COMMERCIAL LAW 11

COURSE OUTLINE

1. Bailement
2. Hire purchase
3. Lien
4. Contracts of guarantee
5. Carriage of goods
6. Bankruptcy

BAILMENT

It is the voluntary transfer or delivery of goods from one person (bailor)to another (bailee) on the
basis of the condition or contract that the goods will be returned to the bailor as soon as the time
for which they were bailed has elapsed or when the purpose for which they have bailed has been
accomplished.

Bambridge V Firmstone (1838)

The plaintiff sued when the defendant failed to fulfill his promise to return 2 boilers in them
original good condition after weighing them. The defendant pleaded lack of consideration i.e.
that he had acquired no benefit in taking possession of and weighing the boilers.

Justice Petterson noted that there was a detriment suffered by the plaintiff from his partying with
possession for even a short time.

Lord Denman observed that there is no requirement for furnishing consideration beyond the fact
of entrusting the goods to the custody of another on that others promise to return them.

He further observed that common law does nlt prescribe any formalities fr the creation of
bailment. It is therefore nt necessary to establish the existence of a contract inorder to succeed in
a claim in bailment.
Coggs v Bernard (1903)

The plaintiff sued for the loss of brandy during the movement of casks from one seller to
another. The defendant argued that there was no consideration given for movement of casks.

CJ Hault rejected the defendant’s argument by stating the owners trust in him with the goods is
sufficient consideration to oblige him to careful management.

Building and civil engineering holidays scheme management ltd v post office (1966)

Lord Denning stated ‘at common law, Bailment is often associated with a contract. But this is
always not the case. An action against a bailee can often be put not as an action in contract nor in
tort but as an action on its on, suig generis, arising out of possession by the bailee of the goods.’

Also noted by the lord Denning in the above case that unless the bailee can prove that loss or
damage is not due to any fault on his part, the bailee is liable to the person who suffers loss or
damage. An employee will be liable for the negligence of his employee where there in
negligence in the performance of a task that results in loss of injury.

A principal will in the same manner be liable for the wrongful act of his agent that results in loss.

Morris v CN Martin & Sons Ltd (1966)

The plaintiff sent fur to furrier to be cleaned. The furrier sent the fur to the defendant for
cleaning after informing the plaintiff that he could arrange for the defendant to clean the fur. The
fur aws by the defendants servant. The defendant pleaded excemption clauses contained in the
contract with the furrier.

Held: The defendant owed a duty of care to the plaintiff and was not protected by the exemption
clause.

Kisumu Trading stores v K B Shah and another (1965)

The applicant was entitled to recover the value of the goods stolen by the respondents servant it
is immaterial that the employer or principal does not benefit from the wrongful act f the servant
or agent or that the employee was not negligent in employing the servant.
United Africa company Ltd v Seka Owoade (1951)

Lord Oakeey stated that what is relevant in determining liability is whether the fraus as
committed in the course of the servants employment.

Express Kenya Ltd v Patel (2001)

Held:

The bailee is vicariously liable for goods stolen by his servants or agents.

DUTIES OF THE BAILEE

1. Duty of care

The bailee is under the duty whether or not there is reward for the bailment.

The standard of care is that of a reasonable or prudent ma/person.

The goods must be returned on the due date withot necessarily being asked for by the bailer.

The goods should be in as good a condition as that in which they were originally delivered.

Breach of this dutymay render one liable for loss or damage of the goods from the date of default
as the law presumes negligence to b the cause f tlhe breach unless the bailee shows that the loss
or damage was due to unforeseen circumstances even though he took due care.

Chatrishia and company ltd v purachand and sons (1959)

The appellant agreed to store metal sheets in its go down. Its representative signed a letter
containing conditions upon which the sheets were to be stored. One of the conditions exempted
the respondents from liability for loss of the sheets it was later found that some sheets were
missing the appellant sued

Held on appeal:

The respondents as bailees failed to account for a number of sheets by explaining what happened
to them. They therefore failed to bring themselves within the protection of the exemption clause.
Woolnier v Delmer price Ltd (1955)

the plaintiff delivered a fur coat to the defendant for storage. The defendant receipt stated that all
goods were left at the customers risk.

Held:

The plaintiff was entitled to recover the value of the coat from the defendant. The defendant
could only escape liability if they proved that loss did not occur due to their negligence.

J Spurling Ltd v Bredchow (1956)

Lord Denning stated that it is for the bailee in every case to bring himself within the exeption and
not the bailor to rebut the disclaimer in the risk clause further, he stated that since the essence of
the contract by a warehouse man is that he will store the goods in the contractual place. If he
store them in a different place of consumes them, or destroys them, sells them or inexcusably
deliver them to someone else, he is liable for a fundamental breach which goes to the root of the
contract and cannot rely on an exemption clause.

2. Not to use the goods

The goods shoud not be put to any us except for the purpose of their preservation or maintance
unless tlhe goods are under a bailment of hire for use by the bailee.

3. To return the goods

The bailee is under a duty to return the goods to the bailor at the expiration of the period fixed
for bailment or upon the accomplishment of purpose or condition to which they were held.

DUTIES OF THE BAILOR

1. Duty of disclosure

Disclosure is with regard to the nature and state of the goods to enable the bailee to exercise
reasonable care over the goods. It is also for the personal safety of the bailee whilst using them
or in accomplishing the purpose for which he holds them or in accomplishing the purpose for
which he holds them. Failure to disclose renders the bailr liable for loss/damage resulting from
the duty to disclose e.g where there are faults or defects that may materially interfere with the use
of the goods or expose the bailee to the risk of injury.

2. Duty to indemnify the bailee

This is for any expenses incurred in the proper execusion of the bailees duties under the bailment
and for any loss due to a defect in the bailors title to the goods. This duty also applies for
expenses in storage, preservation or maintance of the goods.

3. Duty to pay money due

This is with regard t skill applied where goods are bailed for a particular purpose if such sums
are not paid, the bailee has a right of lien over the goods. i.e retaining possession to enforce
payment of his claim in respect of outstanding expenses or claims.

4. Duty to take delivery

The bailor has a duty to take delivery of goods upon completion of the purpose for which they
were bailed or upon notice –section 4 of disposal of uncollected goods act

Section 5(4) states that where the bailees obligation has ended, notice to take delivery may be
given at any time after obligation ends.

Section 6- where the bailor fais to take delivery, the bailee may give him notice in the priscribed
form of the intention to sell the goods.

Section 7- the sale must be made in good faith and for the best price obtainable in the
circumstance.

Sachs v Miklos

Failure by the bailor to respond to letters informing him that the bailee is no longer willing to
hold his property and would like sell it may lead the court to infer that the bailor was so
disinterested in the propertly that he impliedly assented to the sale.

Wrongful disposal however entitles him to damage in conversion.

 LIEN

This is a form of legal security.

In Halmond V Barclay (1802), Gross J stated…

‘a lien is a right in one man to re.tain that which is in his possession belonging to another, till
certain demands of him, the person in possession, are satisfied.’

The common law (possessory) lien entitles a person who has done work for another to detain
goods in his possession belonging to that other until the charges for the work have been paid.

General liens are exercisable over all the goods in the lines possession whether the charge is
related to work done on those goods or to other work.

Generally, general liens are discouraged by the Courts. See Rushford V Hadfield.

Solicitors, bankers, factors, stockbrokes and insurance and insurance agents have been held to
have general liens.

See:

Ismail V Richards Butter ) a firm) (1996)

Bentley v Gaisford (1997)

Brandao V Barnett (1846)

A particular lien entitles the lienee to hold a debtors goods pending payment of changes incurred
in relation to the goods detained. Therefore, a repairer has lien over the repaired goods to secure
his charges for repairs.

See:

The ijaola (1979) 1 llyods Rep 103

Pinnock 4 v Barnsley (1844) 1 car klr 344

Matsuda V Waldof Hotel Co Ltd 21 1FLR

Barring V Carrie (1818)

Re London & Globe Finance Cooporation (1902)

Hewison V Guthrie (1836)

Accountants only have a particular lien over the books of accounts files and papers their clients
see: Wood worth V Conroy (1976)

Liens have been classified in the following manners;

1. Common law
2. Statutory
3. Equitable
4. Maritime

1. COMMON LAW LIEN

Tappenden V Artus 1964

Diplock LJ:

‘the common law remedy of possessory lien is one of self help. It is a remedy in rem exercisiable
upon the goods and its exercise requires no intervention by the courts for it is exerciseable only
by an artificer who has actual possession of the goods, it necessarily involves a right of
possession adverse to the right of the person who, but for the lien, would be entitled to
immediate possession of the goods…’

A common law lien gives a personal right of retention to the lienee- the person in possession of
goods belonging to another- the lienor. See Legg V Evans (1840).

Like a pledge, a common law lien depends on possession, although a lien depends on the
retention of possession of goods previously delivered to the lienee in another capacity, whereas a
pledge requires delivery of possession as security.

See: Re Cosslet (Contractors) Limited (1998)

A lien generally arises by operaton of the law. See Re Bond Worth Ltd 1980) but it may also be
created by contract –see Gladstone V Birley (1817)
A contractual lien supercedes or exluseds a lien arising by operation of law. The rights of the
parties are determined by the terms of the contract. See Fisher V smith (1818)

Although a lienee may be given a contractual power of sale, this does not convert a contractual
lien into a equitable charge or pledge. See international Ltd v Barlow (1999) and Marcq V
Christie Manson & woods ltd (t/a Christian) (2003)

A lienee unlike a pledgee cannot dispose of his interst and at common law has no implied right to
sell the goods which are the subject matter of t he lien- see Donald V Suckling (1866)

Exceptions:

However, a lienee may be given the powe of sale in the following circumstances:

i. By contract
ii. By trade usage- Re exparte Moffatt (1841)
iii. By statute e.g under the disposal of uncollected goods act and the sale of goods act- the
upaid sellers right of resale
iv. On the application of any party, a court as power to order the sale of any property which
is the subject of a claim or with regard to which any question may arise on a claim and
which is of a perishable nature or which for any other good reason it is suitable to sell it
quickly see- Lainer V Fawcett (1950)

2. STATUTORY LIEN

E.G the unpaid sellers lien in the sale of goods act (S41 & 42)

Like the common law lien, the above lien under the act is a possessory lien.

3. EQUITABLE LIEN

Imposed by Courts for fairness. Possession of the property by the creditor is not required. The
most common application of this lien is in circumstances where there is no unpaid vendor of
land. It can however also apply in circumstances involving personality- moveable property. See
International finance cooperation v DSNL offshore Ltd (2005)
 4. MARITIME LIEN

A right of action in rem against a ship and freight for payment due under a contract, for the cost
of salvage or for damage caused by a ship.

TERMINATION OF LIEN

The intention of the parties to terminate a lien may be expressed in the terms of an agreement

See- Albermarie supply company ltd v thnd and company (1928)

The intention to terminate the lien may also be implied –see Allen V smith (1862)

Where there is no evidence of a contrary intention, loss of possession will terminate the lien.
Pennington V Reliance Motor works ltd (1923)

MEANS OF TERMINATION

1. Loss of possession to a lien or a third party-see Mulliner V Florence (1878)

2. Waiver of necessity of making a tender. –see Albermarie supply company Ltd v Hind and
company
3. Payment or tender of the amount due.
4. Accepting alternative security in substitution of the lien.
5. A wrongful sale- see Mulliner V Florence (1878) or other act of conversion- see Rust v Mc
Naught & Company Ltd (1918)

Albermarie supply company Ltd v Hind and company (1928) 1KB 307

Despite an express agreement providing that the hirer could not create liens without the owners
conset, it was held that the owner had held out the hirer as having sufficient authority to create
liens. As the express limit on that authority to create liens had not been communicate to the third
party, that third party was not therefore bound by it. The fact that the third party knew that the
hirer was not the owner of the cars in the question did not matter.
Tappendend v Artus & Rayleigh Garage (1964)

Tappenden, a car dealer, agreed to lend his car to Artus on the condition that Artus would insure
it. While Artus was using the car, it broke down and he took it to Reileigh Garage for repairs. He
refused to pay the garage. Tappended revoked the bailement and demanded possession of the car
from the garage. The garage refused to give up the car claiming a lien.

Held;

The garage eas entitled to the lien. Diplock LJ stated that delivery of possession to a repairer
created a lien in favour of the repairer against the creditor and any clause in the hire contract
between the debtor and the creditor would not affect this lien unless the repairer knew of it.

See also;

Nyakwana V Ongaro (2015)Eklr

Jiva Ismail Service Station (1971) Eklr

Marshalls E.A. Ltd V Osoro (1993) Eklr

HIRE PURCHASE CONTRACTS

NATURE OF HIRE PURCHASE AGREEMENT

S.2 Hire Purchase Act

Hire purchase agreement means an agreement for the bailment of goods under which the Bailee
may buy the goods or under which the Bailee may buy the goods or under which the property in
the goods will or may pass to the Bailee

The owner of goods hires them out for an agreed periodic amount payable in instalments and
gives the hirer the option to purchase. The property in the goods passes when all the agreed hire
purchase installments has been paid together with a normal amount payable with the final
instalment.
ESSENTIALS OF THE PURCHASE AGREEMENT

1. It should be registered

S. 5 (4) – if the same is not registered, it is not enforceable by the owner, hirer or guarantor if
any.

No security given by the hirer or guarantor shall be enforceable.

S. 6 (2)- provides that the following are also necessary for enforceability of a hire purchase
agreement.

a) The agreement is signed by the hirer and by or on behalf of all other parties to the
agreement and
b) The agreement contains a statement of:
i. The higher purchase price and the cash price of the goods to which the
agreements relates
ii. The amount of each of the installments by which the hire purchase price is to be
paid and the date or (mode of determining the date) upon which each installment
is payable
iii. A description of the goods sufficient to identify them.
c) The agreement contains a notice in the prescribed form relating to the rights of the hirer
which is at least as prominent as the rest of the contents of the agreement.
d) A copy of the agreement has been delivered or sent by registered hosts by the owner to
the hirer within 21 days of the date of the agreement.

NOTE HOWEVER:

S 6(3):

(3) if the Court is satisfied in any suit that a failure to comply with the requirement specified in
paragraphs (b), (c) and (d) of subsection 2, has not prejudiced the hirer, and that it would be just
to dispense with the requirement, the Court may, subject to any conditions that it thinks fit to
impose, dispense with that requirement for the purposes of the suit.
S7 renders the following provisions in a HP agreement void:

Restricting the owner’s liability for wrongful entry into premises to reposes goods.

Any term to restrict or exclude the hirer’s right under Section 12 of the act to terminate the
agreement.

Any term that seeks to increase the hirer’s liability upon termination of the HP agreement.

IMPLIED TERMS OF A HIRE PURCHASE AGREEMENT

S8 (1)- in every hire-purchase agreement, there shall be implied:

(a) A condition that the owner will have a right to sell the goods at the time when the
property is to pass;
(b) A warranty that the hirer shall have and enjoy quiet possession of goods;
(c) A warranty that the goods will be free from any charge or encumbrance in favor of a
third party at the time where the property is to pass;
(d) Except where the goods are second-hand goods and the agreement contains a statement to
that effect, a condition that the goods will be of merchantable quality, and
(e) A condition that the legal ownership of, and title to, the goods shall automatically be
vested on the hirer upon payment of the hire-purchase price in full:
-Provided that o such condition shall be applied by virtue of this subsection as
regards defects of which the owner could not reasonably have been aware at the
time when the agreement was made or, if the hirer has examined the goods or a
sample of them, as regards defects which the examination revealed or ought to
have revealed.

(2)Where the hirer expressly or by implication makes known the particular purpose for which the
goods are required, there shall be implied a condition that the goods will be reasonably fit for
that purpose.

(3) the conditions and warranties set outing subsection (1) of this section shall be implied
notwithstanding nay agreement to the contrary; and the owner shall not be entitled to rely on any
provision in the agreement excluding or modifying the condition set out in Subsection (2) unless
he proves that before the agreement was made the provision was brought to the notice of the
hirer and its effect made clear to him.

(4) nothing in this section excludes or prejudices the operation of any other law where by any
condition or warranty is to be implied in an agreement.

EFECTS OF MISREPRESENTATION IN A HIRE PURCHASE AGREEMENT

S34. Any person who knowingly gives false information in any proposal form or other document
completed for the purpose of entering into a hire-purchase agreement shall be guilty of an
offence and liable to a fine not exceeding five thousand shillings or to imprisonment for a term
not exceeding six months, or to both such fine and imprisonment.

The hirer may plead to est factum- it is not my deed- that he signed without fully realizing its
nature and therefore it should be invalid as long as he has not signed it as a result of his
negligence.

In Muskham v Howard (1963) a hirer who signed an indemnity falsely represented as a

document releasing him from liability successfully pleaded the defense and avoided liability
unde………………

ASSIGNMENT OF THE OPTION OF PURCHASE

S 2(1) - ‘Hirer’ means the person who takes or has taken goods from a owner under a hire-
purchase agreement, and included a person who the hirers rights or liabilities under the
agreement have passed by assignment or by operation of law.

DUTIES UNDER HIRE PURCHASE AGREEMENTS

HIRER

1. Pay hp instalments
2. Take delivery of the goods
 3. Exercise reasonable care of goods
4. If stipulated that the goods should not be removed from Kenya (S10) to comply.
5. Not to re-let or sell the goods.

OWNER:

1. Terminate the agreement and repossess the goods

2. Sue if unpaid for goods.

TERMINATION

12. (1) - At any time before the final payment under a hire-purchase agreement falls due, the
hirer may terminate the agreement by returning the goods to owner and giving him written notice
of termination of the agreement, and if he does so, he shall be liable to pay sums which were due
in respect of the hire purchase price immediately before the termination or such lesser amount as
may be specified in the agreement.

(2)- Where a hire-purchase agreement has been terminated under this section, the hirer shall, if
he has failed to take reasonable care of the goods, be liable to pay damages for the failure.

(3)- A hirer returning goods under subsection (1) shall return them at his own expense to the
premises from which they were originally supplied to him or to such other place as the owner
may direct.

Provided that the owner shall reimburse the hirer for any additional expense incurred in returning
the goods to premises other than those from which they were originally supplied.

13(1) - The hirer under a hire\-purchase agreement may give notice in writing to the owner of his
intention to complete the purchase of the goods by paying or tendering to the owner on a
specified day the net balance due to the owner under the agreement, and having given such
notice may complete the purchase accordingly on the day specified.
(2)- For purposes of subsection (1), the net balance due is the balance originally payable under
the agreement less any amounts (other than the deposit) paid or provided, whether by cash or by
other consideration, by or on behalf of the hirer under the agreement.

(3)- The rights conferred on the hirer by this section may be exercised by him-

a) At any time during the continuance of the agreement; or

b) Within twenty –eight days after the owner has taken possession of the goods, upon
paying or tendering to the owner in addition to the net balance due,
i. The reasonable costs incurred by the owner in and incidental to taking
possession of the goods; and
ii. Any amount properly expended by the owner on the storage, repair or
maintenance of the goods; and
iii. Any additional interest which is due under the agreement.

15 (1) - Where goods have been let under a hire-purchase agreement and two-thirds of the hire-
purchase price has been paid, whether in pursuance of the agreement or of a judgment or
otherwise, or has been tendered by or on behalf of the hirer or a guarantor, the owner shall not
enforce any right to recover possession of the goods from the hirer otherwise than by suit.

(2)- If an owner retakes possession of goods in contravention of subsection (1), the hire-purchase
agreement, if not previously terminated, shall terminate and –

a) The hirer shall be released from all liability under the agreement and shall be entitled to
recover from the owner by suit all sums paid by the hirer under the agreement or under
any security given by him in respect thereof; and
b) A guarantor shall be entitled to recover from the owner by suit all sums paid by him
under the contract of guarantee or under any security given by him in respect thereof.

16(1)- where a suit is instituted in the circumstances describe in section 15, the owner shall not
take any step to enforce payment of any sum due under the hire-purchase agreement or under any
contract of guarantee relating thereto, except by claiming the sum in the suit.
(3) Pending the hearing of the suit;

a) The court shall have power, in addition to any other powers, to make upon the application
of the owner such orders as the court thinks just for the purpose of protecting the goods
from damage or depreciation, including orders restricting or prohibiting the use of the
goods or giving directions as to their custody; and
b) Without prejudice to the powers of the court under paragraph (a), where two installments
of the hire purchase price are due and unpaid, the owner may remove the whole or any
part of the goods to any premises under his control for the purpose of protecting them
from damage or depreciation and retain them there pending the hearing of the suit, and
the owner shall be liable to the hirer for any damage or loss which may be caused to them
there after such removal but shall not be taken to have repossessed the goods for the
purposes of this act or of the hire-purchase agreement by reason of his having so done.
See:
Diamond Trust Bank Kenya Limited (formerly Diamond Trust of Kenya Limited)
vs Jaswinder Singh Enterprises (1999) eKLR
Karanja Vs Concord Insurance Company Limited (1997) eKLR
National Industrial Credit Bank Limited V Wasike & another (2015) eKLR