on the agreement and if it is an oral
agreement, there must be proof of what was said.

❖ Where it is by deed, the terms have to be strictly followed, eg. A Will.

Midland Bank v Reckitt [1933] AC 1 (HL)
A solicitor was give power of attorney to draw cheques on his principal’s account and to
apply the money for his principal’s purposes. The power also contained a ratification clause
by which the principal could ratify in advance anything the solicitor might do acting in power
of attorney. The solicitor drew some cheques on the principal’s account and paid them into
his own badly overdrawn account in the same bank. The HL held that the deed must be
construed strictly and the power could not be extended to cover the acts of the agent which
were beyond the purposes set out in his deed.

European Asian Bank v Punjab [1983] 1 LL Rep 611

The court heard a claim by the appellant bank against the issuing bank of a deferred payment
letter of credit. The appellants had negotiated the credit by paying its discounted value to the
beneficiary. Between that date and the maturity date fraud, or alleged fraud, on the part of the
beneficiary was discovered and the issuing bank denied liability under the credit.
Held: There was no arguable defence and the court entered a summary judgment against the
issuing bank. On the evidence the issuing bank had unequivocally represented to the
appellants that they were entitled to act as negotiating bankers under the credit and that they
would be paid as negotiating bankers on the maturity date.

❖ A court may expand the agreement by implying a term. Hence, an agent can be given
wider authority.
Henderson v Merrett (1994) 3 All E R 206
The plaintiffs were Lloyd's "names" (investors) who were members of syndicates managed
by the defendant underwriting agents. The relationships between the "names", and member's
agents were regulated by agency and sub-agency agreements which gave the agents absolute
discretion in respect of underwriting business conducted on behalf of the name. The names
had given the agents the exclusive rights to undertake risks and re-insurance on their behalf.
There was an implied term in the agreement that the agents would exercise due care and skill
in the exercise of their functions as managing agents. The case concerned the alleged
negligence of Lloyd’s members’ agents and managing agents of syndicates in the conduct
and management of the "names'" syndicates which had suffered heavy losses.

❖ Where there are ambiguous terms, they are interpreted in favour of the agent. See Ireland
v Livingston above.

Implied Actual Authority - The agent’s action is authorized by implied authority so that the
principal is taken to have given implied consent to the action or the particular transaction, and
the agent’s appointment may be totally implicit.

Hely-Hutchinson v Brayhead (1968) 1 QB 549

There, a guarantee and indemnity was signed in favour of a director of company X by the
chairperson of company Y, who was also acting in capacity of managing director. The
director subsequently tried to enforce the contract. This was opposed on the grounds that the
chairperson had no power to enter into binding contracts of this kind and that there had never
been a proper appointment as managing director. The court held that the director could
enforce the guarantee and indemnity against the company because the director was acting in
his personal capacity. The director should not, therefore, be treated as having any knowledge
of the company’s internal management defects.
Express Authority can be also expanded by implication by usual authority or customary
authority, so that the agent has the authority that a person in that position usually has. E.g. a
bank manager would usually have the power to give a loan, by implication you would expect
that he has such authority as given to him by the principal. Sometimes, the authority of the
agent is not very detailed and reliance has to be made on the fact that there is some usual
authority. What is usual may be implied because of the position occupied by the individual.
Sometimes, what is usual reflects commercial practice and the ordinary expectations of a
particular trade or profession.

United Bank of Kuwait v Hammond and City Trust v Levy (1988) 1 WLR 1051
A solicitor acting as a partner in the first case and as an assistant in the second, signed forms
of guarantee and undertakings, without actual authority, and resulted in both Banks lending
money to fraudulent third parties.
Held: The Banks were reasonable in believing that the solicitors was acting within the firm's
authority. Thus both firms were liable.

Customary Authority – In customary authority, the authority has to relate to a particular

usage and the terms of the agency and the agent’s authority are important.
Dingle v Hare (1859) 7 CBNS 145

Robinson v Mollett (1875) LR 7 HL 802

Secretary hired vehicles purportedly for his company but which were in fact for his own
private use. D, the company, refused to pay. Lord Denning said that a company secretary
regularly makes representations on behalf of the company and enters into contracts on its
behalf which come within the day-to-day running of the company's business. He said that a
company secretary is certainly entitled to sign contracts connected with the administrative
side of a company's affairs, such as employing staff, and ordering cars and so forth. All such
matters came within the ostensible authority of a company's secretary. Held, liable.
The principal is bound by the custom even if he thinks it is unreasonable, but only if he had
prior knowledge.

Apparent Authority - If the principal’s words or actions give the impression to the third party
that he has authorized the agent, even if he has forbidden it, he may be held to have given that
authority (by his words or his actions). The real position is that the agent does have the power
to bind the principal and the source of that power is estoppel. This estoppel is created by the
conduct of the principal; it has nothing to do with how the agent behaves or what he calls
himself, it has only to do with the conduct of the principal which estops him from saying that
such individual is not his agent.

Freeman & Lockyer v Buckhurst [1964] 2 QB 480

The claimants were architects, who had entered into a contract with Mr Kapoor relating to the
development of Buckhurst Park, a property in London. Kapoor and others had formed the
defendant company with a view to developing the property. Kapoor was a director of the
defendant company, the articles association of which allowed the company to appoint one of
its four directors to the position of “managing director”, who would thereby have the
authority to enter into contracts on behalf of the company. Kapoor was never appointed
managing director, although he (successfully) led the claimants to believe that he was.

Subsequently, it became apparent that the development would come to fruition. The
claimants commenced proceedings for their outstanding fee. As Kapoor’s whereabouts were
unknown, the claimants were required to bring a claim against the company on the basis that
Kapoor had authority to act on its behalf.

In the Court of Appeal, it was held that although Kapoor had no actual authority (whether
express or implied) to act on behalf of the company, because he had acted as if he were, and
had been allowed to so act by the other directors, he thereby had “apparent” or “ostensible”
authority to act on behalf of the company. As the company had acquiesced in his acting as if
he were its managing director, it was estopped from disputing that he did not have authority
to enter into contracts on that basis, and the company was therefore required to pay the
claimants their fee.

❖ Apparent Authority is authority which a person appears to have to act on another’s behalf.
Summers v Solomon (1857) 7 E&B 879
Solomon owned a jewellery shop and employed his nephew to operate as manager. Solomon
regularly paid for jewelry ordered by the manager from Summers. After leaving Solomon’s
employment, the manager ordered jewellery from Summers and then absconded with it. The
court held that Solomon was liable to pay for the jewellery on the basis that his previous
conduct in paying for jewellery had amounted to a representation of the manager’s authority.
Summers was entitled to rely on that representation since he was unaware that the manager’s
authority had been withdrawn.

Drew v Nunn (1879) 4 QBD 661

Mr. Nunn, the principal, had given his wife authority to deal with Drew and held her out as
his agent. Mr. Nunn became insane and while his insanity continued Mrs. Nunn ordered
goods from Drew. Drew was unaware of Mr. Nunn’s insanity. Mr. Nunn reacquired his sanity
and refused to pay for the goods. Drew initiated proceedings and Mr. Nunn contended that
Mrs. Nunn’s authority automatically terminated when he became insane.
Mental capacity such as to render a person incapable of acting in his own behalf incapacitate
him from appointing an agent and if the incapacity supervenes during the currency of the
appointment, terminates the agency.

“The actual authority of an agent whether conferred by deed or not and whether expressed to
be irrevocable or not, is determined by the death or supervening mental incapacity of either
the principal or the agent”.

Factors that give rise to Estoppel

There must be a representation that the agent has authority which must be made by the
principal or somebody acting on his behalf and this representation must be relied on by the
third party who is alleging apparent authority.
Gurtner v Beaton (1993) 2 LR 369, 379

1. There must be representation that the agent has authority:- Where the principal allows
the agent to represent him, the representation is one of fact, not law. This must be
done by words or conduct.
Armagas v Mundogas [1985] UKHL 11 “The Ocean Frost”
One company, Mundogas negotiated the sale of a vessel to another company, Armagas. On
behalf of Mundogas, the negotiations were done by M, who was chartering manager. M had
actual authority from Mundogas to conclude the sale of the vessel. However, he had no
authority to conclude another contract: one for Mundogas to recharter the vessel from
Armagas for 3 years. Armagas knew that M did not have authority and that he would need to
obtain specific authority from his superiors at Mundogas. M Informed Armagas that he had
gotten such authority. This was deliberate deceit. Relying on M’s information, Armagas
entered the 3 year charter contract. The issue that arose was whether the principal was bound
by the agreement.
Held: The Company was not bound. It follows orthodoxy that a principal may not represent
his own authority. The agent’s title of ‘chartering manager’ did not bring with it the apparent
authority to conclude the contract or represent specific authorization. In order to hold the
principal liable for some act which is outside the agent’s actual authority, and which the
plaintiff knows to be outside the general ostensible authority of the agent, the plaintiff must
be in a position to show reliance, himself, on some representation by the principal. Further,
the essence of the employer’s liability is the reliance by the injured third party on actual or
ostensible authority. The question is whether the employer (not the employee) has by words,
or conduct induced the third party to believe that the employee was working in the capacity
of his employment. See Freeman and Lockyer v Buckhurst above.

❖ Generally, there must be some positive representation, mere silence will not suffice.
Arctic Shipping Co Ltd v Mobilia (The Tatra) (1990) 2 LR 51
The ship owner, acting through a Norwegian broker, believed that it had concluded a sale
contract through a Swedish broker purporting to represent and contract on behalf of Mobilia
as the buyer. However, the court held that there was no concluded contract since the Swedish
broker had no authority to contract on Mobilia’s behalf and Mobilia did not subsequently
ratify the Swedish broker’s activities.
2. The representation must be by someone acting on the principal’s behalf – the
representation is binding on the principal if it is made by him or someone acting on
his behalf. The agent’s own statement about his own authority will not satisfy the
requirement of apparent authority. Me saying that I am an agent, does not qualify.
Compare:
❖ Rhodian River & the Rhodian Sailor (1984) 1 LR 373 with Freeman & Lockyer
❖ City Trust v Levy with First Energy Ltd. V Hungarian Int Bank (1993) 2 LR 194

3. Third party must rely on the representation- the third party must know of the
representation in order to be said to rely on it. Also, the third party cannot rely on it if
he knew that the agent had no authority. Overbrooke Estates v Glencombe Properties
(1974) 3 All ER 511
Lecture 3 – January 24, 2018
Authority Given by Estoppel after the Event
The conduct of the principal after the event (transaction) is what gives rise to the situation
where he is estopped from denying the agent’s authority.
Spiro v Lintern (1973) 3 ALL E R

Agency of Necessity
This relates to a person acting in an emergency preserved to perpetuate the interest of
another person, and such a person acting may be called or treated as an agent of necessity.
The principal did not appoint him or know of him acting in that capacity, but some
emergency occurred under which he had to act in the interest of the principal. This action can
be said to be authorized even in the absence of authority. Eg. Having a warehouse and the
one next to you catches fire. In the interest of your neighbour, you quickly remove the goods
from your neighbour’s burning warehouse. The agent of necessity creates privity of contract
between the third party and the principal.

The agent can use agency of necessity as a defence to the principal’s claim for interference or
even trespass, he can also use it as a basis to be reimbursed for money he may have incurred.
Agency of necessity will only arise in extreme situations.
There is a four part test; all elements of which must be satisfied:
✓ Must have been an emergency;
✓ It must he been practically impossible to obtain the principal’s permission or
instruction;
✓ The agent must have genuinely acted in the interest of the principal and not his own;
✓ He must have acted reasonably (taking the goods and storing them in a room in the
Pegasus or somewhere that the principal could not get them is unreasonable)

Agency may arise by estoppel, a person cannot be bound by a contract made on his behalf
without his authority generally. But, if he allows a third party to believe that X is his agent by
his words when X is not agent of him and the third party relies on it, he will be stopped or
precluded from denying the existence of X’s authority. For example, if X tells B in the
presence of C that he (X) is C’s agent and C does not deny this statement, C cannot later deny
that X is his agent if B sells good to X believing him to be C’s agent and later sue for the
price.
Agency by estoppel can be illustrated through case of Povey v. Taylor (1966) 116 NLJ 1656.
The defendant let a room in their premises to B, who conducted a similar kind of business to
theirs from it. B had business leaflets printed by the plaintiffs and B acknowledged defendant
about this. Invoices sent to defendant were not challenged by them. The plaintiffs then sued
the defendant for payment. The court of appeal held that it was reasonable for the plaintiffs to
infer that B was ordering the work with the defendant’s authority, so the defendants were
stopped from denying that authority.

There must be Actual and commercial necessity for the agent’s action.
o Springer v Great Western Railway (1921) 1 KB 257, 267 – case of tomatoes on a
train.
o Prager v Blatspiel (1924) 1 KB 566
o The Choko Star (1989) 2 LR, 42
Ratification – form of authority
❖ The principal may adopt the acts done in his name by the agent and if the principal does
so adopt these acts, it will be as if the agent had always been authorized.
❖ The agent must have acted in the name of the principal and not his own name.
Keighley Maxted v Durant (1901) AC 240

❖ The principal must have been in existence on the time of the agent’s action on the
principal’s behalf. Eg. Where the principal is a company, if the company was not
registered at the time of the agent’s action, the act cannot be ratified. See Baxter (1866)
LR 2, 174 Newborne v Sensolid (1953) 1 ALL ER 708

❖ The principal cannot ratify if he was competent at the time of the agent’s actions.
Competence is determined by the usual contractual issues (whether the party was a
minor, of sound mind, etc)

❖ The minor cannot ratify on becoming an adult if the contract would not have bound him
during his minority.

There exists the issue of whether you can ratify a void, as against a voidable contract. See
Brook v Hook (1871) LR 6 Exch 89
Does it have a retroactive effect? See:
o Bolton v Lambert (1889) 41 Ch D 295
o Presentaciones Musicales v Secunda (1994) 2 ALL ER 737

The Warranty of Authority

The person who deals with an agent on the strength of the agent’s claim to authority, can hold
the agent liable if the claim is false and the agent may be liable in tort for the tort of deceit.
Hedley Byrne v Heller (1963) 2 ALL ER 575
Hedley Byrne were advertising agents placing contracts on behalf of a client on credit terms.
Hedley Byrne would be personally liable should the client default. To protect themselves,
Hedley Byrne asked their bankers to obtain a credit reference from Heller & Partners ('H&P'),
the client's bankers. The reference (given both orally and then in writing) was given gratis
and was favourable, but also contained an exclusion clause to the effect that the information
was given 'without responsibility on the part of this Bank or its officials'. Hedley Byrne relied
upon this reference and subsequently suffered financial loss when the client went into
liquidation.

Decision: The court found that H&P's disclaimer was sufficient to protect them from liability
and Hedley Byrne's claim failed. However, the House of Lords ruled that damage for pure
economic loss could arise in situations where the following four conditions were met:
(a) A fiduciary relationship of trust & confidence arises/exists between the parties;
(b) The party preparing the advice/information has voluntarily assumed the risk;
(c) There has been reliance on the advice/info by the other party, and
(d) Such reliance was reasonable in the circumstances.

In order to be successful in an action under tort, the third party would have to prove
negligence and he also has to prove that he suffered a loss because he relied on the agent’s
statement. The warranty of authority enables the third party to bypass that because he can sue
the agent for breach of warranty of authority, which means he does not have to prove
negligence. He can do this because the agent has a false claim; that claim being that he has
the authority. Collen v Wright (1857) 8 E&B 647

The contract is unilateral. It is a situation where the agent implies or promises that he has
authority and the third party accepts this and provides consideration for the agent’s promise.
This gives rise to a collateral contract between the agent and the third party. Penn v Bristol
and West English Society. Note that liability is strict so that the agent becomes strictly liable.
See Yonge v Toynbee (1910) 1 KB 215
Note also that where the warranty is false, the third party can claim damages from the agent
to the extent that the damages would put him in a position if the warranty was true. Suleman
v Shahsavari (1989) 2 ALL ER 460

Lecture 4 – January 31
The Rights and Duties of the Agent

The right to remuneration – the agent is only entitled to remuneration, if that has been agreed
with the principal. Even if there is no express agreement, the court will imply a term giving
the agent the right to remuneration. The agent is entitled to remuneration where he is acting
as a professional giving services or where services have already been provided. The agent is
only entitled to remuneration where he is the “effective cause” of the event that he was
supposed to make happen.
Way v Latinna (1937) 3 ALL ER 759

What constitutes effective cause is a question of fact rather than law. Thus it is dependent on
the circumstances of each case. Coles v Enoch (1939) 3 ALL ER 327

The agent can lose his right to commission if some other event breaks the chain of causation
between his actions and the event which would pay in his commission. Luxor v Cooper
(1941) AC 108, Rhodes v Forwood (1876)
Alpha Trading v Dumshaw-Patten (1981) 1 ALL ER 483

The right to indemnity – All agents are entitled to be reimbursed for their expenses and to be
indemnified against the losses incurred in the course of their performance of their duties as
agents. Where there is a contract, this will be either express or implied. Where there is a
contract, the agent is entitled to indemnify on a restitutionary basis, i.e. he will only be
entitled to a payment which the principal would have made. Further, the agent is only entitled
to indemnity if he is acting within the scope of his authority or if the principal ratifies his
unauthorized actions or if he is an agent of necessity. Adamson v Jarvis (1827) 4 Bing 66
Rhodes v Fielder (1919)

The agent has the right to a lien (charge on the property). In order to protect the agent’s rights
to remuneration or indemnity, the agent may be entitled to a lien by the principal, which is in
the agent’s possession.

General lien – any property belonging to the principal can be held until the debt is paid.
Particular lien – relates only to property which is the subject of a particular transaction on
which payment is owed.

Agency relationship is a fiduciary one, which gives rise to fiduciary rights and duties.

❖ The duty to obey instructions. Under a contract, the agent is contractually obliged to
perform the duties which he has been given, and he is liable for breach of contract if he
fails to perform such duties. Turpin v Bilton (1843)

The agency relationship is not contractual. Generally the agent is not under a duty to act. See
Headleyburn case. However, the agent may be under a duty to warn the principal of risks
which might be inherent by any instructions given by the principal. The agent is not obliged
to obey instructions which require illegal actions.

❖ Where the agent is a professional, his actions may be limited by the rules of professional
conduct.
The duty to exercise reasonable care – this requirement is in relation to the execution of the
agent’s authority. Where there is a contact the agent will be subject to duties both in contract
and tort. Hence, he may be sued for both negligence and breach of contract in this regard. If
liability for negligence is to be excluded, clear words must be used in the contract. See
Henderson v Merrett (1994) at page 7.

Standard of Care – what is reasonable on the circumstances (not the standard of angels).
If the agent operates within a profession, the standard of care is what is required by the
profession. This duty of reasonable care also can apply where the agent is gratuitous.
Chaudhry v Prabhakar (1988) 3 ALL ER 718
The plaintiff sued a friend of hers for wrongly advising her that a car she was thinking of
buying was in good condition. The plaintiff asked the defendant, a friend who claimed to be
knowledgeable about cars, to help her purchase a vehicle. The plaintiff bought a car after the
defendant recommended a car which he stated had not been in any accidents. The car had
visible damage and the defendant had not enquired about the cause. The car was in fact not
roadworthy, due to a previous accident.
Held: An agent, even a volunteer, owed a duty of care appropriate for those circumstances.
The measurement was objective, not subjective. The defendant knew he was to be relied
upon, and the circumstances (a crumpled bonnet) suggested that further enquiry was required.
A duty was owed by the defendant as he knew the plaintiff had relied on his advice, on the
basis of his claim that he was knowledgeable about cars.

The duty of personal performance – the agency relationship is a personal one and requires
personal performance. The agent is not allowed to delegate unless it is allowed by the
principal.

Relationship between Principal and Sub-agent

De Bussche v Alt (1878)
A bill in equity was filed for on account in respect of secret profits made by a sub-agent for
the sale of some ships. The plaintiff, the owner, consigned them for sale to a firm in the East,
who appointed the defendant agent for sale in Japan. The P and D corresponded about the
sale; the D made large secret profits and was liable to account.
Decision: The circumstances constituted an express authority to appoint a substitute apart
from the complete ratification of the actual appointment, and it was accordingly held that the
relationship of principal and agent was constituted as between P & D at least, pro hac vice
(for or on this occasion only). D should have been acting as an agent for P. He was expected
to act in P's best interests, not his own. Runs contrary to the fiduciary expectation so he was
breach of fiduciary duty. He had to account for the profits to P. Prentis Donegan v Leeds
[1998] 2 LR 326

The agent’s fiduciary duties arise independently of the contract. These duties exist and can be
enforced even if the contract does not indicate this. In a commercial context, the agency
situation may be less stringent. Kelly v Cooper (1993) AC 205, Armstrong v Jackson [1917]
2 KB 822
❖ There must be no conflict of interest. This rule is not flexible. All the other fiduciary rules
are based in this one. McPherson v Watt (1877) 3 App.
Time doesn’t begin to run until the breach is discovered. Oliver v Court (1820) 8 Price
127
❖ There is to be no secret profit. This rule is strict even with unpaid agents. Boardman v
Phipps (1966) 3 ALL ER 721, Hippesley v Knee Brothers (1905) 1 KB 1
❖ The agent must not take a bribe. The secret profit is what the agent expects to earn from
the transaction or whatever he is engaged to do without the principal’s knowledge. The
bribe, on the other hand is an inducement paid to him in order for him to do or not to do
something. It is a form of secret commission. It is a commission or other inducement
given by a third party to an agent which is secret from the principal.
o Anangel Atlas Compania Naviera (1991) 1 LR;
o Attorney General for Hong Kong v Reid (1994) 1 ALL ER 1;
o Industries and General Mortgage v Lewis (1949) 2 ALL ER 573; and
o Boston Deep Sea Fishing v Ansell (1888) 39 Ch. D 339
❖ The duty to account. The agent has a duty to account to the principal for all property
belonging to the principal which is in the agent’s possession. The agent must keep a full
and accurate record and must keep it separate from his own property.
o Yasuda Fire v Orion Marine Insurance (1995);
o Accidia Foundation v Simon Dickenson [2010] EWHC
Termination by the Parties
The parties can terminate an agency arrangement at any time. If this is done, it is effective to
terminate the agent’s authority and discharge the contract without any breach thereof. The
contract may have a notice period. Martin Baker Aircraft Co v Canadian Flight Equipment
(1955) 2 ALL ER 722
Termination by Operation of Law
-Frustration of the contract
-Insanity Yonge v Toynbee (1910) 1 KB 215
-Death Campanari v Woodbury (1854) 18 CB 400
-Bankruptcy Pacific and General Insurance v Hazell (1997) BCC 400
-Effect of Termination
Lecture 5 - February 7, 2018
Sale of Goods [Act (1895)]
This act is meticulous in its details of every single aspect of a commercial transaction, where
there is buyers no or selling of goods.

The act applies where goods are supplied to a contract. Ours is a knock off to English SOG
Act (1883)

SOG contract is equivalent to that of the general rules of contract. Hence, everything needed
for a valid contract is thus needed for a SOG contract
Gifts are not regulated under the act. If gifts are offered by a seller, this is not a contract of
sale. It may be a different contract, but not one for the sale of good. Esso Petroleum Ltd v
Mardon (1976) 1 ALL ER

Not all cases where payments is to be made means that there is a contract. Pfizer v Ministry
of Health (1965) AC 512, Appleby v Sleep (1968) 2 ALL ER 265

The SOG contract is voluntary, so there is no contract where the parties did not intend.
Norweb v Dixon (1995) 3 ALL ER 952

For the creation of a contract of sale, no formalities are required. You may have a contract of
sale that is oral, written or by conduct. Eg. An auction. SOG Act S4
Where there is failure to agree on the terms of the contract, problems may arise. See British
Steel Corp v Cleveland Bridge and engineering (1984) 1 ALL ER 594

A contract may also be absolute or conditional (some condition needs to be fulfilled as part of
the contract; without the fulfillment of such condition, the contract) It can either be a
condition precedent, or a condition subsequent. S2(2) & S2(4)

For there to be a contract of sale, you must have a seller and a buyer and each one must have
full capacity to contract, i.e. Capacity from a law of contract point of view. Also, they must
be different people as you cannot contract with yourself.

A part owner can sell to the other part owner. The buyer and seller must be committed to
buying and selling.
Note the differences between a sale, conditional sale and hire purchase. A sale deals with the
immediate transfer of ownership, but with a hire purchase and conditional sale, although they
appear commercial the same, they aren’t. With hire purchase agreements, the seller allows the
hirer to have possession and use of the goods in exchange for monthly installments over a
designated period, but property does not pass until after the last payment is made and the
hirer exercises the option to purchase it.

With a conditional sale, the option to buy is exercised at the beginning. The payments
however are also made with installments and property doesn’t pass until the last installment is
paid.

S19 – Sale or return (consignment)

During the time when the buyer has the goods, he is merely a Bailee.
Atari Corp v Electronics Boutique (1998) 1 ALL ER 1010

Where agents are employed to sell, you must differentiate between sale or return, or whether
it is a true agency. Weiner v Harris (1910) 1 KB 285

Transfer of Property
The seller must transferee or agree to transfer the property to the buyer and if there is no such
transfer, it is not a contract of sale. S2 defines property.

Transfer of ownership is the essence of a contract of sale. The distinction must be made
between title in the goods and property in the goods. The title in the goods signifies
ownership and the title is the seller’s claim to absolute property interest. The seller can only
transfer as good a title as he has. S22(1)

The act makes it a condition that the seller has a right to sell. (Implied term) S13A Rowland v
Divall (1923) 2 KB 500

A contract of sale must have the transfer of general property in the goods and this general
property is distinct from special property because where goods are concerned, special
property usually covers a temporary interest and would usually mean that the buyer who gets
special property is a Bailee. That property right is not absolute because it is not ownership.
With bailment, the owner remains the owner and is entitled to the return of the goods. South
Australian Insurance v Randell (1869) LR 3 PC 101, Mercer v Craven [1994] CLC 328 HL –
compare these cases.

S23&24
February 21, 2018
Money Consideration
This is an important part of a contract of sale because a contract of sale is only a sale if there
is an exchange of money. Money is not defined in the Act but the definition of goods exclude
money (section 6); but money can be goods if it is an artefact. Examples of these are special
coins and collectables. Section 6 defines goods but excludes money. Also, where goods are
transformed for consideration, it amounts to a barter or exchange; and in this case, it is not a
contract of sale.

• Esso Petroleum v Customs and Excise

Even if there is a set off there must be money consideration. For example, your phone values
$10, your friend’s phone values $5 and you decide to switch; not just because you like hers
and she likes yours but the cost of each is also taken into contemplation.
• Aldridge v Johnson
• GJ Dawson v Dutfield
Compare with
• Flynn v Mackin
In a situation where you have a part exchange, you can have two contracts
• Connell Estate Agents v Begej
• Forthright Finance v Ingate
Where there are credit card transactions
• Re Charge Card Services Ltd
• Daveis v Customs & Excise Commissions
Price
The price in a contract of a sale of goods is usually agreed between the parties (section 9 (1)).
If there is no agreement as in section 9 (1), section 9 (2) provides for the buyer to pay a
“reasonable price” and what is reasonable is dependent on the circumstances of each case.
• Section 10 (1) [failure to decide price means no contract]
• May v Butcher
• Foley v Classique Coaches [Contract provided for arbitration]
When goods are supplied, the court will find an implied promise to pay a reasonable price
where no price was agreed to.
• Mack v McPhail Brothers
• British Steel Corporation v Cleveland Bridge and Engineering
• Sudbrook Trading v Eggleton

Goods
*Section containing definition already referenced*
• Morgan v Russell
• Moss v Hancock
Types of Goods-
1. Existing Goods- goods owned by the seller at the time of the contract (section 6)
Compare with;
2. Future goods- Goods to be manufactured or acquired after the contract is made (an
agreement to sell) (section 6 (1))

Section 6 (2)(3) makes provisions for contracts of sale where the acquisition by seller
depends on a contingency; that is, if the raw materials are acquired.
• Sainsbury v Street

YOU CAN HAVE SPECIFIC AS AGAINST UNASCERTAINED GOODS

3. Specific Goods- are where you can identify specifically the goods
4. Unascertained Goods-
Goods may become unascertained but not specific.
5. Ascertained Goods- are goods that are separated from unascertained goods

See Sections 17 and 18 (1)

Read chapter for information regarding:
• Hire as against bailment
• Barter as against exchange

Section 19 deals with the intentions of parties- KNOW WHAT EACH SUBSECTION
SAYS!!! KNOW THE FIVE RULES AS WELL

February 28, 2018

Must know part III of the SOG Act
S27-37
Feromental SARL v Med Shipping: “The Simona Case” [1988] 2 All ER 742
Charterers entered into an agreement with ship owners for a cargo in the vessel ‘Simona.’ A
clause of the agreement allowed the charterers the option of termination if the vessel was not
ready to load by 9 July 1982. The charterers gave notice to cancel the contract prematurely,
thus repudiating the contract. The owners did not accept the repudiation and continued
loading the vessel, tendering a notice of readiness on 8 July. However, the vessel was not
ready. The owners claimed for damages for wrongful repudiation.

Issue: The questions arose as to (1) the effect of the wrongful repudiation on the obligations
of the innocent party and (2) whether the charterers lost their right to terminate the contract
by their prior repudiation.

Held: Firstly, the Court held that one party’s wrongful repudiation and failure to perform a
contract does not have the legal effect of terminating the contract. In the case of wrongful
repudiation by one party, the non-repudiating party has the option of either accepting the
repudiation or affirming the contract by continuing to fulfil their obligations. If the innocent
party affirms the contract, he must continue to tender performance thereof. On the facts, after
the charterer’s wrongful repudiation, the vessel owners affirmed the continuance of the
contract, yet failed to fulfil their obligations by tendering the vessel ready to load on time.
Secondly, an unaccepted wrongful repudiation does not cancel a contractual right of
termination. Thus, the charterers’ unaccepted repudiation does not affect their right of
termination if the vessel is not ready by 9 July. As the owners continued to affirm the
existence of the contract and failed to tender the ready vessel on 9 July, the charterers are able
to exercise their contractual right of termination under the existing contractual clause with no
damages.
Classification of Terms
Read S11-15 (deals with classification of conditions and warranties)
A warranty gives the aggrieved party the right to sue for damages, but not the right to
repudiate the contract. Whereas a condition gives the aggrieved party the right to repudiate
the contract. Hence, where a buyer refuses to take delivery of goods, he is repudiating the
contract but he can only do so if his reason to repudiate the contract is in response to a breach
of a condition. If it is a breach of a warranty, he is not entitled to reject goods, but he is
entitled to sue for damages.
See S28 and compare with s11
Breach of an innominate term - instead of looking at the breach of the term itself, the court
will look on the consequences of the breach of such term.
The Hansa Nord Case [1976] QB 44
Citrus pulp pellets for use in animal food had been sold for £100,000 under a contract which
provided for "shipment to be made in good condition." Part of the goods had not been so
shipped and in addition the market value in such goods had fallen at the delivery date. The
buyers rejected the goods which were later resold pursuant to a court order and eventually
reacquired by the original buyers for just under £34,000. The buyers then used the goods for
the originally intended purpose of making cattle food, though the defective part of the goods
yielded a slightly lower extraction rate than sound goods would have done.

The Court of Appeal held that rejection was not justified. The term as to shipment in good
condition was neither a condition nor a warranty but an intermediate term; and there was no
finding that the effect of its breach was sufficiently serious to justify rejection. The buyers
seem to have tried to reject, not because the utility of the goods was impaired, but because
they saw an opportunity of acquiring them at well below the originally agreed price. In these
circumstances their only remedy was in damages: they were entitled to the difference in value
between damaged and sound goods at the agreed destination.

Hong Kong Fir Shipping v Kawasaki (1962) 1 ALL ER 474

A ship was chartered to the defendants for a 2 year period. The agreement included a term
that the ship would be seaworthy throughout the period of hire. The problems developed with
the engine of the ship and the engine crew were incompetent. Consequently the ship was out
of service for a 5 week period and then a further 15 week period. The defendants treated this
as a breach of condition and ended the contract. The claimants brought an action for wrongful
repudiation arguing the term relating to seaworthiness was not a condition of the contract.

Held: The defendants were liable for wrongful repudiation. The court introduced the
innominate term approach. Rather than seeking to classify the term itself as a condition or
warranty, the court should look to the effect of the breach and ask if the breach has
substantially deprived the innocent party of the whole benefit of the contract. Only where this
is answered affirmatively is it to be a breach of condition. 20 weeks out of a 2 year contract
period did not substantially deprive the defendants of whole benefit and therefore they were
not entitled to repudiate the contract
See also Chapter 9 of textbook

March 7, 2018
Bills of Exchange
❖ When the drawee accepts the bill he is called an acceptor.
❖ A drawee only becomes liable to honor the bill if it is presented to him for acceptance and
he accepts it. If he does not accept it, it means that the bill has been dishonoured.
❖ Drawer is the one paying.
❖ A cheque is a bill of exchange.
Primary source of the law on bills of exchange is the Bills of Exchange Act (1892),
incorporated into our law in 1893. The intention of the act was to codify the entire law as it
relates to bills of exchange. It covers BoE, cheques and promissory notes. The common law
remains relevant. Some bills are never presented for acceptance and if the bill is payable at
sight or on demand, it means that it is payable immediately on presentation to the drawee
without any prior acceptance by the drawee and at that time it will either be paid (if there’s
money to honor it) or dishonoured (if there isn’t).
• A cheque is a BOE that is payable on demand. It is presented at the bank for payment, not
acceptance. S73
BoE is used in trade or commerce and its usefulness lies in its negotiability. The payee of the
bill need not present it for payment but he can transfer it to a third party (endorsee) for cash
or pay a debt. A person can use a bill payable at a future date to raise cash now. A person in
lawful possession of a bill is called a holder. Holder for value and holder in due course.

You can discount a bill. If the date for payment is not yet due, you can negotiate the payment
of a bill. For example if a bill is to be paid a month from now and you are in need of the cash
now, you can endorse the bill to someone else for their goods or cash. This may be done at
face value or for discount.

You need not change anything on the bill.

Why use a BoE?

• A bill of exchange is negotiable but cheques are not.

With a BoE, there is an unconditional payment obligation and this helps to make it attractive
as a method of payment for commercial transactions. The obligation is for the most part
independent of any underlying transaction in connection with which it is drawn so that,
generally speaking, the bill can be enforced regardless of a breach of the underlying contract
and this makes the bill as good as cash. So, for example, a buyer cannot refuse to honor the
bill on the grounds that goods delivered by the seller were delivered late or were defective,
unless there is a total failure of consideration.

Fielding & Platt v Najjar (1968) 1 WLR 357, p361

The plaintiff company had contracted to make and export to the defendant an aluminium
extrusion press. The defendant re-assured the plaintiff that it would be lawful for him to
import the plant, but asked that the plant be described falsely on the invoice as ‘parts for
rolling mill’. Payment was made by promissory notes. After the first two promissory notes
had not been met, the plaintiff ceased production, and sued on the notes and succeeded
summarily. The defendant appealed.
Held: The plaintiff was entitled to payment under the first note, because it had performed its
obligations under the contract, and there was no failure of consideration. However there was
no such completed consideration for the second promissory note, and the defendant should be
allowed to defend.
The request to mis-invoice the goods, if illegal, was severable, and did not undermine the
contract as a whole. To succeed in their defence of illegality, the defendant had to show that
the plaintiff was aware that performance by importing the plant would be illegal, and had
agreed to go ahead notwithstanding that illegality. That had not been demonstrated in this
case.

• An innocent party who is ignorant of the facts or circumstances that would make
performance of a contract illegal may be allowed to recover money paid by him under the
illegal contract. Only in exceptional circumstances should a court deprive a claimant of
judgment on a claim based on a promissory note.
Nova Knit Ltd v Kammgarn Spinnerei (1977) 2 ALL ER 463, 470
English and German companies traded in partnership. They agreed that all disputes between
them should be arbitrated in Germany. The English company sold machinery to the German
company and by way of payment received some 24 bills of exchange. After the first six bills
of exchange had been paid, the German company refused further payment on the ground that
the English company had mismanaged the affairs of the partnership and that the machinery
which it supplied was defective. The English company then began in England an action on
the bills. The German company sought to stay the action under the provisions of the
Arbitration Act.
Held: The appeal succeeded. The arbitration agreement did not extend to disputes on bills of
exchange upon which, in any event, their Lordships pointed out, there was no dispute.

The seller has the assurance of payment as the buyer cannot refuse to pay him on the grounds
that there has been a breach and the buyer who has a dispute must satisfy the bill and then sue
for damages. If the buyer does not honour the bill, the seller can get summary judgment
because if it was allowed it would diminish the commercial value of the bill and the
usefulness of the bill and affect its advantage and use in trade. The exception to this is as
aforementioned (where the breach gives rise to a total failure of consideration for which it is
given or a partial failure)

BoE is autonomous for two reasons:

• The bill may have been negotiated (endorsed) and is in the hands of a third party who is
unaware of the claims of the buyer or a dispute in the contract.
• The BoE is treated as good as cash and the payee should be in no worse position than if
he was paid with cash.

Difference between a BoE and Promissory notes

• The promissory note is a promise to pay by one person, made to another, whereas a bill of
exchange is an order by one person (drawer) to another (drawee) to pay somebody else.
• A monetary bill is a promissory note signed by the Governor of the BOJ
March 14, 2018
Definition of Bill of Exchange
S3 BOE Act defines the bill of exchange as an unconditional order in writing addressed by
one persons to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand, or at a fixed or determinable future time a certain sum in money
to the order of a specified person.
Any document not conforming to the above definition is not a bill of exchange.
1. A bill must order payment, it must not merely request or suggest payment. The drawer
orders the drawee to pay money to the payee. The drawer is liable on the bill.
2. The order must be unconditional, meaning that it must not be contingent on something
else. E.g. If funds are available. Although it is not contingent on whether money is
available, there is the necessity of a specific fund which may be indicated from which
the bank can reimburse itself.
3. The order must be in writing. There is no such thing as an oral bill of exchange.
Usually it is in a printed form. However, there is no legal requirement as to what it
can be written on.
4. It must be addressed by one person to another. The drawer and the drawee must be
different people. However, a drawer can write a bill of exchange to himself. S5 the
holder of such a bill can treat it as a bill of exchange or as a promissory note.
5. The bill must be signed by the drawer and the drawer is not liable if it is not signed.
A drawer may sign through an agent. The drawer is not liable if the signature is
forged. Generally speaking, the person who signs a bill is personally liable unless he
signs in a representative capacity, and if he does this, it is the principal that is liable
and not the agent.
Elliott v Bax Ironside (1925) 2 KB 301
Elliot, the plaintiff, had agreed to undertake work for a company, Fashions Fair Exhibition
Ltd and drew a bill of exchange on the company which was accepted by two persons: Bax-
Ironside and Mason. However, Elliot did not trust the solvency of the company alone and
required that the bill be endorsed by the two directors in addition to being accepted by the
company. Accordingly, the same two directors endorsed the bill as follows:
"Fashion Fair Exhibition Ltd. HL Bax-Ironside, Harold A Mason, Directors."
The company subsequently failed and Elliot sought to hold the directors personally liable as
endorsees in their own right. Their defence – that they endorsed the bill in a representative
capacity only – failed.
The ratio decidendi in that case was that the word director was a word of description only and
that there was nothing to show that the signatories to the document signed for and on behalf
of the company.

❖ The drawee (the bank) is usually required to pay as soon as the bill is paid. S10 A cheque
is payable on demand. Note also that a bill may have an express date or there can be an
event at which time it must be paid providing that the event is certain. If the event is not
certain, the bill will fail. S11
• Hong Kong & Shanghai Banking v GD Trade Co. (1998) CLC 238, 242
• Novaknit Hellas v Kumar Bros. (1998) CLC 971
• Williamson v Rider (1962) 2 ALL ER 268, Claydon v Bradley (1987) 1 ALL ER 522

Note that a promissory note that is payable on or before or by a particular date is not regarded
as a valid promissory note. This may also apply to a bill.

6. A bill must order payment to, or to the order is a specified person. The bill can be
payable to a named payee or his order (meaning whoever he directs or order the
drawee to pay it to). This means the bill is transferred, but if it is payable to that
person only, the bill is not transferable and A is the only person who can enforce it. If
the bill is payable to bearer, it can be transferred by delivery and any person to whom
it is transferred can enforce it. A bill that is crossed cannot be transferred.
7. The order must be to pay a certain (specific) sum of money. Although the payment
can be made by installments or it can be paid with interest or in another currency. S9
Note that the date on the bill and the date on a cheque are not statutory requirements.
Anybody bearing the bill can insert the date. S9 (40)
Holders of the Bill
The payee is the initial holder. When the payee endorses the bill and gives it to another
person, that other person becomes the holder.
The holder of a bill is entitled to enforce it, and if when he presents it for payment it is
dishonoured, the holder can take steps to enforce it.
S2 defines the holder of a bill as the payee or endorsee of a bill or note who is in possession
of it, or the bearer thereof.
The mere holder – a holder other than for value who does not claim title to the bill through a
holder in due course. The mere holder’s rights are limited. He can transfer it, he can insert the
date and he can present the bill for payment. The mere holder is the least of the holders
because he can be challenged on the ground of absence or failure of consideration.

Holder for value – can enforce payment by showing that he provided consideration. The act
provides:
• Any consideration which is sufficient to support a simple contract;
• Where there is an antecedent debt or liability of the drawer or the make or negotiator
of the bill, but not that of a third party. The debt must be owed by the person who, at
the time, is liable on the bill. Oliver v Davis (1949) 2 KB 727; Diamond v Graham
(1968) 1 WLR 1061
See also S27 BOE Act
A holder is taken to have provided consideration for a bill if consideration has, at any time
been given for it. Some previous owner who gave consideration would have satisfied for it.
The holder for value can rely on some previous consideration given by a past holder.
• MK International v Housing Bank (1991)

Holder in due course – S29 BOE Act This holder is in the most privileged and protected
position. He holds the bill free from any defect in title or from the claims of personal defenses
which should have been available to prior parties. If there was partial or total lack of
consideration by a past holder, it would not affect the holder in due course.
• He must have taken the bill complete and regular on the face of it and he became a
holder: before it was overdue and without notice that it was previously dishonoured,
assuming that it had been;
• He took the bill in good faith and at the time he negotiated the bill he had no motive
of any defect in title of any previous negotiator.
A person seeking to enforce a bill must satisfy the following:
a) He must be the holder of the bill. Re Jones v Waring and Gillow (1926); Jade Intl.
Steel v Robert Nichols (1978) 3 ALL ER 104
b) The bill must be regular and complete on the face of it. Arab Bank Ltd v Ross (1952)
2 QB 216
c) The bill must not have been overdue at the time of transfer, eg.a cheque is good for 6
months. [S36(3)] What’s an unreasonable amount of time is a question of fact;
d) The holder must have had no optics of a previous dishonour;
e) The holder must have taken the bill without notice of any defect and in good faith.
S29 Jones v Gordon (1877)
f) The holder must take the bill for value (must have provided consideration) Clifford
Chance v Silver (1992) 2 Bank LR 11