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ZAMBIA ICT COLLEGE

FACULTY OF BUSINESS STUDIES

MODULE BBA/BAC 150

BUSINESS LAW

KALONGA CHANSA
First Edition 2020
LLM (Candidate), LLB, Dip.Ed
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COURSE CONTENT

UNIT 1: NATURE OF LAW…………………………………………………………………………………………6

1.1 Definition of Law………………………………………………………………………………………….7

1.2 Classification of Law…………………………………………………………………………………….7
1.3 Public Law and Private Law………………………………………………………………………….7
1.4 Criminal Law and Civil Law…………………………………………………………………………..7
1.5 International Law and Municipal Law…………………………………………………………..9
1.6 Substantive Law and Procedural Law…………………………………………………………….9

UNIT 2: SOURCES OF LAW IN ZAMBIA……………………………………………………………………..10

2.1 The Constitution……………………………………………………………………………………………10

2.2 Legislation……………………………………………………………………………………………………..11
2.3 Judicial Precedent………………………………………………………………………………………….11
2.4 Customary Law………………………………………………………………………………………………12
2.5 English Law…………………………………………………………………………………………………….12

UNIT 3: THE LEGISLATIVE PROCESS…………………………………………………………………………..14

3.1 The White Paper………………………………………………………………………………………………14

3.2 First Reading……………………………………………………………………………………………………14
3.3 Second Reading……………………………………………………………………………………………….14
3.4 Committee stage……………………………………………………………………………………………..14
3.5 Report Stage……………………………………………………………………………………………………14
3.6 Third Reading………………………………………………………………………………………………….14
3.7 Categories of Legislation………………………………………………………………………………….15
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UNIT 4: FORMS OF LIABILITY……………………………………………………………………………………….18

4.1 Criminal and Civil Liability…………………………………………………………………………………18

4.2 Liability in Contract and Liability in Tort……………………………………………………………19

UNIT 5: INTERPRETATION OF STATUTES……………………………………………………………………….21

5.1 The Literal Rule…………………………………………………………………………………………………...21

5.2 The Golden Rule…………………………………………………………………………………………………..22
5.3 The Mischief Rule………………………………………………………………………………………………….22
5.4 The Eiusdem Generis Rule…………………………………………………………………………………….23
5.5 The Expression Alterius Rule…………………………………………………………………………………23

UNIT 6: FORMATION OF A CONTRACT……………………………………………………………………………..24

6.1 Offer and Acceptance……………………………………………………………………………………………..24

6.2 Consideration…………………………………………………………………………………………………………38
6.3 Privity of Contract……………………………………………………………………………………………………50
6.3 Intention to Create Legal Relations and Capacity……………………………………………………53

UNIT 7: THE TERMS OF CONTRACT…………………………………………………………………………………….60

7.1 Express Terms and Implied Terms……………………………………………………………………………60

7.2 Conditions, Warranties and Innominate Terms……………………………………………………….62
7.3 Exclusion Clauses……………………………………………………………………………………………………..64
7.4 Terms and Representations……………………………………………………………………………………..66

UNIT 8: VITIATING FACTORS……………………………………………………………………………………………….70

8.1 Misrepresentation…………………………………………………………………………………………………….70
8.2 Mistake………………………………………………………………………………………………………………………76
8.3 Duress and Undue Influence………………………………………………………………………………………82
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8.4 Illegality……………………………………………………………………………………………………………………..84

UNIT 9: DISCHARGE OF CONTRACTS……………………………………………………………………………………87

9.1 Discharge by Performance………………………………………………………………………………………….87

9.2 Discharge by Agreement……………………………………………………………………………………………..89
9.3 Discharge by Frustration……………………………………………………………………………………………..90
9.4 Discharge by Breach…………………………………………………………………………………………………….93

UNIT 10: REMEDIES FOR BREACH OF CONTRACT…………………………………………………………………95

10.1 Breach of Contract…………………………………………………………………………………………………….95

10.2 Damages…………………………………………………………………………………………………………………….96
10.3 Action for Price…………………………………………………………………………………………………………..99
10.4 Repudiation………………………………………………………………………………………………………………100
10.5 Rescission………………………………………………………………………………………………………………….100
10.6 Specific Performance………………………………………………………………………………………………….100
10.7 Injunction………………………………………………………………………………………………………………….101
10.8 Quantum Meruit……………………………………………………………………………………………………….102

UNIT 11: SALE OF GOODS CONTRACTS………………………………………………………………………………103

11.1 Nature and Definition of Contract of Sale of Goods……………………………………………….103

11.2 How the Contract is Formed……………………………………………………………………………………105
11.3 The Terms of the Contract……………………………………………………………………………………….106
11.4 The Passing of Property…………………………………………………………………………………………….117
11.5 Risk……………………………………………………………………………………………………………………………120
11.6 Delivery, Acceptance, Payment………………………………………………………………………………….122
11.7 Remedies…………………………………………………………………………………………………………………..124
11.8 Sale by a Person Who is not the Owner…………………………………………………………………….125
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UNIT 12: AGENCY…………………………………………………………………………………………………………….130

12.1 Definition of Agency………………………………………………………………………………………………130

12.2 Examples of Agents……………………………………………………………………………………………….130
12.3 Creation of Agency…………………………………………………………………………………………………131
12.4 Disclosed Agency and Undisclosed Agency…………………………………………………………….136
12.5 The Rights and Duties of the Agent………………………………………………………………………..138

UNIT 13: BUSINESS ORGANISATIONS…………………………………………………………………………………145

13.1 The Sole Trader……………………………………………………………………………………………………….145

13.2 Partnerships…………………………………………………………………………………………………………….145
13.3 Companies……………………………………………………………………………………………………………….154

UNIT 14: LAW OF TORT……………………………………………………………………………………………………160

14.1 Definition of a Tort…………………………………………………………………………………………………160

14.2 Tort and other Wrongs…………………………………………………………………………………………..160
14.3 Types of Torts…………………………………………………………………………………………………………160
14.4 Negligence……………………………………………………………………………………………………………..163
14.5 Professional Negligence…………………………………………………………………………………………168
14.6 Nuisance………………………………………………………………………………………………………………..173

UNIT 15: EMPLOYMENT LAW……………………………………………………………………………………………..188

15.1 The Contract of Employment…………………………………………………………………………………….188

15.2 Vicarious Liability……………………………………………………………………………………………………….193
15.3 Employment Status……………………………………………………………………………………………………195
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UNIT 1: NATURE OF LAW

Law is essential to any society in that it provides the rules by which people and business
interact. Law affects every function and area of business. The authors of one business law text
go so far as to say that “the difference between winning and losing in the business world often
depends upon the ability to make good choices from a legal perspective.”

This is because almost every business decision has legal repercussions, including deciding
whether to incorporate a business, obtaining financing, protecting proprietary knowledge used
to develop products/services, entering into contracts to purchase raw materials, ensuring that
products meet safety standards, disposing of plant wastes, promoting and pricing
products/services, entering into contracts to sell products/services, and providing product
warranties and after-sales service.

At all stages of business, running afoul of the law can hurt a business, while playing within the
boundaries of the law can help the business to succeed. For this reason, accountants, who play
a key role in almost every aspect of operations, must have a solid working knowledge of the law.

The law affects every aspect of our lives; it governs our conduct from the cradle to the grave
and its influence even extends from before our birth to after our death. We live in a society
which has developed a complex body of rules to control the activities of its members. There are
laws which govern working conditions (e.g. by laying down minimum standards of health and
safety), laws which regulate leisure pursuits (e.g. by banning alcohol on coaches and buses
travelling to football matches), and laws which control personal relationships (e.g. by prohibiting
marriage between close relatives).

So, what is ‘law’ and how is it different from other kinds of rules? The law is a set of rules,
enforceable by the courts, which regulate the government of the state and governs the
relationship between the state and its citizens and between one citizen and another. As
individuals we encounter many ‘rules’. The rules of a particular sport, such as the off-side rule in
football, or the rules of a club are designed to bring order to a particular activity. Other kinds of
rule may really be social conventions, such as not speaking ill of the dead. In this case, the ‘rule’
is merely a reflection of what a community regards to be appropriate behaviour. In neither
situation would we expect the rule to have the force of law and to be enforced by the courts. In
this Business Law, we are concerned with one specific area of law: the rules which affect the
business world. We shall consider such matters as the requirements that must be observed to
start a business venture, the rights and duties which arise from business transactions and the
consequences of business failure. In order to understand the legal implications of business
activities, it is first necessary to examine some basic features of our Zambian legal system.

CLASSIFICATION OF LAW
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There are various ways in which the law may be classified; the most important are as follows:

Public and private law.

(a) Public law.

Public law is concerned with the relationship between the state and its citizens. This comprises
several specialist areas such as:

(i) Constitutional law. Constitutional law is concerned with the workings of the British
constitution. It covers such matters as the position of the Crown, the composition and
procedures of Parliament, the functioning of central and local government, citizenship and the
civil liberties of individual citizens.

(ii) Administrative law. There has been a dramatic increase in the activities of government
during the last hundred years. Schemes have been introduced to help ensure a minimum
standard of living for everybody. Government agencies are involved, for example, in the
provision of a state retirement pension, income support and child benefit. A large number of
disputes arise from the administration of these schemes and a body of law, administrative law,
has developed to deal with the complaints of individuals against the decisions of the
administering agency.

(iii) Criminal law. Certain kinds of wrongdoing pose such a serious threat to the good order of
society that they are considered crimes against the whole community. The criminal law makes
such anti-social behaviour an offence against the state and offenders are liable to punishment.
The state accepts responsibility for the detection, prosecution and punishment of offenders.

(b) Private law.

Private law is primarily concerned with the rights and duties of individuals towards each other.
The state’s involvement in this area of law is confined to providing a civilised method of
resolving the dispute that has arisen. Thus, the legal process is begun by the aggrieved citizen
and not by the state. Private law is also called civil law and is often contrasted with criminal law.
Examples: law of tort, contract law, law of succession, employment law, property law, family
law, labour law, commercial law, etc.

2 Criminal and civil law. Legal rules are generally divided into two categories: criminal and civil.
It is important to understand the nature of the division because there are fundamental
differences in the purpose, procedure and terminology of each branch of law.
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(a) Criminal law.

The criminal law is concerned with forbidding certain forms of wrongful conduct and punishing
those who engage in the prohibited acts. A crime has been defined as an act or omission,
committed or omitted in violation of public law e.g. murder, manslaughter, robbery, burglary,
rape, stealing, theft by servant or agent. All crimes or offences in Zambia are created by
parliament through statutes. The purpose of criminal Law is;

· To ascertain whether or not the crime has been committed.

· To punish the crime where one has been committed.

Criminal proceedings are normally brought in the name of the State and are called prosecutions
through the office of the Director of Public Prosecutions (DPP). In criminal cases you have a
prosecutor who prosecutes a defendant court. The consequences of being found guilty are so
serious that the standard of proof is higher than in civil cases: the allegations of criminal
conduct must be proved beyond a reasonable doubt. If the prosecution is successful, the
defendant is found guilty (convicted) and may be punished by the courts. The purposes of
sentencing adult offenders are punishment, crime reduction, the reform and rehabilitation of
offenders, and reparation. Punishments available to the court include imprisonment, capital
punishment, fines, or community orders such as an unpaid work requirement. If the
prosecution is unsuccessful, the defendant is found not guilty (acquitted).

(b) Civil law.

The civil law deals with the private rights and obligations which arise between individuals. The
purpose of the action is to remedy the wrong that has been suffered. Enforcement of the civil
law is the responsibility of the individual who has been wronged; the state’s role is to provide
the procedure and the courts necessary to resolve the dispute. In civil proceedings a claimant
sues a defendant in the civil courts. The claimant will be successful if he can prove his case on
the balance of probabilities, i.e. the evidence weighs more in favour of the claimant than the
defendant. If the claimant wins his action, the defendant is said to be liable and the court will
order an appropriate remedy, such as damages (financial compensation) or an injunction (an
order to do or not do something). If the claimant is not successful, the defendant is found not
liable. Many of the laws affecting the businessperson are part of the civil law, especially
contract, tort and property law.

The distinction between the criminal and civil law does not depend on the nature of the
wrongful act, because the same act may give rise to both civil and
criminal proceedings. Consider the consequences of a typical motor accident. Julie is crossing
the road at a zebra crossing when she is struck by a car driven by Gordon. An ambulance takes
Julie to a local hospital where it is discovered that she has sustained a broken leg. Meanwhile,
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the police have arrived at the scene of the accident and they breathalyse Gordon. The result is
positive and Gordon is charged with a criminal offence based on driving with excess alcohol. He
appears before the local magistrates’ court and is convicted. He is disqualified from driving for
18 months and fined K2, 000. The fine is paid to the court: it does not go to compensate the
victim of the criminal act. However, a criminal court now has a limited power to order an
offender to pay compensation for any ‘personal injury, loss or damage caused to the victim of
his offence. Julie must pursue a separate civil action against Gordon to remedy the personal
wrong she has suffered. She sues Gordon in the tort of negligence, seeking damages for the
injuries she has sustained. The case is heard in court where Gordon is found liable. He is
ordered to pay K20,000 in damages. Normally, the loser in a civil action pays the winner’s costs.
So Gordon is ordered to pay Julie’s costs in bringing the action.

National or Municipal Law

These are rules of law operational within the boundaries of a country. It regulates the relation
between citizens and between citizens and the state. It is based on Acts of Parliament,
customary and religious practices of the people.

International Law

It is a body of rules that regulates relations between countries/states and other international
persons e.g. United Nations. It is based on international agreements of treaties and customary
practices of states and general principles.

Substantive Law

It is concerned with the rules themselves as opposed to the procedure on how to apply them.
It defines the rights and duties of parties and provides remedies when those rights are violated
e.g. law of contract, negligence, defamation. It defines offences and prescribes punishment e.g.
Penal Code Cap 87.

Procedural Law
It consists of the steps or guiding principles or rules of practice to be complied with or followed
in the administration of justice or in the application of substantive law. It is also referred to as
adjective law e.g. Criminal Procedure Code Cap 88, Civil Procedure Act.

UNIT 2: SOURCES OF ZAMBIAN LAW

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Sources of law are the springs or fountains from which we may draw legal authority in dealing
with legal disputes. Sources of law may be classified into two broad categories by virtue of
effect. That is to say, first, some sources are binding sources thus mandatory to consult them
when dealing with a legal issue. Second, some sources are merely persuasive thus it is optional
to consult them when dealing with a legal dispute. The other approach categorization is
whether the source of law is a primary source or secondary source. Primary source have a
binding effect thus mandatory whereas secondary sources are merely persuasive thus optional
to consult.

The following are the sources of Zambian law:

1. The Constitution.
2. Statute law.
3. Judicial Precedents
4. Customary law
5. English Law
6. Common Law and Equity.

THE CONSTITUTION

The Constitution of Zambia is supposed to be the enactment of the people’s desires and
expectations; thus, all the other laws must be in compliance with it in order to be valid. All laws
in Zambia are subject to the constitution. Any law that contravenes or is inconsistent with the
constitution is null and void. Article 1 Section 3 of the Constitution declares that:

This Constitution is the supreme law of Zambia and if any other law is inconsistent with
the Constitution, that other law shall be, to the extent of the inconsistency, be void.

In Thomas Mumba v The People, the appellant was charged with an offence under the Corrupt
Practices Act. In the grounds of appeal, it was submitted that the provisions of Section 53 (1) of
the Corrupt Practices Act, which required that where the accused elected to say something in
his defence, it had to be said under oath thus excluding the option to make an unsworn
statement, was in contravention of Article 20 (7) of the Constitution. Based on the fact that the
Constitution was the supreme law of the land, it was held that Section 53 (1) of the Corrupt
Practices Act was unconstitutional, null and void.

STATUTE LAW
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Statute law, often called legislation, is written law enacted by the approved legislative process
of the state. In Zambia, statute law is enacted by the Zambian Parliament. A statute is also called
an Act of Parliament. Legislation includes any pieces of law made under the powers conferred
by an Act of parliament. It also includes Presidential decrees made by virtue of authority
conferred on the Republican President by the constitution of Zambia. This means there are two
forms of legislation: Acts of Parliament (primary legislation) and delegated (secondary)
legislation.

Delegated Legislation

The process of enacting a bill can be a lengthy one. Parliamentary time is very precious and it
would not be possible to debate and consider in full all of the minute details required.
Delegated legislation is used to save parliamentary time. It means that Parliament is given the
time and the opportunity to do the job that it was elected to do, i.e. debate the underlying
principles of the legislation and the detail can be inputted by another body. Legislation making
powers are delegated to bodies outside Parliament. This legislation is sometimes called
subordinate or secondary legislation. It is legislation made under the powers conferred by an
Act of parliament, or an enabling statute, which is a parent Act. The bulk of delegated legislation
is governmental and it is composed of Statutory Instruments (S.I); Orders, Regulations, Circulars,
Schemes, Bye-laws, Directions and Rules. These are made by ministers. Such legislation
supplements Acts of parliament by prescribing the detailed and technical rules required for
their operation.

JUDICIAL PRECEDENTS (CASE LAW)

Case law is judge made law. Case law is based on precedent, the recorded reasons given by
judges for their decisions and adopted by judges in later cases. It is a body of principles,
customs, doctrines, rules and decisions not made by parliament but handed down from court to
court, from judge to judge, through many generations. The Common law system is based on the
doctrine of judicial precedent or Stare decisis (a latin phrase meaning “to stand by a previous
decision”). The doctrine of judicial precedent simply means that the courts do adhere or follow
their past judicial decisions. Through the system of binding precedent, the courts become a
source of law in that in their interpretation of the statutes or laws, they create binding judicial
precedents. In Zambia, decisions of the Supreme Court of Zambia are binding upon the Court of
Appeal, all High courts of Zambia and all subordinate Courts in Zambia, and to some exceptions,
on the Supreme Court itself. The Supreme Court is ordinarily bound to follow its previous
decisions unless to do so would result into miscarriage of Justice.

Decisions of all the High courts are binding on all inferior magistrate courts. However, a decision
of one High Court Judge is not binding on another High Court Judge but is merely persuasive on
such a court. This rule also applies to decisions of common law courts outside Zambia. Decisions
of the subordinate court and inferior courts do not bind or create binding precedents for
inferior subordinate court or local court magistrates.
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CUSTOMARY LAW

The law that existed in Zambia before the advent of colonialism was the (unwritten) indigenous
law of the tribes. This is generally referred to as customary law. Customary law has no uniform
application in Zambia, but varies from tribe to tribe or locality to locality. Customary law may be
resorted to in the settlement of disputes involving members of the tribe.

Customary law is recognized as applicable to the country by virtue of section 16 of the

Subordinate Courts Act (Cap 28 of the Laws of Zambia) provided that such customary law is not
repugnant to justice, equity or good conscience and is not incompatible, either in terms or by
necessary implication, with any written law in Zambia. The Local Courts Act (Cap 29) does also
recognise the application of customary law to any matter before it, in so far as such law is not
repugnant to natural justice or morality or incompatible with the provisions of any written law.

In Kaniki v Jairus (1967), it was enunciated that the imposition of a rite of purification upon
individuals against their volition was a customary practice contrary to good conscience.

In R v Mubanga & Sakeni (1959), the accused were found guilty by a native court (the
predecessor of the local court) of contempt of Bemba traditional law. The accused, who were
Christians, had declined to supply finger millet for the purposes of the worship of certain tribal
spirits and had persuaded fellow Christians to do likewise. The High Court of Northern Rhodesia
held that even if the customary law was established, it was inconsistent with the Penal Code
(Cap 87) and repugnant to justice. Accordingly, the findings of guilt against the accused were
reversed.

Customary law does permit certain acts which would otherwise amount to an offence under the
written laws of Zambia. For example, the offence of bigamy (Section 166 of the Penal Code) and
the related offence in the Marriage Act, Cap 50 does not apply to marriages contracted solely
under customary law. Thus polygamy which is a well-established institution in many parts of
Zambia continues to be governed by many customary laws of the parties concerned. However,
once marriage is contracted under the Marriage Act, the provisions of the Penal Code and
Marriage Act apply.

ENGLISH LAW

The English Law [Extent of Application] Act, Chapter 11 of the Laws of Zambia (whose object, as
per its preamble, is to declare the extent to which the law of England applies to Zambia),
provides for the application of English common law, doctrines of Equity and certain English
statutes.

COMMON LAW AND EQUITY

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A hundred years after the Norman Conquest, King Henry II began the process of applying one
set of legal rules, the common law, throughout the country. The decisions of judges began to be
recorded, and subsequent judges followed them, in order to provide a uniform system of law
known as the common law. Unfortunately, the common law grew to have several defects and to
counter these, people seeking a remedy could petition the Chancellor, the highest-ranking
clergyman, to ask him to intercede. This justice dispensed by the Chancellor, and later by judges
under the Chancellor’s control, became known as equity. Equity may be defined as that body of
law or principles that was developed and applied in the Court of Chancery in England, in order
to mitigate the harshness of the common law. Certain rights could be enforced in the common
law courts and these were known as legal rights. Some rights were not protected by the
common law courts, but later came to be protected by the Court of Chancery if it deemed it
equitable to do so. These rights were known as equitable rights. By the Judicature Act of 1873,
the Courts of Law and Equity were fused into one Supreme Court divided into a High Court and
Court of Appeal. In spite of the fusion of Courts of Law and Equity, law and equity have still
remained distinct.

Whenever, there is conflict between equity and common law – equity prevails. Principles of
equity are such as “He who goes for equity must have clean hands”. Equity is still developing
such as “equitable interest, equity of redemption and trusts”.

UNIT 3: THE LEGISLATIVE PROCESS

Before any legislative proposal, known at that stage as a bill, can become an Act of Parliament,
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it must pass through Parliament after which it must receive presidential assent.

The White Paper

The White Paper sets out firm proposals for new law. A draft bill is now attached to the White
Paper for consideration.

First Reading

Once the White Paper has generally been accepted, it becomes a bill and is introduced to
Parliament at the first reading. This is a formal stage where the title of the proposed bill is read
out to the House. There is no debate at this stage. In most cases, members of parliament are
availed with a copy of the bill to look and read through in preparation for the stages to come.

Second Reading

After the first reading where the title of the bill is read to the house and the members given
access to such a bill, the bill comes back to the House at second reading where the main debate
on the principles of the bill take place. Members of the House are allowed to make submissions,
concerns and objections to the bill. This is a critical part of a bill where members of parliament
have the leverage to tear the bill apart with their submissions or criticisms. If members of
parliament feel that such a bill ought to be supported, again this is the opportune time to put
their support and lobbying skills to the full extent.

Committee Stage

At Committee Stage, the bill is taken to specifically chosen parliamentary committees (standing
committees) who are mandated to look at the bill critically and to make recommendations to
the house. The parliamentary committees are mandated to report back to the house their
findings about the bill. The committee stage is where the bill may either make it into law or not.
If the members of the committee the bill ought not to make it into law, they can recommend to
the house not to adopt such a bill or support such a bill into law. At committee stage, the bill is
considered in detail; clause by clause by a committee specifically conjured by parliament to look
at the bill

Report Stage

As the name suggests, the report stage is when the members of the committee report to
parliament what their findings are about the bill. This is when all amendments and suggestions
made at the committee stage are reported to the whole House.

Third Reading

On the third reading, the members of parliament get a chance to vote for or against the bill. At
the third reading, there is the final vote on the bill which will determine whether or not such a
bill will be sent to the President for his assent.
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CATEGORIES OF LEGISLATION

Legislation can be categorised in two main ways.

Public Acts

These relate to matters affecting the general public in the country. For example, the Roads and
Traffic Act Chapter 319 of the Laws of Zambia is a public Act because it affects all motorists in
Zambia irrespective of their location, station and standing in life.

Private Acts

These relate to particular individuals or institutions. For example, the Zambia Centre for
Accountancy Studies Act Chapter 319 of the Laws of Zambia is a private Act because it regulates
the affairs of a private institution and not applicable to the rest of the country.

Alternatively, Acts of Parliament can be distinguished on the basis of their function. Some create
new laws, but others are aimed at rationalizing or amending existing law.

Consolidating Legislation

This is designed to bring together provisions previously contained in a number of different Acts
without actually altering them.

Codifying Legislation

Codifying Legislation, on the other hand, seeks not just to bring existing statutory provisions
under one Act but also looks to give statutory expression to common law rules. The Partnership
Act 1890 and the Sale of Goods Act 1893 are examples of this.

DELEGATED LEGISLATION

This is a particularly important aspect of the legislative process. It is law made by some person
or body, usually a government minister or local authority, to whom Parliament has delegated
the general law-making power. A validly enacted piece of delegated legislation has the same
legal force and effect as the Act of Parliament under which it is enacted. The output of
delegated legislation in any year greatly exceeds the outputs of Acts of Parliament and,
therefore, at least statistically it could be argued that delegated legislation is actually making
more significant impact than primary Acts of Parliament.

There are various types of delegated legislation:

i. Statutory Instruments: These are the means through which government ministers
introduce particular regulations under powers delegated to them by Parliament in an
enabling Act of Parliament.

ii. Bye-laws: These are the means through which local authorities and other public bodies
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can make legally binding rules and may be made under an enabling Act as the Local
Government Act Chapter 281 of the laws of Zambia.
iii. Professional Regulations: These are rules governing particular occupations. An example
of this is the power given to the Law Association of Zambia (LAZ), under the Law
Association of Zambia Act Chapter 31 of the laws of Zambia to control the conduct of
practicing lawyers.

ADVANTAGES OF DELEGATED LEGISLATION

Time Saving

Delegated legislation can be introduced quickly where necessary in particular cases and permits
rules to be changed in response to emergencies or unforeseen problems. The use of delegated
legislation also saves parliamentary time generally. It is generally considered better for
Parliament to spend its time in a thorough consideration of the principles of enabling
legislation, leaving the appropriate minister or body to establish the working detail under their
authority.

Access to Particular Expertise

Given the highly specialised and extremely technical nature of many of the regulations that are
introduced through delegated legislation, the majority of members of parliament do not have
sufficient expertise to consider such provisions effectively. It is necessary, therefore, that those
authorised to introduce delegated legislation should have access to the external expertise
required to make appropriate regulations. In regard to bye-laws, local knowledge should give
rise to more appropriate rules than the general Acts of Parliament.

Flexibility

The use of delegated legislation permits ministers to respond on an ad hoc basis to particular
problems as and when they arise.

DISADVANTAGES OF DELEGATED LEGISLATION

Accountability

A key issue involved in the use of delegated legislation concerns the question of accountability.
Parliament is presumed to be the source of statute law because it has been given the mandate
by the people through elections. However, with respect to delegated legislation, government
ministers and the civil servants who work under them produce the detailed provisions of
delegated legislation. As a consequence, it is sometimes argued a to whom these ministers are
accountable as they are not voted for by the people to make such laws. The Ministers are
accountable to the appointing authority who is the President. This may be subject to abuse as
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ministers may want to appease their appointing authority.

Bulk.

Given the sheer mass of delegated legislation, both Members of Parliament and the general
public face difficulty in keeping abreast of delegated legislation. At any one given time, there are
thousands and thousands of pieces of delegated legislation applicable to a particular question
of law. For example, the local authorities pass hundreds and hundreds of delegated legislation
with regard to issues such as garbage collection, street lighting, roads and so on. It is a daunting
task to know which piece of delegated legislation is applicable at which time.

CONTROL OF DELEGATED LEGISLATION

The potential shortcomings in the use of delegated legislation considered above are, at least, to
a certain degree, mitigated by the fact that Parliament and the courts have the ability to
oversee and challenge such laws made in the form of delegated legislation.

How Parliament Controls Delegated Legislation.

In the Zambian Parliament, there is a Joint Select Committee on Statutory Instruments, whose
function is to scrutinise all statutory instruments. The Joint Select Committee is empowered to
draw the special attention of the House of Parliament to an instrument on any one of a number
of grounds specified in the Standing Orders. It is not empowered to consider the merits of any
statutory instrument or the policy behind it.

How the Courts Control Delegated Legislation

A validly enacted piece of delegated legislation has the same legal force and effect as the Act of
Parliament under which it is enacted. However, a piece of delegated legislation only has effect
to the extent that its enabling Act authorises it. Consequently, it is possible for delegated
legislation to be challenged through the process of judicial review, on the basis that the person
or body to whom Parliament has delegated its authority has acted in a way that exceeds the
limited powers delegated to them or has failed to follow the procedure laid down in the parent
Act of Parliament. In such a case, the person or body who acts outside his or its authority can be
said to have acted ultra vires and, therefore, the actions will be void.

UNIT 4: FORMS OF LIABILITY

CRIMINAL AND CIVIL LIABILITY

In essence, it can be said that a crime is a wrong against the state, while a civil wrong is one
against an individual. You should note the following major distinctions:
 18

 State Action and Private Action

In the case of a crime, whilst under certain circumstances an individual may prosecute, the
prosecution will normally be brought by the state. In a civil wrong, such as breach of contract,
the injured party may bring an action against (or “sue”) the party liable, and may recover
damages or other forms of satisfaction.

 Redress and Punishment

The purpose of a civil action is to redress a wrong, whereas the aim of a criminal prosecution is
to punish the wrongdoer, to prevent him from repeating his crime and to discourage others
from committing similar crimes.

 Settlement and Withdrawal

A criminal action can be withdrawn only with the leave of the State, whereas the plaintiff (note
that the term complainant is now preferred and will be used) in a civil action can settle out of
court or withdraw his claim at any time.

Civil law is concerned with private litigation, e.g. breaches of contract, disputes concerning
property. The complainant issues a statement of claim, setting out the facts he alleges against
the defendant and asking for damages or other remedy. The defendant puts in his defence to
the allegations of the complainant. The case is then tried by a judge. If the judge has found for
the complainant, he will make the appropriate order, and award the complainant his costs.

Civil Law and Criminal Law.

The distinction between civil and criminal liability is of fundamental importance. Civil law is
designed to compensate people who have been injured by others. Criminal law is designed to
compensate people who have committed a crime. The purpose of criminal law is to punish the
wrongdoer while the aim of civil law is to compensate a person injured by an unlawful act.
Where a crime is committed, the state prosecutes a defendant e.g. Phiri v The People. Where a
civil wrong is committed, an individual (the claimant) sues an individual (the defendant) e.g.
Smith v Jones. The outcome of a criminal trial is that the defendant is either acquitted or
convicted while the outcome of a civil trial is that the claimant wins the case or does not. If the
defendant is convicted in a criminal case, he/she will be sentenced. In a civil case, the claimant
will be awarded a remedy if he/she wins the case.

Criminal and Civil Law

It is essential to understand the difference between criminal and civil law. It is then possible to
avoid misleading phrases such as, ‘Trespassers will be prosecuted’.

Trespass is, in the main, a civil wrong. It is only criminal offenders who are prosecuted (usually
by the State). Those who cause civil wrongs will be sued by those suffering damage.

Criminal Actions
 19

A crime is an act that is punishable by State sanction. If a person is found to be guilty of a crime,
he will be penalised as a result. The penalty suffered is a punishment (or ‘sentence’)
Punishments include fines, probation orders, terms of imprisonment, and in relation to driving
offences, disqualification.

The person who is prosecuted or accused of committing a crime is called the accused or
defendant. Criminal proceedings are called prosecution.

Civil Wrongs

The civil law exists to protect persons (including non-human persons, such as companies)
against the wrongful actions of others or omissions of other persons. Civil wrongs include
breaches of contract, loss or damage due to a person’s negligence or trespass an injury to a
person’s reputation due to another’s defamatory remarks.

A person who is proven to have caused loss in this way is said to be liable as a result. Any
remedy granted by the court is not usually designed to be punitive but is granted to indemnify
the claimant (the person commencing the civil action) for the loss suffered. Remedies include
damages (the common law remedy) and equitable remedies such as injunction, specific
performance and rescission of a contract.

The claimant is a person who commences a civil action (sometimes called a petitioner in a
divorce or company law matters).

The defendant is the person defending the civil proceedings (sometimes called a respondent).

So, in civil proceedings, also called litigation, the claimant sues the defendant.

The court has to decide whether the defendant is liable or not liable. (The term ‘guilty’ is not
used in civil cases.

Starting civil action in the courts is called suing or commencing proceedings.

Liability in Contract and Tort

It is necessary to consider the differences between liability in contract and liability in tort. A tort
can be defined as a civil wrong which is not a breach of contract. This definition makes it clear
that civil liability can be broadly classified into two types: liability arising in contract and liability
arising in tort. Liability in contract is voluntarily undertaken because something (the other
party’s consideration) is given in return. For example if Business A makes a contract to buy a
computer system from Business B, then both the decision to buy and the decision to sell will
have been freely made. In addition, both sides will have made a bargain. That is to say that the
liabilities which they assumed under the contract will have been given in exchange for the rights
which they gained under the contract.

Liability in tort is not undertaken voluntarily. It is imposed by the courts who have decided that
 20

certain types of behaviour give rise to tortious liability. If a person injures someone else by such
behaviour, the injured person may sue. For example, if a driver runs over a pedestrian, while
driving badly, then the injured pedestrian will be able to sue the driver for the tort of
negligence. The driver has no choice about whether or not to accept such liability. The courts
will impose it. Nor will the driver have received any benefit in return for accepting such liability.
It will have arisen not as a result of a bargain, but as a consequence of having committed a tort.

Another difference is that liability in contract is generally strict, whereas liability in tort is almost
always based on fault. The tort of nuisance is an exception. For example s. 14(2) of the Sale of
Goods Act 1979 requires that goods sold in the course of business must be of satisfactory
quality. This contractual liability is strict. A shop which sells goods which are not of satisfactory
quality is liable for breach of contract even though it was no the shopkeeper’s fault that the
goods were unsatisfactory, and even if the shopkeeper could not have discovered that they
were. But liability in tort is imposed only when a person’s conduct does not match up to an
objective reasonable standard. So a driver who runs over a pedestrian will be liable only if
he/she drove badly and failed to take reasonable care. If it cannot be shown that the driver
drove badly then there will be no liability, no matter how severe the pedestrian’s injuries.

Both the breaching of a contract and the commission of a tort give rise to liability in damages.
However, the purpose of contract damages is not the same as the purpose of tort damages.
Both, of course, are designed to compensate. Contract damages achieve this by putting the
injured party in the position he/she would have been if the contract had been properly
performed, thereby including damages for loss of profit. Tort damages achieve it by putting the
injured party in the position he/she would have been in if the tort had never been committed,
looking at expenses incurred and injuries suffered.

UNIT 5: INTERPRETATION OF STATUTES

When Parliament passes laws, they are supposed to be interpreted by the judiciary in line with
the doctrine of the separation of powers. However, it is not always that legislation that comes
out of Parliament is easy to interpret. Many cases which have been entertained by the common
 21

law courts have been to decipher from a statute, the actual intentions and aims of a particular
piece of legislation. A judge usually needs to resort to the rules of interpretation to ensure that
his/her interpretation of a particular piece of legislation is in line with the intention of
Parliament.

The process by which judges assign meanings to ambiguous words or phrases in statutes is
called the interpretation of statutes (statutory interpretation). It is not the function of the
courts to change or modify legislation. Parliament passes or authorises legislation and it is for
the remainder of the legal system to apply the letter of the law as appropriate.

Legislation is expressed in general terms. The wording of an Act of Parliament cannot deal with
every possible connotation and is bound, on occasions, to be ambiguous and hard to
understand when it is being applied to factual situations. It is a matter for the courts to interpret
the meaning and breadth of a statute. When deciding how the wording of a statute should be
interpreted, the court must look principally at the actual wording of the statute, but there are
other aids to interpretation.

RULES FOR CONSTRUCTION

The Literal Rule

The words of a piece of legislation should be given their ordinary and grammatical meaning.
This rule can only be used if the wording in the statute is clear and unambiguous. The court may
use the Oxford English Dictionary to discover the usual and literal meaning of a particular word.
If the word being examined is capable of more than one meaning, the literal rule cannot be
applied.

For example, in Richard Thomas & Baldwins Ltd v Cummings (1995), an employer is under a
duty to fence dangerous parts of a machine when it is in motion as provided for under the
Factories Act 1961. A workman adjusting a machine in a factory removed the fencing around it
and turned the machine by hand in order to do his job. Was the machine in ‘motion’ when it
was being turned by hand?

Whilst literally, the machine was in ‘motion’ when being turned by hand, the Court gave the
word its secondary meaning, being mechanically propelled. Since the machine was not being
mechanically propelled when turned, it was not in ‘motion’.

However, sometimes a statute may be clear and unambiguous but that its application may lead
to some strange results.

In Whiteley v Chappel (1868), the defendant was charged under a section which made it an
offence to impersonate ‘any person entitled to vote’. The defendant had voted using a dead
person’s name. The court held that the defendant was NOT guilty since a dead person is not, in
the literal meaning of the word, ‘entitled to vote’. Surely this is an absurdity.
 22

The Golden Rule (or Purposive Approach)

This rule is used where there is an ambiguity (i.e. the word has more than literal meaning). The
courts will use the ‘golden rule’ where using the literal rule as was evident in Whiteley v
Chappel (1868) will lead to an absurdity. Under the golden rule, the court will adopt the least
absurd meaning. The courts will give effect to the clear words used by Parliament but will stop
short of arriving at an absurd decision.

In Re Sigsworth (1935), a son had murdered his mother. The murdered mother had not made a
will but, as per rules in the Administration of Justice Act 1925, her next of kin (her son) would
inherit. It was held that the literal should not apply and the golden rule was used to prevent a
repugnant situation.

In R v Allen (1872), the defendant’s lawyers argued that although Allen had married two
different women, he could not be guilty of bigamy because, the crime, as described in the
Offences Against the Person Act 1861, was impossible to commit. Section 57 of the Act provides
that ‘whosoever, being married, shall marry any other person during the life of the former
husband or wife’, shall be guilty of bigamy. Allen’s lawyers argued that this crime was impossible
to commit because one of the qualifications for getting married is that you are not already
married. Therefore, ‘whosoever, being married, shall marry …’ has already defined the
impossible. They contended that the section should have read, ‘whosoever, being married, shall
go through a ceremony of marriage during the life of the former husband or wife’ shall be guilty
of bigamy.

If the judges in this case had used the literal rule, they might well have acquitted. Unfortunately,
for Allen, they used the purposive approach and convicted him. They decided that the literal
approach would have produced an absurd result, that they had not the slightest doubt as to
what parliament had meant when it passed the statute, and that Allen was, therefore, plainly
guilty.

The Mischief Rule

If the words of a piece of legislation are uncertain or ambiguous, the court will adopt the
meaning most likely to give effect to the intention of Parliament. This rule should only be
applied if the literal interpretation does not produce a result. It is a last resort method as it
allows the court to look outside the wording of the statute (for example at transcripts of
Parliamentary debates) to discover what Parliament intended by the particular wording. It is
called the mischief rule because it is supposed to take into account the mischief which the
statute is intended to remedy.

In Smith v Hughes (1960), prostitutes were charged with soliciting on the streets contrary to the
Street Offences Act 1958. Their defence was that they were inside a building and tapping on a
window to attract men (thus not on the street). The court applied the mischief rule and found
them guilty because the Street Offences Act 1968 was designed to prevent prostitution.
 23

The Eiusdem Generis Rule

Eiusdem generis means ‘of the same kind’. The rule says that, where legislation uses a list of
specific words followed by general words, the general words must be interpreted to mean the
same kind of thing as established by the specific words which precede them. In this way, general
words will be given a limited meaning.

Example: Powell v Kempton Park Race Course Co (1889)

Section 1 of the Betting Act 1853 prohibited betting in a ‘house, office, room or other place’.
The issue was whether a ring at a racecourse was an ‘other place’ for the purpose of this
statute.

The Lords decided that if the eiusdem generis rule was applied, the specific words such as
‘room’ and ‘office’ that preceded the general phrase ‘or other place’ created a class of indoor
places. As a ring on a racecourse was outside, it would not fall within this category. The Act did
not apply to restrict gambling here.

The Expression unio est exclusion alterius rule

The converse of the eiusdem generis rule is the expression unio est exclusion alterius rule
(meaning ‘one thing excludes others’). This rule means that if legislation expresses a particular
thing, it implicitly excludes anything else. For example, the Sale of Goods Act states that it
applies to a contract for the sale of ‘goods’: it will, therefore, not apply to a contract for the sale
of land.

UNIT 6: LAW OF CONTRACT

Formation of Contracts

AGREEMENT
 24

A contract is a legally binding agreement. In other words, a contract is an agreement that is

enforceable in a court of law.

Agreement is the first essential element of contract formation. A binding agreement involves a
meeting of the minds (consensus ad idem).

Not all agreements that people enter into are binding in law. Only contractual agreements are
enforceable through the court system. Such a statement, however, merely raises the question as
to what amounts to a contract. There are certain factors which have to be borne in mind when
analysing situations to decide whether or not they amount to contracts.

The essential elements of a binding agreement are as follows:

 offer;
 acceptance;
 consideration;
 intention to create legal relations;

Offer

Firstly a point of terminology: the person who makes the original offer is the offeror; the person
who receives it is the offeree, although the parties can change roles in the course of their
negotiations. It is a rather surprising fact that students tend to be in such a rush to explain what
they know about what are not offers, i.e., invitations to treat, that they tend to ignore the
central importance of offers themselves. The offer sets out the terms upon which the offeror is
willing to enter into contractual relations with the offeree. The essential thing to emphasise
about an offer is that, once it is accepted by the offeree, a legally binding contract has been
entered into, and failure to perform what has been promised will result in breach of contract.
Whenever one of the parties breaches a contract, legal remedies will be available to the other
party.

Defining an offer

An offer may be defined as a final statement or proposal by one person (offeror) to another
person (offeree). It is an expression of willingness to contract on certain terms. It is a definite
and unequivocal statement of willingness to be bound by a contract. It must be made with the
intention that it will become binding upon acceptance. There must be no further negotiations
or discussions required. In other words, an offer only exists when there is nothing further to
negotiate – either the offer is accepted or it is rejected.
 25

Forms of the offer

The offer can be in one of two forms:

a) The offeror can make the offer expressly. This is where the offeror makes the offer orally
or in writing.

b) The offeror can make the offer implicitly (i.e. by conduct). This is where a person’s
behaviour implies the offer. An example of this would be a person filling her tank with
petrol at a petrol station. It is implicit in her behaviour that she is offering to buy the
petrol. Another example is when goods are auctioned; a contract is formed although
both the offer and the acceptance are made by conduct. Each bidder makes an offer
regarding the particular being auctioned by making a gesture which the auctioneer
recognises as a bid. The auctioneer accepts the highest bid by banging the gavel on the
table. At that moment, a contract is created even though both the offer and the
acceptance were made without the use of words.

In order to be valid, the offer must have certain elements. Without these elements, the offer
does not legally exist and cannot be accepted. The requirements of a valid offer are set out
below.

Definite and unequivocal

The offer must be a definite and unequivocal statement of willingness to be bound in contract.
It cannot be vague or uncertain in its interpretation. So an offer to sell someone a particular car
for K20, 000 will be an offer, but a statement that a person will sell: ‘…one of my cars for about
K20, 000 will not be an offer; it is uncertain and vague.

Clear Intention to be bound

There must be a clear intention of present willingness to be bound by the offer. The offeror
must not merely be negotiating. All the offeree has to do is to accept the terms as laid down by
the offeror and the contract will be complete.

In one case, Storer v Manchester City Council (1974), the Court of Appeal found that there was
a binding contract. The Council had sent Storer a communication that they intended would be
binding upon his acceptance. All Storer had to do to bind himself to the later sale was to sign
the document and return it.

In Gibson v Manchester City Council (1979), the Council sent a letter to Gibson stating ‘The
corporation may be prepared to sell the house to you at the purchase price of £2, 725 …’ It was
held that this was not an offer to sell the house, capable of acceptance by Gibson. (The letter is
 26

what is commonly called an’ invitation to treat’ – a starting point in negotiations.)

An important distinction between the two cases is that in Storer’s case there was an agreement
as to price, but in Gibson’s case there was not. In Gibson, important terms still needed to be
determined.

Persons to whom an offer may be made

The offer may be made to a particular person, to a class of persons or even to the whole world.

Offers to particular people

An offer may be made to a particular person, or to a group of people, or to the world at large. If
the offer is restricted, then only the people to whom it is addressed may accept it; but, if the
offer is made to the public at large, it can be accepted by anyone.

In Boulton v Jones (1857), the defendant sent an order to a shop, not knowing that the shop
had been sold to the plaintiff. The plaintiff supplied the goods; the defendant consumed them
but did not pay, as he had a right to offset the debt against money the former owner owed him.
The plaintiff sued for the price of the goods. The defendant argued that there was no contract
obliging him to pay because his offer was an offer only to the former owner (because of the
right of offset and lack of knowledge of the sale of the business), so only the former owner
could accept, not the plaintiff. The court agreed with the defendant’s argument; there was no
contract, and so there was no contractual obligation to pay.

In Carlill v Carbolic Smoke Ball Co (1893), the company advertised that it would pay £100 to
anyone who caught influenza after using their smoke ball as directed. Carlill used the smoke ball
but still caught influenza and sued the company for the promised £100. Amongst the many
defences argued for the company, it was suggested that the advertisement could not have been
an offer, as it was not addressed to Carlill. It was held that the advertisement was an offer to the
whole world, which Mrs Carlill had accepted by her conduct. There was, therefore, a valid
contract between her and the company

In Carlill v Carbolic Smoke Ball Co (1983), manufacturer’s of a medicinal ‘smoke ball’ advertised
in a newspaper that anyone who bought and used the ball properly and nevertheless contracted
influenza would be paid a £100 reward. Mrs. Carlill used the ball as directed and did catch flu.
The manufacturer’s claimed that they did not have to pay her the £100 as an offer could not be
made to the whole world. The court held that an offer could be made to the whole world. The
wording of the advert amounted to such an offer, and that Mrs. Carlill had accepted it by
properly using the smoke ball.

Another example of an offer to the whole world at large is a more typical advert for reward, say
 27

when someone has lost their cat and they offer a financial incentive for the finder to return it.

Communication of the offer

The offer must actually reach the person to whom to whom it was made to be capable of
acceptance. In other words, the offeree must know of it.

In R v Clarke (1927), the government of Western Australia offered a free pardon to the
accomplices of certain murderers if they gave evidence that would lead to their arrest and
conviction. Clarke provided the information but admitted that he was not aware of the reward
at the time he gave the information to the authorities. The court held that he could not claim
the reward because he was not aware of the offer at the time he gave the information.

The rule is also relevant to cross-offers. Suppose for example: A writes to B offering to sell
certain property at a stated price. B writes to A offering to buy the same property at the same
price. The letters cross in the post. The majority of the judges in Tinn v Hoffman (1873), were of
the opinion that there would no contract in this situation since neither letter was an answer
(acceptance) of the other; each was an offer requiring acceptance.

Distinguishing factors of an offer

It is important to distinguish the genuine offer, capable of immediate acceptance, from other
statements which are not capable of acceptance.

Invitation to Treat

It is important to make a distinction between an offer and an invitation to treat. An invitation to

treat is not an offer. It is only an invitation to make an offer.

An offer should not be made by a person who is not fully prepared to take the legal
consequences of it being accepted. For example, I should not offer to sell my computer for
K2000 unless I am fully prepared to go through with the deal. Because if you accept my offer, I
will either have to go through with the contract or take the legal consequences. But a response
to an invitation to treat cannot result in a binding contract. It is quite safe for me to ask you how
much you would give me for my computer. You might name a price (thereby making an offer)
but I would have no obligation to agree to the deal

A court decides whether or not one of the parties has made an offer by looking at what it thinks
that both of the parties intended. All the circumstances of the case will be considered in
reaching this decision. Examples of common situations involving invitations to treat are:

A public advertisement.
 28

Advertisements can amount either to offers or to invitations to treat. If an advertisement is an

offer, then the person who accepts the offer makes a contract with the person who advertised.
If an advertisement is only an invitation to treat, then it cannot be accepted in such a way that a
contract is thereby formed.

In Partridge v. Crittenden (1968), a person was charged with offering a wild bird for sale
contrary to the Protection of Birds Act 1964, after he had placed an advert relating to the sale of
such birds in a magazine. It was held that he could not be guilty of offering the bird for sale as
the advert amounted to no more than an invitation to treat. As the advert was not an offer, the
defendant had not ‘offered for sale’ a wild bird. The defendant had committed a different crime,
selling a wild bird. However, he had not been charged with this offence.

This was a criminal case but it was decided upon a point of civil law. Several criminal cases are
committed by offering goods for sale. Whether or not an offer has been made is decided by
analysing the law of contract.

At first sight, it seems as if the defendant in Partridge v Crittenden did make an offer. However,
the court reasoned that this could not be the case. If the advertisement had been an offer, then
the defendant would have had to supply a bird to everyone who wrote in accepting the offer.
The defendant had only a limited supply of birds and so could not have intended that any
number of customers would be supplied with one. Therefore, his advertisement was an
invitation to treat, not an offer.

Also in Grainger v Gough (1896), it was held that the circulation of a price list by a wine
merchant was only an invitation to treat.

The display of goods in a shop window.

A display of goods in a shop window does not amount to an offer to sell the goods displayed.
The display is only an invitation to treat.

The classic case in this area is Fisher v Bell (1961), in which a shopkeeper was prosecuted for
offering offensive weapons for sale, by having flick-knives on display in his window. It was held
that the shopkeeper was not guilty, as the display in the shop window was not an offer for sale;
it was only an invitation to treat.

The display of goods on the shelf of a self-service shop.

Customers who buy goods in shops make contracts to buy those goods.

In this instance, the exemplary case is Pharmaceutical Society of Great Britain v Boots Cash
 29

Chemists (1953). The defendants were charged with breaking a law which provided that certain
drugs could only be sold under the supervision of a qualified pharmacist. They had placed the
drugs on open display in their self-service store and, although a qualified person was stationed
at the cash desk, it was alleged that the contract of sale had been formed when the customer
removed the goods from the shelf, the display being an offer to sell. It was held that Boots were
not guilty. The display of goods on the shelf was only an invitation to treat. In law, the customer
offered to buy the goods at the cash desk where the pharmacist was stationed. This decision is
clearly practical, as the alternative would mean that, once customers had placed goods in their
shopping baskets, they would be bound to accept them and could not change their minds and
return the goods to the shelves.

However, the common law position is subject to interpretation because of the enactment of the
Competition and Consumer Protection Act 2010 which in Section 51(1) states that “a person or
an enterprise shall not charge a consumer more than the price indicated or displayed on a
product or service”. This means it is illegal to put a wrong price on the goods displayed and the
defendant may be subject to sanctions. This makes the position of display of goods as
invitations to treat questionable.

Supply of information

Only an offer in the proper sense may be accepted so as to form a binding contract. A statement
which sets out possible terms of a contract is not an offer unless this is clearly indicated.

In Harvey v Facey [1893] AC 552 (UK), the plaintiff telegraphed to the defendant 'Will you sell
us Bumper Hall Pen? Telegraph lowest cash price'. The defendant telegraphed in reply 'Lowest
price for Bumper Hall Pen, £900'. The plaintiff telegraphed to accept what he regarded as an
offer; the defendant made no further reply.

Decision: The defendant's telegram was merely a statement of their minimum price if a sale
were to be agreed. It was not an offer which the plaintiff could accept.

Termination of Offers

As soon as an offer is accepted, a contract is created. However, an offer which has been made
might cease to exist in various ways, and once an offer has ceased to exist, it can no longer be
accepted.
Rejection of offers

Express rejection of an offer has the effect of terminating the offer. The offeree cannot
subsequently accept the original offer. A counter-offer, where the offeree tries to change the
terms of the offer, has the same effect. In Hyde v Wrench (1840), Wrench offered to sell his
farm for £1,000. Hyde offered £950, which Wrench rejected. Hyde then informed Wrench that
he accepted the original offer. It was held that there was no contract. Hyde’s counteroffer had
 30

effectively ended the original offer and it was no longer open to him to accept it; Hyde was now
making a new offer to buy for £1,000, which Wrench could accept or reject. A counter-offer
must not be confused with a request for information. Such a request does not end the offer,
which can still be accepted after the new information has been elicited.

In Stevenson v McLean (1880), the defendant offered to sell a quantity of iron at £2 a ton. The
offeree asked if he could have credit. The defendant did not reply, but instead sold the iron to a
third party. Then the offeree accepted the offer to sell at £2 a ton. It was held that the
defendant was in breach of contract because the offeree had only made a request for more
information. Unlike a counter-offer, this request did not revoke the original offer.

Revocation of offers

Revocation, the technical term for cancellation, occurs when the offeror withdraws the offer.
There are a number of points that have to be borne in mind in relation to revocation:

• An offer may be revoked at any time before acceptance. Once revoked, it is no longer open to
the offeree to accept the original offer.

In Routledge v Grant (1828), Grant offered to buy Routledge’s house and gave him six weeks to
accept the offer. Within that period, however, he withdrew the offer. It was held that Grant was
entitled to withdraw the offer at any time before acceptance and, upon withdrawal, Routledge
could no longer create a
contract by purporting to accept it.

• Revocation is not effective until it is actually received by the offeree This means that the
offeror must make sure that the offeree is made aware of the withdrawal of the offer, otherwise
it might still be open to the offeree to accept the offer.

In Byrne v Van Tienhoven (1880), the defendant offerors carried out their business in Cardiff
and the plaintiff offerees were based in New York. On 1 October, an offer was made by post. On
8 October, a letter of revocation was posted, seeking to withdraw the offer. On 11 October, the
plaintiffs telegraphed their acceptance of the offer. On 20 October, the letter of revocation was
received by the plaintiffs. It was held that the revocation did not take effect until it arrived and
the defendants were bound by the contract, which had been formed by the plaintiffs’ earlier
acceptance (which was effective on sending under the postal rule.

• Communication of revocation may be made through a reliable third party where the offeree
finds out about the withdrawal of the offer from a reliable third party, the revocation is effective
and the offeree can no longer seek to accept the original offer.
 31

In Dickinson v Dodds (1876), Dodds offered to sell property to Dickinson and told him that the
offer would be left open until Friday. On Thursday, the plaintiff was informed by a reliable third
party, who was acting as an intermediary, that Dodds intended to sell the property to someone
else. Dickinson still attempted to accept the offer on Friday, by which time the property had
already been sold. It was held that the sale of the property amounted to revocation, which had
been effectively communicated by the third party.

• A promise to keep an offer open is only binding where there is a separate contract to that
effect. This is known as an option contract, and the offeree/promisee must provide
consideration for the promise to keep the offer open. If the offeree does not provide any
consideration for the offer to be kept open, then the original offeror is at liberty to withdraw the
offer at any time, as was seen in Routledge v Grant, above.

• In relation to unilateral contracts, revocation is not permissible once the offeree has started
performing the task requested A unilateral contract is one where one party promises something
in return for some action on the part of another party. Rewards for finding lost property are
examples of such unilateral promises, as was the advertisement in Carlill v Carbolic Smoke Ball
Co. There is no compulsion placed on the party undertaking the action, but it would be unfair if
the promisor were entitled to revoke their offer just before the offeree was about to complete
their part of the contract.; for example, withdrawing a ‘free gift for labels’ offer before the
expiry date, whilst customers were still collecting labels.

In Errington v Errington and Woods (1952), a father promised his son and daughter-in-law that
he would convey a house to them when they had paid off the outstanding mortgage. After the
father’s death, his widow sought to revoke the promise. It was held that the promise could not
be withdrawn as long as the mortgage payments continued to be met. In Daulia Ltd v Four
Millbank Nominees (1978), Goff LJ confirmed this approach, saying: ‘Until the offeree starts to
perform, the offeror can revoke the whole thing, but once the offeree has embarked on
performance, it is too late for the offeror to revoke his offer.’

Lapse of offers

Offers lapse and are no longer capable of acceptance in the following circumstances:

• At the end of a stated period

It is possible for the parties to agree, or for the offeror to set, a time limit within which
 32

acceptance has to take place. If the offeree has not accepted the offer within that period, the
offer lapses and can no longer be accepted.

In Ramsgate Victoria Hotel v Montefiore (1866). In June, 1864 D offered to take shares in P’s
hotel. P did not reply to this offer, but in November he allotted shares to D, which D refused to
take. It was held that the refusal was justified, since P’s delay had caused D’s offer to lapse.

• After a reasonable time

Where no time limit is set, then an offer will lapse after the passage of a reasonable time. What
amounts to a reasonable time is, of course, dependent upon the particular circumstances of
each case.

• Where the offeree dies

This automatically brings the offer to a close.

• Where the offeror dies and the contract was one of a personal nature

In such circumstances, the offer automatically comes to an end, but the outcome is less certain
in relation to contracts that are not of a personal nature. See Bradbury v Morgan (1862) for an
example of a case where it was held that the death of an offeror did not invalidate the offeree’s
acceptance. It should be noted that the effect of death after acceptance also depends on
whether or not the contract was one of a personal nature. In the case of a non-personal
contract (for example, the sale of a car), the contract can be enforced by and against the
representatives of the deceased. On the other hand, if performance of the contract depended
upon the personal qualification or capacity of the deceased, then the contract will be frustrated.

ACCEPTANCE

Acceptance must be an unqualified agreement to all the terms of the offer. Acceptance is
generally not effective until communicated to the offeror, except where the 'postal rule'
applies. In this case, acceptance is complete and effective as soon as it is posted.

Definition
 33

Acceptance may be defined as follows:

“A positive act by a person to whom an offer has been made which, if unconditional, brings a
binding contract into effect.”

The contract comes into effect once the offeree has accepted the terms presented to them. The
agreement is now certain; after acceptance, the offeror cannot withdraw their offer and the
offeree cannot withdraw their acceptance. Both parties will be bound by the terms that they
have agreed. Acceptance may be by express words, by action or inferred from conduct.

The general rule is that acceptance must be communicated to the offeror, either by the offeree
himself or by someone authorised by the offeree. The contract is formed at the time and place
the acceptance is received by the offeror.

Thus in Entores v Miles Far East Corporation (1955), the claimants, who were in London,
telexed an offer to buy goods from the defendants, who were in Holland. (Telex is a form of near
instantaneous communication, whereby a message typed in one place is received on a different
typewriter in another place.) The defendant telexed acceptance of the offer back to the
claimants. A dispute later arose and the defendants were sued on the contract in an English
court. The defendants argued that a contract was made in Holland, not England, and that the
English courts, therefore, did not have the jurisdiction to hear the case. This defence was based
on the argument that the acceptance was effective as soon it was typed out in England.

It was held that the acceptance only became effective once it was received. Therefore, the
contract was made in England, where the acceptance was received, and so the English courts
had jurisdiction to hear the case.

An acceptance cannot be made by doing or saying nothing, even if the offeror specifies that the
acceptance should be made in this way.

For example in Felthouse v Bindley (1862), the claimant wanted to buy a horse from his nephew
for £30.75. the claimant was fairly sure that his nephew would want to sell at this price. He,
therefore, wrote a letter saying that if he heard no reply he would take it that the horse was
sold at this price. The nephew did not reply to this letter but he did ask the auctioneer, who had
been engaged to sell all his farming stock, to keep the horse out of the sale, as he had sold it to
his uncle. The auctioneer by mistake included the horse in the sale and was sued by the uncle in
the tort of conversion. The basis of the uncle’s claim was that the auctioneer had sold his
property. As the nephew had not signified his acceptance, no contract for the sale of the horse
arose. The nephew was not, therefore, liable for conversion (conversion is dealing wrongfully
with the goods of another)
 34

The communication must be carried out by the offeree or by his authorised agent.

In Powell v Lee (1908), the managers of a school had a meeting where they decided to accept
Lee’s offer to be headmaster. Acting on his own initiative, one of the managers informed Lee of
the decision. It was held that there was no contract because there had been no communication
of the acceptance by the managers as a body nor communication by a person authorised by
them.

There are, however, exceptions to the general rule that acceptance must be communicated,
which arise in the following cases:

• Where the offeror has waived the right to receive communication

In unilateral contracts, such as that in Carlill v Carbolic Smoke Ball Co (1893) or general reward
cases, acceptance occurs when the offeree performs the required act. Thus, in the Carlill case,
Mrs Carlill did not have to inform the Smoke Ball Co that she had used their treatment. Nor, in
reward cases, do those seeking to benefit have to inform the person offering the reward that
they have begun to perform the task that will lead to the reward.

• Where acceptance is through the postal service

In such circumstances, acceptance is complete as soon as the letter, properly addressed and
stamped, is posted. The contract is concluded, even if the letter subsequently fails to reach the
offeror.

In Adams v Lindsell (1818), the defendant made an offer to the plaintiff on 2 September. Due to
misdirection, the letter was delayed. It arrived on 5 September and Adams immediately posted
an acceptance. On 8 September, Lindsell sold the merchandise to a third party. On 9 September,
the letter of acceptance from Adams arrived. It was held that a valid acceptance took place
when Adams posted the letter. Lindsell was, therefore, liable for breach of contract.

As has already been seen in Byrne v Van Tienhoven (1880), the postal rule applies equally to
telegrams. It does not apply, however, when means of instantaneous communication are used
(see Entores v Far East Corp (1955) for a consideration of this point). It follows that, when
acceptance is made by means of telephone, fax or telex, the offeror must actually receive the
acceptance. This also raises issues concerning acceptance by email; it has been argued that this
situation should be treated as a ‘face to face’ situation where receipt only occurs when the
recipient reads the email. It should be noted that the postal rule will only apply where it is in the
contemplation of the parties that the post will be used as the means of acceptance. If the
parties have negotiated either face to face, for example in a shop, or over the telephone, then it
might not be reasonable for the offeree to use the post as a means of communicating their
 35

acceptance and they would not gain the benefit of the postal rule (see Henthorn v Fraser (1892)
).

In Henthorn v Fraser (1892), an offer was sent by post requesting acceptance within 14 days.
The offer was revoked before postal acceptance was received. However, the acceptance had
already been posted.

It was held that the acceptance was valid. The postal rule from Adams v Lindsell (1818) applies
where it would be reasonable for acceptance to take place by post.

In order to expressly exclude the operation of the postal rule, the offeror can insist that
acceptance is only to be effective upon receipt.

Thus in Holwell Securities v Hughes (1974), on 19th October 1971, Dr. Hughes gave the
claimants an option to purchase his house for £45, 000. This option amounted to an offer to sell
and was to be exercisable by ‘notice in writing’ within six months. The claimants posted a letter
of acceptance on 14th April, 1972, but this letter was never delivered. After the option had
expired, the claimants sued for specific performance (a court order requiring Dr. Hughes to
honour the contract and sell the house to them). The claimants argued that the postal rule
applied and that a contract had therefore been made as soon as the letter of acceptance was
posted.

The court held that the postal rule did not apply. Dr. Hughes stated that the option was
exercisable ‘by notice in writing’ within six months, which meant that he would have to receive
the communication in writing before a valid contract would be created.

The offeror can also require that acceptance be communicated in a particular manner. Where
the offeror does not actually insist that acceptance can only be made in the stated manner, then
acceptance is effective if it is communicated in a way that is no less advantageous to the offeror

In Yates Building Co v J Pulleyn & Sons (1975)), the offeror asked for the offer to be accepted by
registered or recorded delivery letter. The offeree accepted by an ordinary letter, which arrived
promptly.

The offeror had suffered no disadvantage in the way that the offer had been accepted. As the
offeror had not specified that acceptance could only be made by recorded or registered letter,
the acceptance was valid.

Auctions

A lot at an auction is sold when the auctioneer’s gavel hits the table. Before such an acceptance
is made, any bid can be withdrawn. When a person makes a new bid, all previous bids lapse. As
 36

soon as the gavel hits the table, a contract is formed and the highest bidder has bought the lot
which is up for sale. A bid can be withdrawn before the gavel falls, but not after the gavel has hit
the table.

If an auction is advertised as being ‘without reserve’, this means that the auctioneer makes a
definite promise that if the auction of any particular lot is commenced, that lot will be sold to
the highest genuine bidder. This is the case no matter how low the highest genuine bid might
be. Furthermore, the person who put the goods into the auction, the owner of the goods,
cannot make a genuine bid.

In Barry v Davies (2000), two machines were put up for auction without reserve. The machines
were each worth £14,000 and the auctioneer tried to get a bid of £5,000. The claimant bid £400
for the machines but the auctioneer refused to accept the bid.

The auctioneer was in breach of contract and the claimant was awarded damages of £27,600.
This was the difference between what the claimant had bid and the amount he would have had
to pay to buy the machines elsewhere. The auctioneer’s promise that the machines would be
sold without reserve was the offer of a unilateral contract, given for the claimant’s attending the
auction and making the highest bid.

The fact of advertising that an auction will take place ‘without reserve’ does not amount to a
promise that the auction will actually take place, or that any goods will be included in the
auction. In Payne v Cave (1789), it was held that an auctioneer who puts up property for sale is
not making an offer to sell but is issuing a request for bids. The various bids form a series of
offers that the auctioneer can accept or reject on behalf of the seller. Similarly, in Harris v
Nickerson (1873), an auctioneer placed advertisements in London newspapers, stating that
office furniture was to be sold by auction, without reserve, in Bury St Edmunds. Some of the
furniture in question was not included in the auction. A dealer, who had travelled to the auction
from London, sued the auctioneer on the grounds that he had wanted to buy the furniture
which was not auctioned. The auctioneer had committed no breach of contract as the
advertisement was just an invitation to treat.

It must be remembered that most auctions do allow reserves. At such auctions, the auctioneer
will take bids in the normal way but refuse to sell if the highest bid does not exceed the reserve.

Tenders

Goods can be either bought or sold by tender. A tender is an invitation for interested persons to
send in offers. This is perhaps best explained by considering an example. Let us assume that a
business will need a very large quantity of a particular type of paper. The business might place
an advertisement, asking for tenders to supply the paper needed. This advertisement could
 37

either be an offer or an invitation to treat, depending upon the words it used. If the
advertisement merely asked for tenders to supply the paper, without anywhere including a
statement that the lowest tender would definitely be accepted, then the advertisement would
just be an invitation to treat. Those who responded by putting in tenders to supply the paper
would be making offers. The business which asked for tenders could choose to accept one of
these offers but would have no obligation to do so. It might accept the lowest offer, or any other
offer, or just not accept any of the offers. However, if the advertisement stated that the
tenderer who submitted the lowest price would definitely be awarded the contract to supply
the paper, then the advertisement would amount to an offer of a unilateral contract. This offer
could be accepted by submitting the lowest price.

In Harvela Investments Ltd v Royal Trust Company of Canada Ltd (1986), it was held that if a
request for tender is made to specific persons and it is stated that the contract will be awarded
to the highest or lowest bidder (as the case may be), then this statement will be binding as a
unilateral offer.

However, in Spencer v Harding (1870) LR 5 CP 561, the defendant advertised a sale by tender of
the stock in trade belonging to Eilbeck & Co. The advertisement specified where the goods
could be viewed, the time of opening for tenders and that the goods must be paid for in cash.
No reserve was stated. The claimant submitted the highest tender, but the defendant refused to
sell to him. It was held that unless the advertisement specifies that the highest tender would be
accepted, there was no obligation to sell to the person submitting the highest tender. The
advert amounted to an invitation to treat. The tender was an offer. The defendant could choose
whether to accept the offer or not.

CONSIDERATION.

We have already seen how an agreement is formed – the requirements of offer and acceptance
– but the mere fact of an agreement alone does not make a contract. The law concerns itself
with bargains. This means that each side must promise to give or do something for the other.

The element of exchange is known as consideration and is an essential element of every valid
simple contract. A promise of a gift will not be binding unless made in the form of a deed.
 38

Defining ‘consideration’

Zambian law does not enforce every promise that might be made under every circumstance.
The requirement is that for a simple promise to be enforced in the courts as a binding contract,
it is necessary that the person to whom the promise was made, should have done something in
return for the promise. That something done, or to be done, constitutes consideration.
Therefore, consideration is the ‘price’ paid by each party to the contract for the other party’s
promise.

The case of Currie v Misa (1875) laid down the accepted definition of consideration. It can be
defined as: ‘some right, interest, profit or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other.’

It must be an exchange; one person does something, etc. because the other party does
something. A simple everyday example is where a person purchases a drink from a shop. One
party pays the money and, in exchange for this, receives the drink. Both parties are receiving a
benefit (the person paying the money takes the drink and the shop owner takes the money, and
simultaneously they are each losing something. The purchaser is losing the purchase price and
the shop owner is losing the drink.

In other words, consideration is simply something of value and may take the form of:

(a) an act for a promise;

(b) a promise for an act;
(c) a promise for a promise;
(d) a promise to forbear (that is, not to do something).

KINDS OF CONSIDERATION

Executory

Consideration is executory when one party makes a promise in return for a counter-promise by
the other party. This occurs where both parties do not act immediately. In other words, it is a
promise to do something in the future. Executory means ‘yet to be done’. There is a contract
even though at the time it is concluded or agreed neither of the parties has actually done the
thing that they have promised to do. For example, parties may agree on a contract for the
 39

delivery of laptops at the month end. The person who is promising to supply the laptops at the
month end has not yet parted with the laptops. It is also possible for the party who has placed
an order for the laptops to promise to pay for the laptops when they are actually delivered at
the month end.

Executed

Executed consideration is a type of consideration where one party acts based on the promise
by the other to pay for that act. In legal parlance, it is the price paid in return for a promise to
pay for that act. For example, where an offer a reward is made, one party promises to pay if and
when another performs the specified act.

Thus in Carlill v Carbolic Smokeball Co Ltd (1893), the company promised to pay £100 to any
person complying with various conditions. Mrs. Carlill made no reciprocal promise. She merely
complied with the terms of the offer. The consideration provided by Mrs. Carlill was doing the
act, i.e. executed consideration.

RULES GOVERNING CONSIDERATION

Consideration must move from the promisee

Only the promisee can enforce the promise

Apart from the promisor, the only party who can enforce the contract is the other party who
has provided the consideration for the promise.

In Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd (1915) (HL), the plaintiff (Dunlop)
entered into a contract to sell tyres to a dealer (Dew and Co). The contract provided that the
dealer would not sell tyres below the plaintiff’s list price and would obtain a similar undertaking
from any retailer they onsold to. The dealer subsequently sold tyres to the defendant (Selfridge)
who gave the required undertaking. The defendant later sold tyres to a customer below the
plaintiff’s list price and the plaintiff sued for breach of the undertaking. The court found for the
defendant. The plaintiff had not provided any consideration for the defendant’s promise to the
dealer. The plaintiff was not even a party to that subsequent contract.

Similarly in Price v Easton (1833), X and the defendant agreed that if X did specified work for
him, he, the defendant, would pay £19 to P. X did the work but the defendant did not pay the
money to P. P sued for the money. The plaintiff could not succeed because no consideration had
passed from him to the defendants.

Consideration must be sufficient, but need not be adequate

 40

Consideration does not need to be adequate. Essentially it means that the consideration
provided by either party does not need to be equivalent to the other party’s consideration.
Sometimes, this means that situations arise where the consideration provided by both parties is
vastly dissimilar.

As long as the parties are of equal bargaining power and there is no duress, the court will not
investigate the motives behind the transaction or check the consideration given. So if A agrees
to sell B a car for K10, the contract will be valid.

Valuable consideration means money or money’s worth, that is to say something upon which a
monetary value can be placed such as rendering a service. The consideration provided must be
valuable in the sense that it must have some value, however slight.

In Thomas v Thomas (1842), a promise to convey a house to a widow on her promise to pay £1
per year rent and keep the house in repair was binding; the promise to pay £1 per year and
keep the house in repair were valuable consideration.

The reason the court affirmed this decision, is due to the fact the court is unwilling to interfere
with bad bargains, as parties to a contract are typically free to bargain on whatever terms they
wish - Chappell & Co Ltd v Nestle Co Ltd (1960) AC 97.

Consideration must have economic value (sufficient)

As mentioned earlier, Thomas v Thomas(1842) 2 QB 851 confirmed that although consideration

need not be sufficient, it must have economic value.

To demonstrate this the case of White v Bluett (1853) 23 LJ Ex 36 will be examined. In this case
a father waived a debt owed to him by his son, in return for his son to stop complaining about
his will. When this situation was reviewed by the court it was found that this was not valid
consideration. An agreement to not complain in this instance was viewed as not having any
economic value.

Past consideration

Consideration can be present or future, but not past. If one party voluntarily performs an act,
and the other party then makes a promise, the consideration for the promise is said to be in the
past. Anything which has already been done before a promise in return is given is past
consideration which, as a general rule, is not sufficient to make the promise binding. Past
consideration can be defined as ‘… something which has already been done at the time the
promise is made.’ Past consideration is regarded as no consideration at all. Normally
 41

consideration is provided either at the time of the creation of a contract or at a later date. The
act or promise of one party and the act or promise of the other must constitute one single
transaction. One party must do something because the other party is doing something. If one
party makes a promise in return for an act which has already been performed unilaterally, the
two promises are not a response to one another and do not support a contract. If the act put
forward as consideration was performed before any promise of reward was made, it is not valid
consideration.

For example, Mulenga gives Susan a lift home in his car after work. On arrival Susan offers
Mulenga K5 towards the petrol, but finding that she has not got any change, she says she will
give him the money the next day at work. In this example, Mulenga cannot enforce Susan’s
promise

In Re McArdle (1951), the claimant lived in a house which she did not own, and spent a
considerable amount of money on having the house repaired. The owners had not asked her to
do this. After the claimant had done this, the owners of the house signed an agreement to pay
the claimant £488 in consideration for having had the repairs done. The owners did not have to
pay. When the promise to pay was made, the claimant had already had the repairs done. Her
consideration was past and could not, therefore, be recognised by law.

In Roscorla v Thomas (1842) (QB), the plaintiff (Roscorla) purchased a horse from the
defendant (Thomas). After the sale had been concluded, the defendant promised the plaintiff
that the horse was in good health and not vicious. The horse was vicious and the plaintiff sued
for breach. The court held the promise was not binding as it was made independently of the
sale (that is, after the sale). The defendant’s subsequent promise was not supported by a return
promise from the plaintiff, and therefore it could not be enforced.

Exception to the past consideration rule

When a request is made for a service, this request may imply a promise to pay for it. If, after the
service has been rendered, the person who made the request promises a specific reward, this is
treated as fixing the amount to be paid.

In Lampleigh v Braithwait (1615), D killed a man and asked P to obtain for him a royal pardon. P
did so and D then promised to pay him £100. D broke this promise and P sued him. P succeeded
in this action because D’s request was regarded as containing an implied promise to pay, and
the subsequent promise to pay £100 was merely fixing the amount.

In Pao On v Lau Yiu Long (1980) (PC), Lord Scarman noted the following requirements for the
exception to apply:

(a) the act must have taken place at the promisor’s request;
 42

(b) objectively, the parties must have understood that the act was to be remunerated or
compensated;

(c) the remuneration or compensation must have been legally enforceable.

Perfomance of a duty already promised in a different contract.

Performing duties already required under an existing contract is not sufficient to amount to
consideration.

If there is already a contract between A and B, and B promises additional reward to A if he (A)
will perform their existing duties, there is no consideration from A to make that promise
binding.

In Stilk v Myrick (1809) (KB), two members of the crew of a ship deserted in a foreign port. The
master was unable to recruit substitutes and promised the rest of the crew that they would
share the wages of the deserters if they would complete the voyage home short-handed. The
ship owners, however, repudiated the promise.

Decision: In performing their existing contractual duties, the crew gave no consideration for the
promise of extra pay and the promise was not binding.

If a claimant does more than perform an existing contractual duty this may amount to
consideration.

In Hartley v Ponsonby (1857), 17 men out of a crew of 36 deserted. The remainder were
promised an extra £40 each to work the ship to Bombay. The claimant, one of the remaining
crew-members, sued to recover this amount.

Decision: The large number of desertions made the voyage exceptionally hazardous, and this
had the effect of discharging the original contract. The claimant's promise to complete the
voyage formed consideration for the promise to pay an additional £40.

The following recent case is rather difficult to reconcile with Stilk v Myrick.

In Williams v Roffey Brothers (1990), Williams agreed to do carpentry work in a block of flats
for Roffey at a fixed price of £20,000. There was an agreed date by which the work was to be
completed. The work ran late and Roffey agreed to pay an extra £10,000 to ensure that the
work was completed on time. If the work was not completed on time, Roffey would have
suffered a penalty in his own contract with the owner of the flats.

The Court of Appeal decided that even though Williams was in effect doing nothing over and
above the original agreement to complete the work by a completed time, there was a new
contract here for the £10,000. The court decided that both William and Roffey benefited from
the new contract. Two reasons were given.
 43

 The consideration given by Williams was enabling Roffey to avoid the penalty sum due to
the owner of the flats if the work was delayed (and merely finishing work on time). As
such, he had provided ‘something new’.

 Roffey’s promise to pay the extra £10,000 had not been extracted by fraud or pressure.
(It was Roffey who had approached Williams and had volunteered the extra money. It
would be inequitable to go back on his promise.

Public obligations

It is not good consideration to promise to perform a duty which is imposed by the general law
of the land.

In Collins v Godefroy (1831) (KB), the defendant (Godefroy) subpoenaed the plaintiff (Collins) to
give evidence in court and promised to pay him for his attendance. The plaintiff attended court
but did not have to give evidence. The defendant later refused to pay the promised amount.
The court held that a person who receives a subpoena is under a legal duty to give evidence.

However, it is good consideration to promise to exceed a duty which has arisen under the
general law of the land.

In Glasbrook Bros v Glamorgan CC (1925) (HL), at a time of industrial unrest, colliery owners,
rejecting the view of the police that a mobile force was enough, agreed to pay for a special
guard on the mine. Later they repudiated liability saying that the police had done no more than
perform their public duty of maintaining order, and that no consideration was given.

Decision: The police had done more than perform their general duties. The extra services given,
beyond what the police in their discretion deemed necessary, were consideration for the
promise to pay.

Third party obligations

A promise to perform an existing obligation is sufficient consideration where the promise is

made to a different person.

In Shadwell v Shadwell (1860) (CCP), the plaintiff wrote to his uncle informing of his
engagement to marry. His uncle then promised to make certain payments to the plaintiff once
the marriage took place. The plaintiff subsequently married and his uncle made some, but not
all, of the agreed payments. When the uncle died, the plaintiff sued the estate to recover the
outstanding payments. The defendant (estate) argued there was no consideration for the
promise because the plaintiff had previously promised to marry his now wife. The court held
that a contract to do something which the promisor is under an existing obligation to a third
party to do (that is, marry his fiancée) can be good consideration. The late uncle obtained a real
benefit (that is, having his nephew marry) and the plaintiff had materially altered his position.

THE PART PAYMENT PROBLEM

 44

If one person owes a sum of money to another, the debt can be extinguished in two ways.

 First, obviously enough, the debt is extinguished if the debtor pays the sum owing in
full.

 Second, the debt is extinguished if the debtor and creditor agree that the creditor will
take anything other than money instead of the amount owing. For example, if Harry
owes Ben K10, 000, the debt can be extinguished either by Harry paying the full K10,
000 or by Harry and Ben agreeing that Ben should take Harry’s car in full settlement of
the debt. If Harry and Ben do agree that Ben should take the car in full settlement of
the debt, the court would not be concerned with how much the car was actually worth.
The courts are not concerned with the adequacy of consideration. So no matter what
Harry’s car might be worth, the full debt can be extinguished.

Difficulties arise where the parties agree that the creditor should take a sum of money which is
less than the amount owing, in full settlement of the debt. Let us assume, for example, that
Harry owes Ben K10, 000 and Ben agrees that if Harry pays K9, 000 the debt will be extinguished
and Bill will never ask for the rest of the money. Pinnel’s Case (1602) held that a lesser sum of
money cannot be consideration for a greater sum owed. Ben would, therefore, be able to sue
Harry for the balance of K1, 000, even though he had promised he would not do this. The
promise which Ben gave does not create a contract because no consideration was received in
return for it. The promise made by Harry, to pay K9, 000, in full settlement of the debt, could
not be consideration to extinguish the whole debt of K10, 000 because a lesser sum cannot be
consideration for a greater sum owed. In this area, the law does seem to be concerned with the
adequacy of the consideration. It is saying that K9, 000 is not enough consideration for a debt of
K10, 000. The reason for this is that the only thing which can be always be given a definite
monetary value is money itself. In extreme circumstances, a pen, a bicycle or a car might be
worth K10, 000. But in no circumstances could K9, 000 be worth K10, 000.

In Foakes v Beer (1884), Mrs. Beer obtained a judgment against Dr. Foakes for a sum of £2,090
with interest. She agreed to payment of the debt in instalments and also promised that further
proceedings on the judgment would not be taken. After receiving the £2,090, Mrs. Beer sued for
£360 interest on the judgment debt which Dr. Foakes refused to pay. It was held that the
interest was recoverable. Payment of the debt and costs, a smaller sum, was not consideration
for the promise to accept this amount in satisfaction of a debt, interests and costs, a greater
sum. The debtor had not provided any new consideration for the promise not to claim interest.

Exceptions

Variation of Terms at the Creditor’s Request (Accord and Satisfaction).

Where the payment of a lesser sum in discharge of a greater debt is accompanied by the
 45

introduction of some new element at the creditor’s request, the new element is sufficient
consideration to support the creditor’s promise not to claim the balance of the debt still unpaid.
This is often called accord and satisfaction. The accord is the agreement to accept less and the
satisfaction is the new consideration. The new element introduced at the creditor’s request,
which is the consideration he receives for not claiming the balance, may take a number of
forms, for example:

 If the creditor agrees to take anything else instead of, or as well as, a lesser sum of
money, the debt is extinguished.

 If the creditor asks for a lesser sum to be paid before the debt is actually due, then the
debtor’s paying a lesser sum can amount to good consideration.

 If the creditor requests that a lesser be paid in a different place, perhaps a different
country, then the debtor’s agreeing to this could possibly amount to good consideration.

 Another possible exception is promissory estoppel.

Promissory Estoppel

Another way around the part-payment problem is to apply the principle of equity or fairness.
The rule that a gratuitous promise is unenforceable can produce hardship. Equity can act to
interpret or modify the common law where it appears to be harsh or inflexible. The equitable
concept of estoppel, referred to as promissory estoppel, may operate to prevent a person going
back on his promise to accept a lesser amount at least for a period of time. The promise which
the claimant is prevented by equity from realising is a promise relating to his future conduct.

Example: Central London Property Trust Ltd v High Trees House Ltd (1947)

In 1937, the claimant company (‘the lessor’) let a block of flats in London to the defendant
company (‘the lessee’) on ninety-nine year term, at a ground rent of £2, 500 per year. During
the war, because of the blitz, few flats could be let to tenants by High Trees House Ltd, and the
lessor agreed to reduce the rent by one-half. By 1945, all the flats had been let and the lessor
claimed full rent for the last two quarters of 1945. It was held that the lessor’s claim should be
allowed since the wartime conditions giving rise to the promise to reduce the rent had now
ended and the agreement was no longer operative.

The judge who heard the case, Denning J, said if the defendants had asked for the full rent for
the years when the flats were not fully sublet, they would not have got it. Denning’s theory
became known as promissory estoppel. It said that if a person made a promise, and the person
to whom it was made was intended to rely on the promise and did rely on it, then the promise
 46

would be binding. This would be the case even if no consideration was given in return for the
promise.

Promissory estoppel is an equitable doctrine. It will, therefore, only act so as to prevent a

claimant from breaking a promise where it would be inequitable (unfair) of the claimant to
break the promise. In the following case, promissory estoppel did not apply because it was not
inequitable for the claimants to break their promise to accept a lesser sum of money.

In D & C Builders v Rees (1966), the defendant owed £482 to the claimant (a building company)
for work carried out. The defendant, knowing that the claimant was in desperate need of
money to stave off bankruptcy, offered £300 by cheque in settlement of the debt saying that if
the claimants refused, it would get nothing. The claimant accepted the £300 reluctantly in
settlement. It was held that the claimant could successfully sue for the balance. Several reasons
contributed to the court’s decision, amongst them were:

 In view of the pressure put on the claimant and the claimant’s reluctance, there was no
true accord.
 Payment by cheque and cash are, in these circumstances, no different. Therefore, the
payment by cheque did not amount to consideration: it conferred no benefit over and
above payment in cash.

THE PART PAYMENT PROBLEM

If one person owes a sum of money to another, the debt can be extinguished in two ways.

 First, obviously enough, the debt is extinguished if the debtor pays the sum owing in
full.

 Second, the debt is extinguished if the debtor and creditor agree that the creditor will
take anything other than money instead of the amount owing. For example, if Harry
owes Ben K10, 000, the debt can be extinguished either by Harry paying the full K10,
000 or by Harry and Ben agreeing that Ben should take Harry’s car in full settlement of
the debt. If Harry and Ben do agree that Ben should take the car in full settlement of
the debt, the court would not be concerned with how much the car was actually worth.
 47

The courts are not concerned with the adequacy of consideration. So no matter what
Harry’s car might be worth, the full debt can be extinguished.

Difficulties arise where the parties agree that the creditor should take a sum of money which is
less than the amount owing, in full settlement of the debt. Let us assume, for example, that
Harry owes Ben K10, 000 and Ben agrees that if Harry pays K9, 000 the debt will be extinguished
and Bill will never ask for the rest of the money. Pinnel’s Case (1602) held that a lesser sum of
money cannot be consideration for a greater sum owed. Ben would, therefore, be able to sue
Harry for the balance of K1, 000, even though he had promised he would not do this. The
promise which Ben gave does not create a contract because no consideration was received in
return for it. The promise made by Harry, to pay K9, 000, in full settlement of the debt, could
not be consideration to extinguish the whole debt of K10, 000 because a lesser sum cannot be
consideration for a greater sum owed. In this area, the law does seem to be concerned with the
adequacy of the consideration. It is saying that K9, 000 is not enough consideration for a debt of
K10, 000. The reason for this is that the only thing which can be always be given a definite
monetary value is money itself. In extreme circumstances, a pen, a bicycle or a car might be
worth K10, 000. But in no circumstances could K9, 000 be worth K10, 000.

In Foakes v Beer (1884), Mrs. Beer obtained a judgment against Dr. Foakes for a sum of £2,090
with interest. She agreed to payment of the debt in instalments and also promised that further
proceedings on the judgment would not be taken. After receiving the £2,090, Mrs. Beer sued for
£360 interest on the judgment debt which Dr. Foakes refused to pay. It was held that the
interest was recoverable. Payment of the debt and costs, a smaller sum, was not consideration
for the promise to accept this amount in satisfaction of a debt, interests and costs, a greater
sum. The debtor had not provided any new consideration for the promise not to claim interest.

Exceptions

Variation of Terms at the Creditor’s Request (Accord and Satisfaction).

Where the payment of a lesser sum in discharge of a greater debt is accompanied by the
introduction of some new element at the creditor’s request, the new element is sufficient
consideration to support the creditor’s promise not to claim the balance of the debt still unpaid.
This is often called accord and satisfaction. The accord is the agreement to accept less and the
satisfaction is the new consideration. The new element introduced at the creditor’s request,
which is the consideration he receives for not claiming the balance, may take a number of
forms, for example:

 If the creditor agrees to take anything else instead of, or as well as, a lesser sum of
money, the debt is extinguished.
 48

 If the creditor asks for a lesser sum to be paid before the debt is actually due, then the
debtor’s paying a lesser sum can amount to good consideration.

 If the creditor requests that a lesser be paid in a different place, perhaps a different
country, then the debtor’s agreeing to this could possibly amount to good consideration.

 Another possible exception is promissory estoppel.

Promissory Estoppel

Another way around the part-payment problem is to apply the principle of equity or fairness.
The rule that a gratuitous promise is unenforceable can produce hardship. Equity can act to
interpret or modify the common law where it appears to be harsh or inflexible. The equitable
concept of estoppel, referred to as promissory estoppel, may operate to prevent a person going
back on his promise to accept a lesser amount at least for a period of time. The promise which
the claimant is prevented by equity from realising is a promise relating to his future conduct.

Example: Central London Property Trust Ltd v High Trees House Ltd (1947)

In 1937, the claimant company (‘the lessor’) let a block of flats in London to the defendant
company (‘the lessee’) on ninety-nine year term, at a ground rent of £2, 500 per year. During
the war, because of the blitz, few flats could be let to tenants by High Trees House Ltd, and the
lessor agreed to reduce the rent by one-half. By 1945, all the flats had been let and the lessor
claimed full rent for the last two quarters of 1945. It was held that the lessor’s claim should be
allowed since the wartime conditions giving rise to the promise to reduce the rent had now
ended and the agreement was no longer operative.

The judge who heard the case, Denning J, said if the defendants had asked for the full rent for
the years when the flats were not fully sublet, they would not have got it. Denning’s theory
became known as promissory estoppel. It said that if a person made a promise, and the person
to whom it was made was intended to rely on the promise and did rely on it, then the promise
would be binding. This would be the case even if no consideration was given in return for the
promise.

Promissory estoppel is an equitable doctrine. It will, therefore, only act so as to prevent a

claimant from breaking a promise where it would be inequitable (unfair) of the claimant to
break the promise. In the following case, promissory estoppel did not apply because it was not
inequitable for the claimants to break their promise to accept a lesser sum of money.

In D & C Builders v Rees (1966), the defendant owed £482 to the claimant (a building company)
for work carried out. The defendant, knowing that the claimant was in desperate need of
money to stave off bankruptcy, offered £300 by cheque in settlement of the debt saying that if
the claimants refused, it would get nothing. The claimant accepted the £300 reluctantly in
 49

settlement. It was held that the claimant could successfully sue for the balance. Several reasons
contributed to the court’s decision, amongst them were:

 In view of the pressure put on the claimant and the claimant’s reluctance, there was no
true accord.
 Payment by cheque and cash are, in these circumstances, no different. Therefore, the
payment by cheque did not amount to consideration: it conferred no benefit over and
above payment in cash.

PRIVITY OF CONTRACT

It is a fundamental principle of law that two people cannot by a contract impose liabilities on, or
bind, a third party; nor can anybody have rights or obligations imposed upon him by a contract,
unless he is a party to it. This principle is called privity of contract. Sometimes, this rule can
cause absurdities or injustice, and in appropriate cases the law has found ways around it.
However, the general principle is of great importance. Let us state it in another way. Only the
parties to a contract can enjoy rights or acquire obligations under that contract. Again, there
have been repeated suggestions that a named third party would be able to take the benefit of
the contract. However, in Midland Silicones v. Scruttons (1962) a sub-contractor had to pay the
full loss to the owner of goods. A limitation in both his and the main contract did not help him
against someone he had no contract with.

The application of the rule takes two forms – as follows.

Attempts to Confer Rights on Third Parties

The problem usually arises when third parties attempt to sue to enforce rights they think they
 50

have acquired under a contract to which they are not a party. The law will not permit them to
sue.

In Price v. Easton (1833), a man owed Price a sum of money. He agreed with Easton that he
would work for him, if Easton would pay off his debt to Price. The work was duly done but
Easton failed to pay Price. Consequently, Price sued Easton.

HELD: Price could not recover the money, because he was not a party to the contract for work.
At this early stage of the development of the doctrine, it could be – and, indeed, was – argued
that the reason why Price could not sue was because he had provided no consideration.

However, the case of Tweddle v. Atkinson (1861) established that the question of consideration
was immaterial. The rule of privity of contract stood on its own two feet. In that case, the
respective fathers of a husband and wife made a contract between themselves to each pay the
husband a sum of money. They further agreed that the husband should have the right to sue if
one of them defaulted. The father of the wife died without having paid, and the husband sued
his executor. It was held that he could not do so. The judge said:

“It is now established that no stranger to the consideration can take advantage of a contract,
although made for his benefit”.

In Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd (1915), Lord Haldane restated the rule
as follows.

“In the law of England certain principles are fundamental. One is that only a person who is a
party to a contract can sue on it”.

The leading authority in more recent years is Beswick v. Beswick (1968). A coal merchant made
over his business to his nephew. As part of the deal, the nephew promised that he would pay an
annuity to the uncle’s widow after his death. The uncle died, and the nephew failed to pay the
annuity. The widow then sued in two capacities – in the first place, in her own right and, second,
as administratrix of the uncle’s estate. It was held by Lord Denning that she could not sue in the
first capacity, as she was no party to the contract. She could, however, sue as administratrix of
the estate, and get an order for specific performance of the contract.

The next problem is whether a party to a contract can recover damages in respect of a third
party’s loss; and, if so, can the third party compel the money to be handed over to him? The
answer is “yes” in both cases. In Lloyd’s v. Harper (1880), it was said:

“Where a contract is made with A for the benefit of B, A can sue on the contract for the benefit
of B, and recover all that B could have recovered if the contract had been made with B himself”.

The second question was answered in Jackson v. Horizon Holidays Ltd (1975). Mr Jackson
contracted with Horizon for the company to provide holiday accommodation of a certain
standard for the whole Jackson family. The accommodation turned out to be woefully
 51

inadequate, and Mr Jackson sued.

HELD: He could recover for distress to himself, as a party to the contract, and also on behalf of
his wife and child, who were not parties. Any money recovered on behalf of third parties was in
trust for them, and had to be accounted for to
them.

Exceptions to and Avoidance of the Privity Rule

Collateral Contracts

In an effort to avoid the privity rule causing either an absurdity or injustice, the courts will,
sometimes, imply a “collateral” contract between a third party and one of the parties to the
main contract. A collateral contract is one that is separate from, but substantially in respect of
the same subject-matter as, the main contract.

In Shanklin Pier v. Detel Products Ltd (1951), P employed contractors to paint a pier. Detel
approached P and represented to him that the company’s paint would last for seven years. On
the strength of this representation, P instructed the contractors to buy Detel’s paint for the job.
In practice, it lasted only three months.

HELD: Although the contract for the supply of paint was between the contractor and Detel, a
collateral contract would be implied between Detel and P, that the paint would last for seven
years. As will be apparent to you, had the privity rule been strictly applied, P would have no
right of action against Detel. And, as the contract for painting the pier did not contain a
warranty that it would last any particular time, P would have no rights against the contractor.
Even if P did have such a right, Detel’s misrepresentation was made to P. So, the contractor
would have no rights against Detel in respect of it. The device of implied collateral contract
ensured that justice was done. A problem can, however, arise over consideration in such
collateral contracts. In the Detel case, the consideration for Detel’s promise that the paint would
last seven years was P’s instruction to the contractor to buy Detel’s paint.

However, in Channock v. Liverpool Corporation (1968), the facts were that P’s car was damaged
and repaired by a garage in pursuance of a contract between it and an insurance company.
Repairs were inordinately delayed.

HELD: There was a collateral contract between P and the garage that it would do the repairs in a
reasonable time. The consideration for this was the leaving of the car with the garage for repair.
Although not necessarily a detriment to P, it was a benefit to the garage, in the sense that it
enabled it to contract with the insurance company to do the repairs.

Trusts

A beneficiary of a trust may enforce the terms of a contract made for his benefit between his
trustee and a third party. The trust does not have to be a formal one. The rule applies to any
situation where the law will deem a person to be in the position of a trustee, or where he
constitutes himself a trustee for another. In such a case, if the “constructive” trustee makes a
 52

contract for the benefit of his “cestui que trust” (i.e. beneficiary), that person can enforce the
contract. However, it is necessary that the trustee be joined as a party to any such action to
avoid the danger of the third party, or promisor, being sued a second time in respect of the
same action by the trustee.

In Midland Silicones v. Scruttons (1962), the arguments of agency and trust were both
unsuccessfully employed in the Court of Appeal and the House of Lords.

Note: The rule in privity of contract ensures that a person not a party to the contract cannot be
sued in contract. This does not preclude such a person being sued on any other pretext for a
breach of their obligations such as in Negligence, which we deal with later.

INTENTION TO CREATE LEGAL RELATIONS

A contract is defined as a legally binding agreement. However, in order to limit the number of
cases that might otherwise be brought, the courts will only enforce those agreements which the
parties intended to have legal effect.

Some agreements are not intended to be legally enforceable, their nature being such that a
reasonable person viewing the words and conduct of the parties objectively would not conclude
that they intended to create legal relations. For example, a reasonable person would not expect
an enforceable legal obligation to spring from a mere social engagement, such as an invitation
to lunch, despite the presence of all the other essential elements necessary to create a binding
agreement.

The parties must intend the agreement to be legally binding. But how can the court find out
what was in the parties’ minds? The nearest courts can get to discover this intention is to apply
the objective test and judge the situation by what was said and done. The law divides
agreement into two groups: domestic and social agreements and business agreements.
 53

DOMESTIC AND SOCIAL ARRANGEMENTS

In domestic and social arrangements, there is a rebuttable presumption that the parties do not
intend to create legal relations. Any such presumption against the intention to create legal
relations in such relationships may rebutted by the actual facts and circumstances of a
particular case. Arrangements in a domestic or social context include agreements made
between members of a family and between friends. A presumption means that the claimant in
the action need not prove certain matters on a balance of probabilities; the court presumes that
they exist.

1. Husband and Wife

Balfour v Balfour (1919)

The defendant, who worked in Ceylon, came to England with his wife on holiday. He later
returned to Ceylon alone, the wife remaining in England for health reasons. The defendant
promised to pay the plaintiff £30 per month as maintenance, but failed to keep up the
payments when the marriage broke up. The wife sued. In its ruling, the court was of the
considered view that an agreement to pay £30 per month existed. However, because they were
husband and wife at the time of the promise, the parties had not intended it to be legally
binding. There is a presumption that domestic arrangements are not intended to finish up in
court.

It is necessary to remember that there are agreements between parties which do result in
contracts within the meaning of the term “contract” in law. A typical example is where two
people agree to take a walk in the park. In real terms, there is an offer and acceptance. Nobody
in their right mind would suggest that there is a contract in the real sense of the word even
though there is an agreement. This is the same spirit within which promises between husbands
and wives are to be construed.

Divorced or Divorcing Spouses?

In the case where there are divorced or divorcing spouses, the promises made may be regarded
as leading to legal relations because where parties are divorced, they cease to be a family and,
therefore, do not come under the ambit of social and domestic arrangements.

Merrit v Merrit (1970)

The husband left his wife. They met to make arrangements for the future. The husband agreed
to pay £40 per month maintenance, out of which the wife would pay the mortgage. When the
mortgage was paid off, he would transfer the house from joint names to the wife's name. He
 54

wrote this down and signed the paper, but later refused to transfer the house.

It was held that when the agreement was made, the husband and wife were no longer living
together; therefore, they must have intended the agreement to be binding, as they would base
their future actions on it. This intention was evidenced by the writing. The husband had to
transfer the house to the wife.

Relatives and Friends?

There is also a presumption that in relations between friends or relatives, the presumption is
that any promises or undertaking made are not intended to create legal relations. However, this
is only a presumption and can, therefore be rebutted if a contrary intention is shown.

Simpkins v Pays (1955)

The defendant, her granddaughter, and the plaintiff, a paying lodger shared a house. They all
contributed one-third of the stake in entering a competition in the defendant's name. One week
a prize of £750 was won but on the defendant's refusal to share the prize, the plaintiff sued for
a third.

It was held that the presence of the outsider rebutted the presumption that it was a family
agreement and not intended to be binding. The mutual arrangement was a joint enterprise to
which cash was contributed in the expectation of sharing any prize that was won.

Parker v Clarke (1960)

Mrs. Parker was the niece of Mrs. Clarke. An agreement was made that the Parkers would sell
their house and live with the Clarkes. They would share the bills and the Clarkes would then
leave the house to the Parkers. Mrs. Clarke wrote to the Parkers giving them the details of
expenses and confirming the agreement. The Parkers sold their house and moved in. Mr. Clarke
changed his will leaving the house to the Parkers. Later the couples fell out and the Parkers were
asked to leave. They claimed damages for breach of contract.

It was held that the exchange of letters showed the two couples were serious and the
agreement was intended to be legally binding because (1) the Parkers had sold their own home,
and (2) Mr. Clarke changed his will. Therefore the Parkers were entitled to damages.

The usual presumption that agreements between spouses living happily together are not legally
enforceable does not apply when they are about to separate, or have already separated.

Parents and Children?

Jones v Padavatton (1969)

 55

In 1962, Mrs. Jones offered a monthly allowance to her daughter if she would give up her job in
America and come to England and study to become a barrister. Because of accommodation
problems Mrs. Jones bought a house in London where the daughter lived and received rents
from other tenants. In 1967 they fell out and Mrs. Jones claimed the house even though the
daughter had not even passed half of her exams.

It was held that the first agreement to study was a family arrangement and not intended to be
binding. Even if it was, it could only be deemed to be for a reasonable time, in this case five
years. The second agreement was only a family agreement and there was no intention to create
legal relations. Therefore, the mother was not liable on the maintenance agreement and could
also claim the house.

However, this presumption may be rebutted. The court may reach a contrary conclusion after
examining words used and surrounding circumstances.

COMMERCIAL AGREEMENTS

In the case of ordinary commercial dealings (for example buying goods in a shop), there is a
strong presumption that the parties intended it to be legally binding. This presumption can be
rebutted if a contrary intention is clearly expressed in the agreement itself. The courts are
reluctant to rebut the presumptions.

Jones v Vernon’s Pools Ltd (1938)

Jones contended that he had forwarded a winning entry to the defendant company of football
pools promoters, but they denied having received it. In order to deal with this type of
eventuality, a clause was printed on the pools coupon which Jones had signed, stating that ‘any
agreement…entered into… shall not give … give rise to any legal relationship … but… binding in
honour only.

It was held that a contract did not exist between the parties, since the wording of the
agreement clearly negated any such intention. Jones could not, therefore, sue the pools
company for breach of company.

Edwards v Skyways (1964)

An employee agreed to make an ‘ex-gratia’ payment to redundant employee. (Ex-gratia means

non-contractual and at the will of one of the parties.)
 56

The use of the term ex-gratia was only a denial of a previous liability and did not rebut the
presumption that the parties intended that the agreement to make the payment was legally
binding.

Rose and Frank Co. v Crompton & Bros Ltd (1925)

A commercial agency agreement stated: ‘this … is not entered into … as a formal or legal
agreement, and shall not be subject to legal jurisdiction in the law courts’. Goods were ordered
and supplied in compliance with the agency agreement. Cromptons breached the agreement.
Rose and Frank sued for breach.

It was held that the wording of the agreement made it clear that it was not intended to be
binding in law; it could not therefore be enforced. However, goods ordered and supplied in
accordance with the agreement were regarded as separate, binding, contracts, of sale.

CAPACITY

Capacity refers to the fact that the law does not recognise the ability of some people to enter
into binding contractual agreements, or at least limits their capacity to enter into such
arrangements. The law governing minors’ contracts shows how the law must compromise
between two principals. The first and more important is that the minor must be protected
against his own inexperience. The second is that in pursing this object, the law should not cause
unnecessary hardship to those who deal with minors.

MINORS

In general terms, adults of sound mind have full contractual capacity and are free to enter into
such agreements as they wish and will be required to comply with any such. Minors, however,
those under the age of 18, do not have full capacity. Agreements entered into by minors may be
classified within three possible categories:
 57

i. Valid contracts.
ii. Voidable contracts.
iii. Unenforceable contracts.

Valid contracts

These are agreements that can be enforced against minors and involve one of the following:

1. Contracts for Necessaries

Minors are under a legal obligation to pay for things necessary for their maintenance
although even then they will only be required to a reasonable price for any necessaries
purchased. Necessaries are defined in the Sale of Goods Act, Section 3, as goods suitable
to the condition in life of the minor and their actual requirements at the time of sale.

The classic case on this one is Nash v Inman (1908) in which a tailor sued a minor to
whom he had supplied clothes, including 11 fancy waistcoats. It was decided that as the
minor was an undergraduate at Cambridge University at the time, the clothes were
suitable according to the minor’s station in life. Unfortunately for the tailor, however, it
was further decided that they were not necessary, as he already had sufficient clothing.

2. Beneficial Contracts of Service

A minor is bound by a contract of apprenticeship or employment, as long as it contains

an element of education or training and is, on the whole, for their benefit.

Thus in Doyle v White City Stadium (1935), a minor who had obtained a professional
boxer’s licence, attempted to avoid some of the rules contained in the agreement by
having it declared unenforceable due to his lack of incapacity. In deciding this case, not
only was the licence treated as a contract of apprenticeship, but it was also held that,
taken as a whole, it was beneficial to him.

Voidable Contracts

These may be avoided by the minor, but if no steps are taken to repudiate the contract during
the time of their minority, or within a reasonable time after reaching the age of majority, then
they are binding and cannot be avoided subsequently.

Voidable agreements relate to transactions in which the minor acquires an interest of a

permanent nature with obligations continuing into the time of their majority: examples are
contracts for shares, or leases of property, or partnership agreements.

The minor will only be able to recover money paid out under the terms of the agreement before
repudiation of the contract, where there is a total failure of consideration. In other words, they
 58

will not be able to recover the money unless they received no benefit whatsoever from the
agreement.

In Steinberg v Scala (1923), a minor applied for and was allotted shares in the defendant
company. After paying some money on the shares, she repudiated the contract. Although the
company agreed to remove her name from its register of members, it refused to return any of
her money. It was held that the claimant had benefitted from membership rights and thus, as
there had not been a complete failure of consideration, she was not entitled to the return of the
money paid.

Contrast Corpe v Overton (1833), where a minor agreed to enter into a partnership to be
formed in the future. He paid £100 in advance. He later changed his mind, and attempted to
recover the £100. His action succeeded because, since the partnership had not yet been
formed, he had received absolutely nothing for his money, i.e. there was a total failure of
consideration.

Unenforceable Contracts

Under the Infants Relief Act (1874), the following contracts are absolutely void:

 Contracts for the repayment of loans;

 Contracts for goods other than necessaries;
 Accounts stated i.e. admissions of money owed.

MENTAL INCAPACITY AND INTOXICATION

Age is not the only ground for denying capacity to someone in order to protect them from
entering into adverse contractual agreements.

If a person is temporarily incapable of understanding what he is doing because of mental illness,

drunkenness or drugs, the contract will be valid unless he can prove:

i. That he did not understand the nature of the contract and,

ii. The other party knew or ought to have known of this disability.

Such a contract will be binding if it is later ratified at a time when a person is able to understand
what he is doing.

Where necessaries are sold and delivered to a person who, by reason of mental incapacity or
drunkenness if incompetent to contract, he is bound to pay a reasonable price. (S. 3 of the Sale
of Goods Act 1893)

CORPORATIONS

The contractual capacity of a corporation may be defined as follows:

a) Statutory corporations: The contractual capacity of a statutory corporation is defined

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expressly or by implication by the statute under which the corporation was created. Any
contract which is beyond the powers conferred by the statute is void.

b) Registered corporations: The contractual capacity of a company registered under the

Companies Act is defined by the objects clause in the company’s Memorandum of
Association. Any act beyond the capacity thus defined is ultra vires.

Thus in Ashbury Carriage Co. Ltd v. Riche (1875), a company was formed with the objects of
making, selling and mending railway carriages and, as mechanical engineers, to purchase, lease
and work mines, minerals, land and buildings. It purported to enter a contract to purchase a
concession to build a railway in Belgium. The members of the company, in general meeting,
ratified the contract, but it was nevertheless held to be ultra vires and void, for it was beyond
the objects clause in the Memorandum.

UNIT 7: THE TERMS OF A CONTRACT

The terms of a contract define the obligations which the parties to the contract have
undertaken. We shall examine the ways in which terms can arise, and explain the difference
between express terms and implied terms. The different types of terms will be considered.
Breach of some types of terms gives the injured party the right to terminate the contract,
whereas breach of other types does not. Breach of any term always gives a right to sue for
damages.

Exclusion clauses are terms which attempt to exclude liability for breach of contract or for
breach of a tortious duty of care. We conclude by considering the special rules which apply to
exclusion clauses.

NATURE OF TERMS

A contract is made up of terms. All of the promises which a contract contains, whether they
were made expressly or impliedly, will be terms. If any of these promises are not kept, one or
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more terms of the contract will have breached. The injured party will then always have a
remedy for breach of contract.

Terms can find their way into contracts in one of two ways: they can be expressed in speech or
writing or they can be implied. Express terms are actually agreed by the parties in words.
Implied terms are implied either by the court (on the grounds of the presumed intention of the
parties) or by a statute.

Express Terms

A contract is formed when an offer is accepted. The offeror proposes a set of terms. If the offer
is accepted by the offeree, these proposed terms become legally binding as the terms of the
contract. Oral contracts usually contain very few express terms. Written contracts, especially
business contracts, contain far more. If there is any conflict between an express term and an
implied term, the express term will prevail unless the implied term is a statutory one which
cannot be changed.

Terms Implied by the Courts.

Generally, it is a matter for the parties concerned to decide the terms of a contract, but, on
occasion, the court will presume that the parties intended to include a term which is not
expressly stated. The courts have the power to imply terms into a contract. Despite having this
power, the courts have always made it plain that they are not prepared to make a contract for
the parties. The courts will imply a term only on the basis that it was so obviously intended to
be a part of the contract that the parties felt no need to mention it.

Thus in The Moorcock (1889), a jetty owner made a contract which allowed a ship-owner to
moor his ship at the jetty on the River Thames. River Thames is a tidal river and at times when
the tide went out, the ship would come into contact with the river bed. So both parties knew
that the ship would be grounded at a low tide. When the ship did touch the ground, it was
damaged because there was a ridge of rock beneath the mud. The ship-owner asked the court
to imply a term that the jetty owner had reasonable care to ensure that the jetty was a safe
place to unload a ship.

The term was implied by the court. The jetty owner had breached the term and was, therefore,
in breach of contract. It was obviously intended by both parties that the mooring should be
safe.

Customary Terms

Terms may be implied by the courts on the grounds that they are customary in a particular
trade, customary in a particular locality or customary between the parties.

Many trades have customs, and these customs will be implied into contracts made within the
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contexts of those trades. In the bakery trade, for example, a dozen used to mean 13, and a
baker who sold 20 dozens would be deemed to have sold 260, not 240.

In a similar way, customs of a particular locality will be implied into contracts made in that
locality.

Thus in Hutton v Warren (1836), Lincolnshire tenant farmer was given notice to quit the farm.
The farmer stated that the contract contained an implied term that he should be paid an
allowance for seed and labour. The term was implied because it was an agricultural custom in
Lincolnshire.

A term can be customary between the parties to the contract if they regularly make contracts
which include such a term.

Thus in Kendall v Lillico (1969), the parties had often dealt with each other. Whenever an oral
contract was made, the same ‘sold note’ containing a large number of terms was always sent
the following day. The House of Lords held that the terms in the ‘sold note’ had become
customary between the parties and were, therefore, incorporated into an oral contract which
was made.

However, the course of dealing must be established.

In Hollier v Rambler Motors Ltd (1972), the claimant had signed the same exclusion clause
three or four times in the previous five years when he had had his car repaired at the
defendant’s garage. The car was damaged while being repaired under a contract made orally.
The garage tried to rely on their exclusion clause, but the court held that they could not do so.
The exclusion clause was not incorporated into the oral contract. Salmon LJ said: “I am bound to
say that, for my part, I do not know of any other case in which it has been decided or even
argued that a term could be implied into an oral contract on the strength of a course of dealing
(if it can be so called) which consisted at the most of three or four transactions over a period of
five years.’

Terms Implied by Statute

Terms are implied into sale of goods contracts by the Sale of Goods Act 1893. The terms which
this statute implies are inserted into the sale of goods contract without the parties needing to
agree to them.

TYPES OF TERMS

Terms can be classified as one of three types.

Conditions

A condition is a fundamental part of the agreement. It is a term which seemed very important
went the contract was made (a term which went ‘to the root of the contract’.) Breach of a
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condition gives the innocent party the right either to terminate the contract and refuse to
perform their part of it or to go through with the agreement and sue for damages.

Warranties

A warranty is a term which did not seem vitally important when the contract was made. It is a
term which did not go ‘to the root of the contract’. Breach of a warranty does not give the right
to terminate the agreement. The innocent party has to complete their part of the agreement
and can only sue for damages. The difference between the two types of term can be seen in the
following cases:

• In Poussard v Spiers and Pond (1876), the plaintiff had contracted with the defendants to sing
in an opera that they were producing. Due to illness, she was unable to appear on the first night
and for some nights thereafter. When Mme Poussard recovered, the defendants refused her
services, as they had hired a replacement for the whole run of the opera. It was held that her
failure to appear on the opening night had been a breach of a condition and the defendants
were at liberty to treat the contract as discharged.

• In Bettini v Gye (1876), the plaintiff had contracted with the defendants to complete a
number of engagements. He had also agreed to be in London for rehearsals six days before his
opening performance. Due to illness, he only arrived three days before the opening night and
the defendants refused his services. On this occasion, it was held that there was only a breach
of warranty. The defendants were entitled to damages, but could not treat the contract as
discharged.

Innominate Terms

In the Hong Kong Fir Case (1962), the Court of Appeal invented a new category of term, the
innominate or intermediate term. In deciding whether or not a breach of such a term gives the
injured party the right to terminate the contract, the court does not consider how important the
term seemed when the contract was made. Instead the court asks whether or not the breach
deprived the injured party of substantially the whole benefit of the contract. If the breach did
do this, the injured party can treat the contract as terminated and claim damages. If the breach
did not do this, the injured party can claim damages but cannot treat the contract as
terminated.

In Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 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
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term relating to seaworthiness was not a condition of the contract.

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.

There may be uncertainty as to whether a court will classify a particular term as either a
condition, a warranty or an innominate term. Generally, the position is as follows:

i. A statute such as the Sale of Goods Act 1873, or a rule of law might establish that a
term is a condition or a warranty.

ii. The parties themselves might agree that certain terms will or will not give the right to
terminate if breached. The court will give effect to such an agreement.

iii. If no term of a contract or a rule of law stipulates that a particular term is to be either a
condition or a warranty, the court will regard the term as an innominate term. Breach of
such a term will allow the injured party to terminate the contract only if the breach
deprived the injured party of substantially the whole benefit of the contract.

EXCLUSION CLAUSES

Exclusion clauses, or exemption clauses as they are sometimes known, are clauses which try to
exclude or limit one party’s liability. Usually, the liability in question will have arisen as a result
of an express or implied term of a contract. However, exclusion clauses can go further and can
exclude other types of liability, such as liability arising in tort.

Has the exclusion clause been incorporated into the contract?

An exclusion clause cannot be effective unless it is actually a term of a contract. There are three
ways in which such a term may be inserted into a contractual agreement.

By signature

If a person signs a contractual document, then they are bound by its terms, even if they do not
read it.

In L’Estrange v Graucob (1934), a café owner bought a vending machine, signing a contract
without reading it, which took away all her rights under the SGA 1893. When the machine
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proved faulty, she sought to take action against the vendors, but it was held that she had no
cause of action, as she had signified her consent to the terms of the contract by signing it and
the exclusion clause effectively exempted liability for breach.

The rule in L’Estrange v Graucob may be avoided where the party seeking to rely on the
exclusion clause misled the other party into signing the contract.

Thus in Curtis v Chemical Cleaning and Dyeing Co (1951), a customer who took her wedding
dress to a dry cleaners was asked to sign a ‘receipt’. The customer asked what it said and was
told that it just covered liability for damage to beads and sequins. She signed the document
which, in fact excluded all liability on the part of the dry cleaners. The wedding dress was badly
stained and the dry cleaners tried to rely on their exclusion clause. The Court of Appeal held
that they could not do so because they had misrepresented the effect of the exemption clause.

By notice

Apart from the above, an exclusion clause will not be incorporated into a contract unless the
party affected actually knew of it or was given sufficient notice of it. In order for notice to be
adequate, the document bearing the exclusion clause must be an integral part of the contract
and must be given at the time that the contract is made.

In Chapelton v Barry UDC (1940), the plaintiff hired a deck chair and received a ticket, which
stated on its back that the council would not be responsible for any injuries arising from the hire
of the chairs. After he was injured when the chair collapsed, Chapelton successfully sued the
council. It was held that the ticket was merely a receipt, the contract already having been made,
and could not be used effectively to communicate the exclusion clause.

This case must be contrasted with Thompson v London, Midland and Scottish Railway Co
(1930), in which the Court of Appeal held that a train passenger who could not read was bound
by an exclusion clause in the railway’s timetables. The clause excluded liability to personal injury
and damage to property due to negligence. The claimant was injured whilst stepping off a train.
The train ticket said that it was issued subject to the timetables, and it was held that the
reasonable person would have expected to find the terms of the contract set out on the train
ticket.

In Olley v Marlborough Court Hotel Ltd (1949), a couple arrived at a hotel and paid for a room
in advance. On reaching their room, they found a notice purporting to exclude the hotel’s
liability in regard to thefts of goods not handed in to the manager. A thief later stole the wife’s
purse. It was held that the hotel could not escape liability, since the disclaimer had only been
made after the contract had been formed.

The notice given must be sufficient for the average person to be aware of it; if it
is sufficient, it matters not that this contracting party was not aware of it.

In Thompson v LM & S Rly (1930), a woman who could not read was bound by a printed clause
referred to on a railway timetable and ticket because the average person could have been aware
of it.
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Whether the degree of notice given has been sufficient is a matter of fact, but, in Thornton v
Shoe Lane Parking Ltd (1971), it was stated that the greater the exemption, the greater the
degree of notice required. In this case, the claimant was badly injured in the defendant’s car
park, the accident being partly caused by the defendants’ negligence. The claimant had driven
into the car park and passed a notice at the entrance which said that cars were parked at the
owner’s risk. When the claimant stopped at a red light, he was issued with a ticket. The ticket
said on it that it was issued subject to notices displayed inside the car park. These notices,
which could only be read once fully inside the car park, said that the defendants were not liable
for damage to goods or for injuries to customers. The defendants denied liability for the
claimant’s injuries, saying that the conditions displayed inside the car park were a part of the
contract.

It was held that the notices inside the car park were not part of the contract. By the time the
claimant had been given the ticket which referred to these notices, the contract had been
made. The contract had been at the time the claimant had put his money into the machine.

By custom

Where the parties have had previous dealings on the basis of an exclusion clause, that clause
may be included in later contracts.

In Spurling v Bradshaw (1956), the defendant used the services of a warehouse to store goods
on a regular basis. Each time he delivered goods to the warehouse he was asked to sign an
invoice which contained an exclusion clause. This invoice came after the contract had been
agreed. On one occasion he stored some barrels of orange juice and again signed the invoice.
When he went to pick them up, however, some of the barrels were empty and one contained
dirty water. Consequently he refused to pay for the storage. The claimant warehouse owners
brought an action for the agreed price of storage relying on the exclusion clause to demonstrate
that they were not liable for the damage to the goods. The defendant argued the clause had not
been incorporated into the contract as he signed the document after the contract was made.

Held: The clause was incorporated through previous dealings. The defendant would have been
aware of the term from the previous contracts and therefore it did form part of the contract.
The claimant was entitled to payment and the defendant had no right to claim compensation
for the damage to the orange juice.

However, it has to be shown that the party affected had actual knowledge of the exclusion
clause.

In Hollier v Rambler Motors (1972), the claimant had used the services of the defendant garage
on 3-4 occasions over a five year period. Each time he had been asked to sign a document
excluding liability for any damage. On this occasion the contract was made over the phone and
no reference to the exclusion clause was made. The garage damaged the car during the repair
work and sought to invoke the exclusion clause through previous dealings. It was held that there
was not a sufficient number of or regularity of transactions to amount to a previous course of
dealings capable of incorporating the exclusion clause. It was not reasonable to expect the
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claimant to remember the clause from one transaction to the next. Consequently the garage
was liable to pay for the damage.

THE DIFFERENCE BETWEEN TERMS AND REPRESENTATIONS

A contract is made up of terms. Express terms are inserted into the contract by the parties. The
offeror proposes a set of terms in the offer. If the offeree accepts the offer, the proposed terms
become the terms of the contract. If any term is breached, the injured party will always have a
remedy for breach of contract.

Frequently, however, a person is persuaded to make a contract by a statement which is not a

part of the contract. Such a statement cannot be a term. It can only be a representation. If this
statement turns out to be untrue, the injured party might or might not have a remedy for
misrepresentation. To sue for misrepresentation is not the same thing as to sue for breach of
contract. Not only are the remedies different but the whole basis of the action is different. It is,
therefore, necessary to distinguish terms and representations.

Written Contracts

In written contracts, the express terms will be contained in the written document. Statements
which are not contained in the written document can only be representations.

Example

Florence buys a car from a dealer, and the terms of sale are spelt out in a standard form
contract. When both parties sign this contract, they expressly agree to all of its terms. If any of
the terms are breached, then the injured party will always have a remedy for breach of contract.
But if Florence was persuaded to sign the standard form contract because the dealer made an
untrue statement (perhaps saying that all the cars would be going up in price the following
week, when this was not true), then the dealer has not breached a term, but has only made an
untrue representation. As no term has been breached, Florence will not be able to sue for
breach of contract. She might, however, have a remedy for misrepresentation.

Similarly, it might have been Florence who made an untrue statement which caused the dealer
to make the contract. A customer who pays with a cheque impliedly makes the statement that
the cheque will be honoured. If this implied statement was untrue, because the cheque was
stolen and would be dishonoured, the customer would not be breaching a term of the contract.
The customer would, however, be making an untrue representation, and the dealer might have
a remedy for misrepresentation.

So when both parties have signed a contract, there is not too much difficulty in telling a term
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from a misrepresentation. Statements included in the written contract will be terms.

Statements not included can only be representations.

Oral Contract

Where a contract is made orally, it is much harder to tell a term from a representation. It is still
the case that a term is part of the contract, and a representation is not. But it can be much
harder to tell exactly which statements were included in the contract.

By way of example, let us assume that a farmer, Francis, orally offered to sell his combine
harvester to Rachael for K40, 000. Rachael accepted, because shortly before the sale Francis
said that the harvester had recently had a new engine fitted. Was Francis’s statement about the
new engine a term of the contract, or only a misrepresentation?

The courts decide such questions as these by looking at the opinion of the reasonable person. It
asks whether the reasonable person would have thought that the parties intended the
statement to be a term or a representation.

This objective test is necessary because once again there is no point in looking for the opinions
of the parties themselves. If the court asks Francis whether he thought that the statement
about the new engine was a term or a representation, Francis is likely to say that he thought it
was just a representation. If the court asked Rachael, she is likely to say that she thought it was
a term.

Over the years, the courts have devised various tests to decide what the reasonable person
would have thought.

Stronger statements are likely to be terms

The stronger the statement made, the more likely it is to be a term.

In Schawel v Reade (1913), the claimant was considering buying a horse to be used for stud
purposes. The defendant said: “You need not look for anything; the horse is perfectly sound. If
there was anything the matter with the horse I would tell you.” Three weeks later, the claimant
bought the horse, which turned out to be utterly useless for stud purposes. It was held that the
defendant’s statement was a term. It was so strong that it was the basis on which the offer and
the acceptance were made.

The weaker the statement, the more likely it is to be a representation.

In Ecay v Godefroy (1947), the claimant bought a boat for £750. Before selling the boat, the
defendant said that the boat was sound and capable of going overseas. However, he also
advised the claimant to have it surveyed before making the purchase. The claimant bought the
boat, without having it surveyed, and soon discovered that it was not at all sound. It was held
that the statement that the boat was sound was only a representation. It was not part of the
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contract because it was a very guarded statement.

The reliance shown to be placed upon the statement

If one of the parties demonstrates that the statement is considered to be vitally important then
the statement is likely to be a term.

In Bannerman v White (1861), the claimant, a merchant who traded in hops, sent around a
circular to all the hop farmers with whom he dealt. The circular said that the claimant would no
longer buy hops which had been treated with sulphur, because the Burton-upon-Trent brewers
would not use them. When later buying a consignment of hops from the defendants, the
claimant asked if they had been treated with sulphur, adding that if they had he would not buy
them at any price. The defendant said that they had not been treated with sulphur, but in fact
some of them had.

It was held that defendant’s statement was a term. The claimant had demonstrated that he
considered the statement to be vitally important.

The relative knowledge of the parties

A party who has more knowledge about the subject matter of the contract is likely to make
terms. A party with less knowledge is likely to make representations.

In Oscar Chess Ltd v Williams (1957), a customer traded in a car to a car dealer, saying that the
car was a 1948 model. In fact, the car was a 1939 model. The customer did not know this
because the car’s documents said it was a 1948 model. The customer’s statement was only a
representation because the dealer was as well placed as the customer to know the true age of
the car.

By contrast in Dick Bentley Productions Ltd v Harold Smith Motors Ltd (1965), a motor dealer
sold a car to the claimant, saying that the car had only don 20,000 miles since having a new
engine fitted. In fact, the car had done 100, 000 miles. The dealer’s statement was a term. The
dealer, with his greater knowledge of cars, had much more chance of knowing that the
statement was untrue than the claimant had.
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UNIT 8: VITIATING FACTORS

This unit looks at matters or factors which can invalidate a contract. These factors are known as
vitiating factors. They are misrepresentation, mistake, duress, undue influence and illegality.

MISREPRESENTATION

HOW A REPRESENTATION BECOMES A MISREPRESENTATION

A breached term always gives the injured party the right to a remedy for breach of contract. An
untrue representation will lead to a remedy if it amounts to an actionable misrepresentation. If,
however, the representation does not fit within the definition of an actionable
misrepresentation, then it will be a mere representation and no remedy will be available.

Definition of a Misrepresentation

An actionable misrepresentation is an untrue statement of fact which induced the other party
to make the contract.

The statement must be one of fact

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Statements of mere opinion are not capable of being misrepresentations.

In Bisset v Wilkinson (1927), the claimant bought a farm because the defendant told him that
the farm would support 2, 000 sheep. The claimant knew that the farm had never been used for
sheep farming. In fact, the farm, no matter how well managed, could not support anything like
2, 000 sheep. It was held that the statement was just an opinion and could not, therefore,
amount to a misrepresentation.

However, some statements of opinion imply statements of fact, as the following case shows.

In Smith v Land and House Property Corporation (1884), the claimants offered their hotel for
sale, stating that it was occupied by ‘Mr. Frederick Fleck (a most desirable tenant)’. Before the
sale went through, Mr. Fleck went bankrupt. The defendants discovered that for some time Mr.
Fleck had been badly in arrears with his rent. They refused to go ahead with the purchase of the
hotel, claiming that the statement that Mr. Fleck was a most desirable tenant amounted to a
misrepresentation.

The statement was a misrepresentation. It sounded like a mere statement of opinion, but it
implied facts (such as the fact that the tenant paid rent) which justified the opinion.

When a party who has vastly superior knowledge makes an opinion which the other party relies
on, then this can amount to a representation that the opinion has been made using reasonable
care and skill.

In Esso Petroleum Co. Ltd v Mardon (1976), an Esso representative persuaded the claimant to
take on a filling station by telling him that the station would sell 200, 000 gallons of petrol a year
within three years. The claimant doubted this figure but was persuaded to believe it because
the Esso representative was very experienced in giving such estimates. After the contract was
made, it became apparent that, no matter how well the station was managed, it would never
achieve anything like this figure.

The Court of Appeal held that a misrepresentation had been made, saying that the statement
about 200, 000 gallons a year had been made using reasonable care and skill.

The statement must induce the other party to make the contract.

A statement can amount to a misrepresentation only if it was one of the reasons why the
claimant made the contract. If a person makes a contract without checking the truth of a
statement, this suggests that the statement did induce the making of the contract.

In Redgrave v Hurd (1881), the claimant, a solicitor, advertised for a partner who would also
buy the solicitor’s house and solicitor’s practice. The defendant answered the advertisement
and was told that the practice made about £300 per annum. The claimant produced papers
which he said would prove that his statement about the value of the practice was true, but the
defendant did not read the papers. If he had done so, he would have discovered that the
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practice was worthless. When the defendant did discover that the practice was worthless, he
refused to go ahead with the purchase.

The claimant’s statement about the value of the practice was a misrepresentation. It could,
therefore, be used as a defence for not going ahead with the contract. The fact that the
defendant did not check the papers showed that the claimant’s statement did induce the
defendant to make the contract.

A person who checks the truth of a statement cannot later say that the statement induced a
contract.

In Attwood v Small (1838), the claimant bought a mine because the defendant greatly
exaggerated the capacity of the mine. Before buying the mine, the claimant got his own experts
to check the defendant’s statement. The experts mistakenly agreed that the defendant’s
statement was true.

The statement about the mine’s capacity was not a misrepresentation because the claimant did
not rely on it. By appointing his own experts to check the statement, the claimant proved that
he did not rely on it.

REMEDIES FOR MISREPRESENTATION

There are three types of actionable misrepresentation. Each type gives rise to different
remedies.

Fraudulent Misrepresentation

Fraudulent misrepresentation was defined by Derry v Peek (1889) as a misrepresentation made

either:

i. knowing that it was untrue; or

ii. not believing that it was true; or
iii. recklessly, not caring whether it was true or false.

Example

Jason sells a lorry to Ben and makes a misrepresentation to the effect that the lorry has had a
new engine fitted. The misrepresentation will be fraudulent if either: Jason knows that a new
engine has not been fitted; or Jason does not think that a new engine has been fitted; or Jason
has no idea whether or not a new engine has been fitted.

Remedies for Fraudulent Misrepresentation

A fraudulent misrepresentation allows the injured party to rescind the contract (call it off) and
sue for damages for the tort of deceit. If the tort is to be rescinded for fraudulent
 72

misrepresentation, this must be done within reasonable time of the innocent party becoming
aware of the misrepresentation.

Damages for the tort of deceit are usually much greater than contract damages as a claim can
be made for all expenses and loss caused by the deceit, even if these were not reasonable
foreseeable.

Negligent Misrepresentation

A negligent misrepresentation is one made honestly believing that it was true but without
reasonable grounds for such belief.

Example

Daniels sells a printer to Bill and makes a misrepresentation to the effect that it is a colour
printer. The misrepresentation will be negligent unless Daniel could prove that he had
reasonable grounds to prove that the printer was colour printer. Notice that the burden proof is
on Daniel.

Remedies for Negligent Misrepresentation

A negligent misrepresentation allows the injured party to rescind the contract and to sue for
damages for the tort of deceit.

Wholly Innocent Misrepresentation

A wholly innocent misrepresentation is one made honestly believing that it was true, with
reasonable grounds for such a belief.

Example

Michael sells a computer to Rachael and makes a misrepresentation to the effect that it can
operate Apple Software. Rachael believed this to be true. If Michael can prove that he had
reasonable grounds for believing it was true (perhaps because that is what the shop told her
when she bought the computer), then he will have made a wholly innocent misrepresentation.
If Michael does not prove this, then he will have made a negligent misrepresentation.

Remedies for Wholly Innocent Misrepresentation

The injured party can rescind but has no right to claim damages

The Burden of Proof

The person who has the burden of proof must prove what he alleges. In civil cases, the claimant
must prove what he alleges on a balance of probabilities, meaning that he must prove that it is
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more likely to be true than untrue. In criminal cases, all of the elements of the crime must be
proved beyond reasonable doubt. However, an exception to the civil standard of proof is made
when a claimant alleges fraudulent misrepresentation. A claimant who alleges fraudulent
misrepresentation must prove the fraud on the criminal standard, because in effect the claimant
is alleging that a crime has been committed. Almost all fraudulent misrepresentations also
amount to a criminal offence.

If a party alleges negligent misrepresentation, then he must prove on the civil standard of proof
that there has been a misrepresentation. The burden of proof is then shifted to the other party,
using the civil standard of proof that he had reasonable grounds for believing that his statement
was true. If he cannot do this, the misrepresentation will have been negligent. Because the
remedies for fraudulent and negligent misrepresentation are virtually identical, many victims of
fraudulent misrepresentation allege negligent rather than fraudulent misrepresentation. All
they have to do is to prove that there has been a misrepresentation, and this will be negligent,
unless the misrepresentor can prove that he had reasonable grounds for believing that his
statement was true. This is much easier than proving fraudulent misrepresentation.

Losing the right to rescind

All three types of misrepresentation give the injured party the right to rescind. Rescission of a
contract means that the parties are returned to the position they were in before the contract
was made. So the whole of the purchase price will be returned to the party who rescinds.
However, the right to rescind can be lost in the following three ways:

i. if the contract is affirmed.

ii. If a third party acquires rights.
iii. If the subject matter of the contract no longer exists.

The Contract is Affirmed

The contract will be affirmed if the claimant decides to carry on with the contract after
discovering the misrepresentation. The claimant might indicate affirmation expressly or
impliedly. If the claimant does nothing for a considerable period of time, the court might well
take the view that the contract has been impliedly affirmed.

In Lee v International Galleries (1950), the claimant bought a painting from International
Galleries because of a non-fraudulent misrepresentation that the painting was by Constable.
Five years later, the claimant discovered that the painting was not by Constable and he
immediately applied to the court for rescission of the contract. The court held that the claimant
was too late to rescind. He had affirmed the contract by doing nothing for five years.

Comment: If the misrepresentation by the Gallery had been fraudulent, time would only have
started to run against the claimant from the moment the misrepresentation was discovered. He
would, therefore, have been able to rescind the contract. This is the main difference between
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the remedies for fraudulent and negligent misrepresentation.

If a third party has acquired rights

A contract which can be rescinded is said to be a voidable contract, because one of the parties
has the option to avoid the contract (call it off). Although misrepresentation makes a contract
voidable, it does not prevent ownership of goods sold under the contract from passing to the
person who made the misrepresentation. In such a case, the person making the
misrepresentation will own the goods unless and until the innocent party avoids the contract.
The innocent party has no obligation to avoid and may choose to affirm the contract, despite
the misrepresentation and keep what was gained under the contract.

It follows that if the misrepresentor sells the goods on to a third party before the contract is
avoided, then the third party can keep the goods forever. This is because at the time when the
goods were sold, the misrepresentor still owned the goods, and, therefore, still had ownership
to pass on. This rule is confirmed by s. 23 of the Sale of Goods Act 1893 which provides that:

When the seller of goods has a voidable title thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in good
faith and without notice of the seller's defect of title.

If, however, the goods are sold to the third party after the contract has been avoided then the
innocent third party will get no ownership of the goods. Cases on this matter amount to a
dispute on who did what first.

In Lewis v Avery (1972), a rogue bought the claimant’s car. The rogue paid with a bad cheque,
pretending to be a famous actor called Richard Greene. The rogue, therefore, made a fraudulent
misrepresentation. At first the claimant was unwilling to take the rogue’s cheque. However, the
claimant did take the cheque when the rogue produced a Pinewood Studios pass in the name of
Richard Greene, which showed the rogues photograph. Having got possession of the car, the
rogue sold it to the defendant. The defendant paid a reasonable price for the car and believed
that the rogue owned it. The claimant later tried to avoid the contract.

Although the contract was voidable for fraudulent misrepresentation, the defendant gained
complete ownership by virtue of s. 23 of the Sale of Goods Act 1893. Once the car had been
resold by the rogue, the claimant was too late to avoid the contract and had lost ownership of
the car.

In Car and Universal Finance Co v Caldwell (1965), a rogue bought a car with a bad cheque. The
rogue sold the car to a third party who bought it in good faith. Before, this second sale, the
original seller found out about the misrepresentation. He could not find the rogue to tell him
that he was avoiding the contract, so he told the police.
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Telling the police was enough to avoid the contract because it was an action which showed a
definite intention to avoid the contract. The original seller, therefore, got the car back from the
third party. If the original seller had not told the police until after the rogue had sold the car, s.
23 of the Sale of Goods Act 1893 would have applied and he would never have got the car back.

It is impossible to put the parties back into their pre-contractual Positions.

When a contract is terminated for breach of a term, future performance of the contract is not
required. This is the case whether or not the contract has been partly performed.
However, when a contract is avoided, the parties must be put back into the positions they were
in before the contract was made. If this cannot be done, then the contract cannot be avoided.

In Clarke v Dickson (1858), Crompton J gave the example of a butcher who bought live cattle
because a farmer had made a fraudulent misrepresentation about them. He said that once the
cattle had been slaughtered and butchered, rescission would not be possible. However, tort
damages could have been claimed.

MISTAKE

When the parties make their contract, one or both of them might be mistaken as to some
fundamental matter. Here we consider the different types of mistake which may be made and
the effect of these mistakes upon the validity of the contract.

There are three types of mistake:

 Common mistake - Where both parties make the same mistake

 Mutual mistake - Where the parties are at cross purposes

 Unilateral mistake - Where only one party is mistaken

Where the courts make a finding of mistake this will generally render the contract void ab initio
(from the beginning) so it is as if the contract never existed. This represents an important
distinction from voidable contracts. Where a contract is voidable, the contract exists and is valid
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until such time as the innocent party takes action to set the contract aside. Thus where there is
a voidable contract a person acquiring goods under a contract will obtain good title to those
goods. If a contract is void, no title passes. This distinction is most relevant where the goods
have been sold on to a third party. A purchaser of the goods will acquire good title if the original
contract was voidable, but will not obtain title if the contract is void.

1. Common mistake

Common mistakes exist where both parties to the contract make the same mistake. Three
categories have emerged as giving rise to a cause of action:

Res extincta
Res extincta will apply where both parties enter a contract with the belief that the subject
matter exists when in fact it does not exist. The contract will be held to be void for mistake:

In Scott v Coulson (1903), at the time of entering a contract for life insurance both parties
believed the person whose life was to be insured was living. When in fact he was dead.

The contract was void for mistake as it was a common mistake as to the existence of the subject
matter (Res extincta)

In Couturier v Hastie (1856), a cargo of corn was in transit being shipped from the
Mediterranean to England. The owner of the cargo sold the corn to a buyer in London. The
cargo had however, perished and been disposed of before the contract was made. The seller
sought to enforce payment for the goods on the grounds that the purchaser had attained title
to the goods and therefore bore the risk of the goods being damaged, lost or stolen.

The court held that the contract was void because the subject matter of the contract did not
exist at the time the contract was made.

Sale of Goods Act 1893

Section 6 of the Sale of Goods Act 1893 provides that ‘where there is a contract for the sale of
specific goods, and the goods, without the knowledge of the seller have perished at the time the
contract is made, the contract is void’. (Specific goods will have identified and agreed upon at
the time of sale)

By way of example, let us assume that X Ltd agrees to buy a machine from Y Ltd. Let us also
assume that at the time of the contract, unknown to both parties, the machine does not exist
because it has been destroyed in a fire, the contract is void. Y Ltd will not, therefore, be in
breach of contract for failure to deliver the machine and X Ltd will not have to pay the contract
price. If the contract had been for the sale of unascertained goods, such as 100 tons of wheat,
then Y Ltd will have to find another 100 tons of wheat from elsewhere or be in breach of
contract. (Unascertained goods are goods which were not identified and agreed upon at the
time of sale)

It is important to note here that if specific goods which are sold cease to exist after the contract
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has been made, but before the goods have been delivered to the buyer, the contract will not be
void for mistake. Generally, the buyer will have received ownership of the goods as soon as the
contract was made and so the goods will then have been at his risk. If this is the case, the buyer
will, therefore have to pay for the goods. If the risk had not passed to the buyer at the time
when the goods ceased to exist , the contract would not be void for mistake. The seller would
be in breach of contract.

Res sua

This applies where a party contracts to buy something which in fact belongs to him. This will
generally render the contract void. Although if the action is based in equity this will render the
contract voidable:

In Cooper Phibbs (1867), a nephew leased a fishery from his uncle. His uncle died. When the
lease came up for renewal the nephew renewed the lease from his aunt. It later transpired that
the uncle had given the nephew a life tenancy in his will. The lease was held to be voidable for
mistake as the nephew was already had a beneficial ownership right in the fishery.

This is an instance of res sua. Normally where a contract is found to have been entered under a
common mistake the contract will be rendered void as oppose to voidable. The lease was held
to be voidable rather than void as the claim was based in equity as it related to beneficial
ownershipas oppose to legal ownership.

This caused some uncertainty as to whether there was equitable relief for mistake which was
wider than that which existed at common law. In particular Lord Denning argued that such a
position of the law existed in Solle v Butcher.

Mistake as to quality

A mistake as to quality is only capable of rendering a contract void where the mistake is as to
the existence of some quality which renders the subject matter of the contract essentially
different to that what it was believed to be:

In Leaf v International Galleries (1950), the claimant purchased a painting from the defendant.
Both parties believed that the painting was by the artist Constable. In fact 5 years later the
claimant discovered the painting was not a Constable. The claimant brought an action based
both on misrepresentation and mistake.

The claim based on misrepresentation was successful however, since it was an innocent
misrepresentation, the claimant had lost the right to rescind the contract through lapse of time.
With innocent misrepresentation, the time starts to run from the date of the contract not the
date of discovery.

The claim based on mistake was unsuccessful as the mistake related to the quality and did not
render the subject matter something essentially different from that which it was believed to be.
He believed he was buying a painting and he got a painting.
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Similarly in Bell v Lever Bros (1932), a company paid an employee £30,000 in return for him
accepting redundancy. Afterwards, it was discovered that the employee could have been
dismissed without paying any compensation because he had breached the company’s rules.
Neither the employee nor the company realised that the employee could have been dismissed
without paying compensation when the agreement was made.

The agreement was not void and the employee could keep the money. A common mistake as to
quality will make a contract void only if the mistake means that what was being bought was
essentially a different thing from what the parties believed it to be. Both the parties knew that
what was being bought was the right to make the employee redundant. They were mistaken as
to how much this was worth, thinking it was worth £30,000 when in fact it was worth nothing.
They were not mistaken as to what was being bought. Whether it was worth £30,000 or
nothing, the thing which was being bought was the same thing, the right to make the employee
redundant.

Lord Atkin said: ‘A buys B’s horse; he thinks the horse is sound and he pays the price of a sound
horse; he would certainly not have bought the horse if he had known, as the fact is, that the
horse is unsound. If B has made no representation as to soundness and has not contracted that
the horse is sound, A is bound and cannot recover back the price.

2. Mutual mistake

A mutual mistake is one where the parties are at cross purposes. The courts apply an objective
test to see if the contract can be saved. i.e. would a reasonable person looking at the
correspondence between the parties have understood the contract to have a single meaning? If
yes the contract is valid on that meaning. If a reasonable person could not determine the
meaning then the contract will be void for mistake.

In Raffles v Wichelhause (1864), the parties entered a contract for the sale of some cotton to
be shipped by 'The Peerless' from Bombay. The Peerless had a sailing from Bombay in October
and in December. The defendant thought that it was the October sailing and the claimant
believed it was the December sailing which had been agreed.

The court applied an objective test and stated that a reasonable person would not have been
able to state with certainty which sailing had been agreed. Therefore the contract was void as
there was no consensus ad idem

3. Unilateral mistake

In unilateral mistakes only one of the parties is mistaken. There are two categories within
unilateral mistakes: mistakes relating to the terms of the contract and mistakes as to identity.

Mistake as to the terms of the contract

In Hartog v Colin & Shields (1939), the defendants mistakenly offered a large quantity of hare
skins at a certain price per pound whereas they meant to offer them at that price per piece. This
meant that the price was roughly one third of what it should have been. The claimant
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acceptedthe offer.

The court held that the contract was void for mistake. Hare skins were generally sold per piece
and given the price the claimant must have realised the mistake.

In Smith v Hughes (1871), the claimant had purchased a quantity of what he thought was old
oats having been shown a sample. In fact the oats were new oats. The claimant wanted the oats
for horse feed and new oats were of no use to him. The seller was aware of the mistake of the
claimant but said nothing. The claimant brought an action against the seller based on mistake
and misrepresentation.

Held: both actions failed. The action based on misrepresentation failed as you cannot have
silence as a misrepresentation. The defendant had not mislead the claimant to believe they
were old oats. The action based on mistake failed as the mistake was not as to the fundamental
terms of the contract but only a mistake as to quality

Mistake as to identity

Mistakes as to identity are generally induced by fraud in that one of the parties is claiming to be
someone who they are not. There is thus an overlap with misrepresentation. A rogue who pays
with a bad cheque commits a fraudulent misrepresentation which makes the contract voidable.
A claim based in mistake is more favourable to one based in misrepresentation as the effect of a
finding of mistake is that the contract is void as opposed to voidable. This is important where a
rogue has acquired goods and sold them on to a third party. If the contract is void the rogue will
never receive title to goods and will not be able to pass title when selling the goods. However, if
the contract is voidable the contract exists and title passes. If the goods are sold before the
innocent party rescinds the contract, the purchaser acquires good title to the goods. In
determining whether a contract will be held void for mistake the courts draw a distinction
between contracts made inter absentes (at a distance) and contracts made inter praesentes
(face to face transaction)

Inter absentes

Where the parties are not physically present when the contract is made, eg where the contract
is made through dealings through the post, telephone or over the internet, the courts will only
make a finding of mistake if the claimant can demonstrate an identifiable person or business
with whom they intended to deal with. A mistake as to their attributes will not suffice:

In Cundy v Lindsay (1878), a rogue, Blenkarn, hired a room at 37 Wood street, Cheapside. This
was in the same street that a highly reputable firm called Blenkiron & Son traded. The rogue
ordered a quantity of handkerchiefs from claimant disguising the signature to appear as
Blenkiron. The goods were dispatched to Blenkiron & co 37, Wood street but payment failed.
Blenkarn sold a quantity the handkerchiefs on to the defendant who purchased them in good
faith and sold them on in the course of their trade. The claimants brought an action based in
the tort of conversion to recover the value of the handkerchiefs. The success of the action
depended upon the contract between the Blenkarn and the claimant being void for mistake. If
the contract was void, title in the goods would not pass to the rogue so he would have no title
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to pass onto the defendants. Ownership of the goods would remain with the claimant.

Held: The contract was void for unilateral mistake as the claimant was able to demonstrate an
identifiable existing business with whom they intended to contract with.

In Kings Norton Metal Co Ltd v Edridge, Merrett & Co Ltd (1897), a rogue ordered goods from
the claimant using a printed letter head a claiming to be a company called Hallum & co with
offices in Belfast Lile and Ghent. In fact no such company existed. The claimant sent out the
goods on credit. The rogue sold the goods on to the defendants who purchased them in good
faith. The rogue then disappeared without paying for the goods. The claimants brought an
action for conversion of the goods based on their unilateral mistake as to identity.

Held: the contract was not void for mistake as they could not identify an existing company
called Hallum & co with whom they intended to contract. The mistake was only as to the
attributes of the company. The contract was voidable for misrepresentation but that would not
stop title passing to the rogue and the defendants therefore acquired good title to the goods.

Inter praesentes

Where the parties contract in a face to face transaction the law raises a presumption that the
parties intend to deal with the person in front of them.

Thus in Lewis v Averay (1972), the claimant argued that the contract was void for mistake. If
this argument had successful, the claimant would have got the car back. The Court of Appeal
rejected this argument. If the parties meet face to face, the contract will not be void for
mistake.

In Phillips v Brooks (1919), a rogue purchased some items from the claimant's jewellers shop
claiming to be Sir George Bullogh. He paid by cheque and persuaded the jewellers to allow him
to take a ring immediately as he claimed it was his wive's birthday the following day. He gave
the address of Sir George Bullogh and the jewellers checked the name matched the address in a
directory. The rogue then pawned the ring at the defendant pawn brokers in the name of Mr.
Firth and received £350. He then disappeared without a trace. The claimant brought an action
based on unilateral mistake as to identity.

Held: The contract was not void for mistake. Where the parties transact face to face the law
presumes they intend to deal with the person in front of them not the person they claim to be.
The jewellers were unable to demonstrate that they would only have sold the ring to Sir George
Bullogh.

Mistakes relating to signed documents - non est factum

If a person signs a document while making a complete mistake as to what type of document is
being signed, then the contract can be void for a type of mistake known as non est factum (it is
not my deed).
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Thus in Saunders Anglia Building Society (1970), an elderly woman intended to leave her
house to her nephew after her death. The nephew owed money to one Lee. To pay Lee off, the
nephew visited the elderly aunt with Lee, who asked the elderly woman to sign a document.
Lee told her that this gave the house to the nephew but that she would be allowed to live there
for the rest of her life. In fact, the document said that Lee bought the house and paid for it. The
elderly woman did not read the document because her glasses were broken. Lee mortgaged the
building to the Anglian Building Society but did not pay any of the mortgage instalments. The
building society applied to repossess the house.

The contract was not void for non est factum because there was no fundamental difference
between what the woman signed and what she thought she was signing. Either way, she was
transferring her ownership of the house. Therefore, the contract was valid and the building
society could repossess the house.

Foster v Mackinnon (1869) provides a rare example of a successful plea of non est factum. An
elderly with very poor eyesight signed a document which he was told was a guarantee. In fact,
the document was a cheque. Non est factum applied and the old man was not liable on the
cheque.

DURESS AND UNDUE INFLUENCE

Duress

The general rule of law is that a contract will be valid only if the parties entered into it freely
and voluntarily. At common law, where a party to a contract or his/her family is subjected to
violence or threats of violence, the contract may be avoided on the grounds of duress.

Duress is some element of force, either physical or economic, which is used to override one
party’s freedom to choose whether or not to enter into a particular
contract. Under such circumstances, the contract is voidable at the instance of the innocent
party. Its application used to be restricted to contracts entered into as a consequence of actual
physical violence or the threat of such violence to a person.

Thus in Barton v Armstrong (1975), Armstrong was the chairman and Barton the managing
director of an Australian company. Armstrong threatened to have Barton killed if he did not sign
an agreement to buy out Armstrong’s interest in the company on very favourable terms. The
Privy Council held that the agreement was signed under duress and could be avoided by Barton.

Economic Duress
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The doctrine of economic duress has arisen has arisen so as to deal with the general problem of
inequality in bargaining power between parties. Economic duress refers to the threat towards
the financial well-being of a party. The essence of duress is the threat of “do this or else”
pressure.
In The Universal Sentinel Case (1982), the shipowners were told that if they did not agree to
pay money to a seamen’s charity, a trade union would not allow their ship to leave port. The
shipowners agreed to the union’s demands and their ship was allowed to sail away. The House
of Lords held that the shipowners were entitled to recover the money paid to the charity on the
grounds of economic duress. They had not freely agreed to pay this money. They were pushed
into the contract in such a way that they did not really consent.

In Atlas Express Ltd v Kafco Ltd (1989), the defendants, a small company, agreed that the
claimants would carry their products to Woolworths shops throughout the country. The price of
carriage was agreed at £1.10 a carton. The first load contained only 200 cartons, not the 500 or
so which the claimants had estimated. The claimants said that they would not carry any of the
defendants’ goods unless they were guaranteed 400 cartons a load. The defendants could not
find another carrier and so they had to agree to this or they would have lost their contract with
Woolworths which was vital to them. After the cartons had been carried, the defendants
refused to pay the extra amount. The court held that the defendants did not need to pay. The
contract was voidable on the grounds of economic duress.

In North Ocean Shipping Company v Hyundai Construction Ltd (1979), a contract had been
entered into for the building of a ship. The builders then stated that they would not complete
construction unless the purchasers paid an extra 10%. Without the ship, the buyers would have
lost a lucrative contract with a third party, with whom they had already agreed to charter the
ship. The buyers paid the extra money and then, at a later date, sued to recover it on the basis
of, inter alia, economic duress. It was held that the threat to terminate the contract did
constitute economic duress, which rendered the contract voidable. In the event, the buyers’
delay in bringing the action acted as an affirmation of the agreement and they lost their right to
rescission.

As the law on economic duress has expanded, some of the old cases on consideration might
now be differently decided. For example, the ship’s captain in Stilk v Myrick was pushed into
the contract against his wishes. If the case were to arise today, a court might hold that there
was a contract but it was voidable for economic duress.

Undue Influence

Over the years, a doctrine of undue influence was developed by the courts of equity, which
considered duress to be too narrow a doctrine. In certain relationships, undue influence by the
dominant party is presumed. The relationship between the parties may be such that one
occupies a position of dominance and influence over the other. A contract made between
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people in such a relationship will, therefore, be voidable, if undue influence is alleged, unless
the party against whom it is presumed can show that the complainant had independent advice.
The relationships in which undue influence is presumed are as follows:
i. doctor and patient;
ii. lawyer and client;
iii. parent and child;
iv. guardian and ward;
v. trustee and beneficiary; and
vi. religious advisor and disciple.

Where there is no special relationship, the claimant must prove that pressure was applied.

In Williams v Bayley (1866), a colliery was allowed by the House of Lords to have an agreement
to mortgage his colliery set aside. He had only made the agreement because the other party
had told him that if he did not, his son would be prosecuted for fraud and transported to
Australia for life. As the common law has extended the doctrine of uneconomic duress, this type
of undue influence has become less important.

In Lloyds Bank v Bundy (1975), an elderly farmer made increasingly large mortgages of his farm
in order to guarantee a business which his son had started. The farmer was visited at the farm
by the assistant manager of the branch of the bank where he and his son had their bank
accounts. In December 1969, the farmer mortgaged the farm very heavily because he was told
that if he did not, his son’s business would fail. The son’s business failed anyway. When the
farmer could not repay the mortgage, the bank applied to repossess the farm.

It was held that the mortgage taken out in December 1969 was voidable for undue influence.
Therefore, the bank could not repossess the farm on account of the farmer having not repaid
the mortgage instalments. The farmer had grown to trust the assistant manager and placed
total reliance on him. The bank should have advised the farmer to get independent advice
before agreeing to the mortgage.

ILLEGALITY

The law will clearly refuse to give effect to a contract if it involves the commission of a legal
wrong, or if it is invalidated by statute. Also classed as illegal contracts are contracts which do
not involve the commission of a crime or tort, but which are not enforced by the courts because
they are contrary to public policy. The most important of these are contracts in unreasonable
restraint of trade.

Classification.

There are many different ways to approach the classification of illegal contracts. For
convenience, the following categories will be used:

 Contracts involving the commission of a legal wrong.

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 Contracts illegal by statute.

 Contracts contrary to public policy.

Contracts Involving the Commission of a Legal Wrong.

A strange example is provided by Everett v Williams (1725). One highwayman tried to sue
another on an agreement to rob a stagecoach. The highwayman failed in this action. Both the
claimant and the defendant were hanged and the solicitors were fined £50 for bringing the
case!

In Miller v Karlinski (1945), a contract was made to defraud the revenue. The claimant sued for
ten weeks wages and £21 travelling expenses. Of the travelling expenses, £17 should have been
paid as wages. The claimant and the employer agreed to say they were travelling expenses to
avoid paying income tax on the £17. The Court of Appeal held that the whole agreement was
unenforceable. Therefore, the claimant could not recover anything, not even the proper wages
or the £4 travelling expenses.

Contracts Illegal by Statute

If one party in performing a contract does an act, prohibited by statute, the act only may be
illegal, or the whole contract may be illegal. It depends whether or not the statute was intended
to prohibit the whole contract.

In Archbolds v Spanglett (1961), D contracted to carry whisky belonging to C in a van which was
not licensed to carry goods which did not belong to him. In carrying the goods, D, therefore,
committed a statutory offence. The whisky was stolen on the journey and P sued for damages.
D pleaded illegality for his defence. The Court of Appeal rejected this defence because:

 The Act in question did not prohibit the contract expressly or by implication, and
 C did not know that D did not have the correct licence.

Contracts in Contravention of Public Policy

Contracts promoting sexual immorality. An example is provided by Pearce v Brooks (1866),

where a prostitute hired a carriage which the owner knew was to be used for immoral
purposes. The prostitute refused to pay for the hire of the carriage, but the owner was not
allowed to recover the agreed payments.

Contracts tending to promote corruption in public life. An example is provided by Parkinson v

College of Ambulance Ltd (1925). The claimant was promised that he would receive a
knighthood if he made a donation to a charity. He made the donation but sued for its return
when he did not get the knighthood. His action failed because the contract was illegal.

Contracts to trade with enemy nations. In times of war, certain nations become enemy nations.
A contract to trade with a person voluntarily living in an enemy nation is generally void. In
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Daimler Ltd v Continental Tyre and Rubber Co Ltd (1916), the Continental Tyre Co was
registered in England. It was owed money by Daimler and sued to recover the debt. Daimler
argued that, as all but one of the 25,000 shares in the Continental Tyre Co were owned by
Germany residents, the company should not be allowed to sue on the debt when Britain was at
war with Germany. The company could not sue on the debt. The company had assumed an
enemy character and, therefore, any trading with it would be trading with the enemy.
Contracts to defraud the revenue. Where a contract is unenforceable, neither party can enforce
it to any extent. For example, in Miller v Karlinski (1945), a contract was made to defraud the
Revenue. The claimant sued for ten weeks’ wages and £21 travelling expenses. The claimant
and the employer agreed to say they were travelling expenses to avoid paying income tax on
the £17. The Court of Appeal held that the whole agreement was unenforceable. Therefore, the
claimant could not recover anything, not even the proper wages or the £4 genuine travelling
expenses.

Contracts in Unreasonable Restraint of Trade

A contract in restraint of trade is one which restricts a person from freely exercising his trade or
profession. Such contracts are prima facie illegal. However, some types of restraint can be
justified if they are reasonable so far as the parties are concerned, and provided they are not
contrary to public interest. When assessing the validity of contracts in restraint of trade, the
courts have had to balance the desire to allow complete freedom to contract with the fact that
most restraints (especially restrictive trade practices) are contrary to public interest because the
restrict the choice or bargaining power of the public.

Restraint imposed on ex-employees

If the restraint is to be reasonable between the parties, it must be no wider than is necessary to
protect the promisee’s trade secrets or business connections. Therefore, a restraint imposed on
an employee who has no knowledge of his employer’s secrets or influence over his customers
will be illegal, as it would be an attempt to prevent competition. However, if trade secrets and
business connections are legitimately protected, the fact that the restraint incidentally reduces
the ex-employee’s power to compete does not invalidate it.

The court will also consider any time limits imposed by the restraint and/or the area it covers.

In Mason v Provident Clothing (1913), a canvasser employed to sell clothes in Islington

covenanted not to enter into similar business within 25 miles of London for 3 years. The
restraint was held to be void because the area of the restraint was about 1,000 times as large as
the area in which he had been employed.

In Fitch v Dewis (1921), a lifelong restraint on a solicitor’s managing clerk not to practice within
7 miles was upheld. In contrast to the previous case, the main objection concerned the duration
of the restraint rather than the area covered. However, a solicitor’s business is one to which
clients are likely to resort for a long time, thus the lifetime restraint was not unreasonable. If the
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business to be protected is of a more fluctuating nature, long restraints will not be upheld.
Consequences of Illegality

Contracts illegal as formed. i.e. the contract is incapable of lawful performance, or is intended
to be performed illegally as in Pearce v Brooks (1866). Such contracts are void and
unenforceable. Therefore, money paid or property handed over usually cannot be recovered.

Contracts illegal as performed. i.e. Legal at the outset, but later used for an illegal purpose.

The guilty party has no remedies.

In Cowan v Milbourn (1867), D agreed to let rooms to P. he later discovered that P was going to
use the rooms to give blasphemous lectures, which was an illegal purpose. D, therefore, refused
to carry out the contract. P failed in his claim for possession since he was the guilty party.

The innocent party has his normal contractual remedies, except in respect of anything done by
him after he learns of the illegal purpose.

UNIT 9: DISCHARGE (THE END OF A CONTRACT)

Discharge of Contractual Liability

We have already seen that contractual liability is created when an offer is accepted, and that
this liability is to perform the terms agreed upon. Every contractual obligation gives rise to a
corresponding contractual right. Thus, where the obligation of one party is discharged, the
corresponding right of the other party is extinguished. Where all obligations which arose under
a contract are discharged – and all rights are extinguished – the contract is said to be
discharged. When a party’s contractual liability is discharged, it ceases to exist. A contract may
be discharged in any of the following ways:

a) by performance.
b) by agreement.
c) by frustration.
d) By acceptance of breach.

DISCHARGE BY PERFORMANCE

The party who makes the offer of a unilateral contract promises to do something if the other
party performs an act which has been requested. For example, in Carlill v The Carbolic Smoke
Ball Co (1893), the company promised to pay any person a £100 reward if they bought the
smoke ball, used it properly and caught flu. A person who makes the offer of a unilateral
contract needs to keep the promise made only if the other party fully performs the act
specified. So if Mrs. Carlill had not bought the smoke ball, used it properly and caught flu, there
would have no obligation to pay her any part of the reward.
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Entire contract principle

In bilateral contracts, the general rule is that if one party fails to fully perform the contract, the
other party need not perform the contract at all. Partial performance is insufficient and may
result in a party being treated as having done nothing at all.

In Cutter v Powell (1795) (KB), Cutter had agreed to be a ship’s mate on a voyage from Jamaica
to Liverpool. The contract said Cutter was to be paid £31.50, ‘provided he proceeds, continues
and does his duty … to the port of Liverpool’. The journey took about two months and usually
ship’s mates were paid about £4 a month. Cutter died after three-quarters of the voyage and,
therefore, did not fully perform his contractual obligations. Cutter’s widow sued for payment for
the work that Cutter had performed.

It was held that the ship’s captain had no obligation to pay anything because Cutter had not
completely performed his contractual obligations.

Not surprisingly, there are at least for exceptions to this principle:

a) Severable contracts.
b) Substantial performance.
c) Acceptance of partial performance.
d) Prevention of performance.

Severable Contracts

Part payment must be made for partial performance if the contract is regarded as divisible or
severable. In Cutter v Powell, the wording of the contract, and the fact that Cutter was to be
paid an unusually large lump sum for completing the contract, made it plain that Cutter’s
obligation to act as ship’s mate was entire. That is to say, it was one obligation which was either
performed or not. If a contract is divisible, then it will consist of a number of separate
obligations and part payment will be required for each obligation performed. Whether or not a
contract is divisible or entire depends upon what the parties intended when they made the
contract.

In Ritchie v Atkinson (1808), a ship’s captain agreed to carry a cargo of hemp at £5 a ton. The
captain carried only half the cargo. This contract was divisible because the price was expressed
per ton rather than as a lump sum for carrying the whole cargo. The captain was, therefore,
paid for the cargo he did carry, but had to pay damages in respect of the cargo which he failed
to carry. If the contract was entire, then the captain would not have been paid anything at all.

Substantial Performance

A second exception to the general arises where the partial performance very nearly amounted
to total performance. If the partial performance can be regarded as substantial performance,
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then it will have to be paid for.

For example, in Hoenig v Isaacs (1952), the contract was to decorate and furnish a flat for £750.
Defects in the work should have cost £56 to put right. The Court of Appeal held that there had
been substantial performance and so the decorator was paid £750, but then had to pay
damages of £56.

By contrast in Bolton v Mahadeva (1972), the contract was to install a central heating system in
a house for £560. Defects in the work would have cost £174 to put right. The Court of Appeal
held that there had been no substantial performance and so the installer received no payment
at all.

Acceptance of Partial Performance

A third exception to the general arises where partial performance is freely accepted by the
other. However, this acceptance must arise as a matter of choice.

In Sumpter v Hedges (1898), C agreed to build two houses for D for £565. After doing work to
the value of £333, C was forced to stop the work because he had run out of funds. D, using C’s
materials that had been left on the site, finished the job himself. C claimed £333 for work done
plus the value of materials used by D. He failed in his claim because although D had accepted
C’s partial performance, D had no option to reject. It is impossible to reject a half-built house
since the status quo cannot be restored. C, however, obtained judgement in respect of the
materials that D had used to complete the house.

Prevention of Performance

Where one party is prevented by the other from fully performing the contract, he may bring a
quantum meruit action to claim for the work done.

In Planche v Colburn (1831), C had agreed to write a book on costume and armour which was
to appear in serial form in D’s periodical. C was to be paid £100 on completion. After C had done
some research, and written some of the book, but before he had completed it, D stopped
publishing the periodical. It was held that C had been wrongfully prevented from performing
the contract, and he was entitled to a quantum meruit.

DISCHARGE BY AGREEMENT

Having made a contract, the parties are free to abandon it or to vary it. However, an agreement
to do either of these things must amount to another contract. All the requirements of a new
contract are, therefore, necessary. There must an offer, an acceptance, an intention to create
legal relations and consideration moving both ways. As the parties must agree to alter their
legal position, there is usually no difficulty in finding the offer and acceptance or an intention to
create legal relations. Generally, any problem which arises is caused by the difficulty of showing
that consideration has moved from both of the parties. The following extended example shows
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the possibilities.
Example

John has agreed to service Jim’s boiler for K1, 000. Several possibilities must be considered.

i. If both of the parties agree to call the contract off before there has been any
performance of it, the contract will be discharged. John has given consideration to Jim
by discharging him from the obligation to pay the money. Jim has given consideration to
John by discharging him from the obligation to service the boiler.

ii. If John does some of the work, and Jim agrees to pay him a proportion of the money for
the work he has done, then the contract is discharged. Jim’s consideration is letting John
off with finishing the job. John’s consideration is letting Jim off with paying the rest of
the money.

iii. If John does some of the work and agrees that Jim need not pay him for this work done,
then the contract is discharged. John lets Jim off with paying the money. Jim lets John off
with finishing the work.
iv. If John finishes the whole job but agrees that Jim need not pay anything, the contract is
not discharged. Jim has not provided any consideration for being let off the duty to pay
the price.
v. If John finished the work and agreed to accept a bicycle instead of the contract price, the
contract is discharged. The court will not enquire whether or not the bicycle is worth K1,
000. Consideration must be sufficient (worth something), but need not be adequate
(worth the same amount as the other party’s consideration).
vi. If John finishes the work, but agrees to accept 90 per cent of the contract price, the
contract is not discharged. A lesser sum of money cannot be consideration for a greater
sum owed.

DISCHARGE BY FRUSTRATION

A contract may become frustrated if it becomes impossible to perform, illegal to perform or

radically different from what the parties contemplated. Before we examine these three grounds
on which a contract may be frustrated, it is important to notice that we are talking about a valid
contract becoming illegal, impossible or radically different. If a contract is impossible to perform
when it is made, then it may be void for mistake. If a contract is illegal to perform at the time
when it is made, then it is an illegal contract and will, therefore, be void. If the contract was, at
the time of making the contract, radically different from what the parties intended, then it may
be void for mistake.

Impossibility of Performance

If a contract becomes impossible to perform, then it will be frustrated.

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In Taylor v Caldwell (1863), D contracted to let a music hall to C for four days. Before the first
day, the music hall was accidentally burnt down. C claimed damages, but it was held that D was
discharged from his obligation when the music hall burned down. The contract was frustrated.
If a party who has contracted to perform the contract personally dies or becomes too ill to
perform, the contract will be impossible to perform. It will, therefore be frustrated.

In Condor v The Barron Knights Ltd (1966), the claimant became a drummer with the defendant
band at the age of 16. His five-year contract obliged him to work seven nights a week and
sometimes to do two performances in one night. One night after joining the band, the claimant
collapsed and was taken to a mental hospital. Doctors told the claimant that if he worked more
four nights a week, he would have a complete mental breakdown. The band dismissed the
claimant because they could not arrange to have the claimant drumming for four nights a week
and someone else drumming for three nights a week. The claimant sued the band for wrongful
dismissal.

It was held that the claimant had not been wrongfully dismissed because the contract was
frustrated. It had become impossible for the claimant to perform the terms of the contract. If
the failure to perform the contract had been for a short term only, then the contract would not
have become frustrated. However, since it was a long-term impossibility, the contract was
frustrated.

In Cutter v Powell, the contract was not frustrated because the doctrine of frustration did not
evolve until around the year 1850.

Illegality of Performance

Where a contract becomes illegal to perform, it will be frustrated. For example in the Fibrosa
Case (1943), the House of Lords held that a contract to supply machinery to Poland was
frustrated when Germany occupied Poland. Great Britain was at war with Germany, and it is
illegal to supply an enemy-occupied country.

The Contract Becomes Radically Different

A contract will become frustrated if it becomes radically different from what the parties
intended when they made the contract.

In Krell v Henry (1903), King Edward VII was about to be crowned. In celebration, a huge
coronation procession was to pass through London on 26 and 27 June. The defendant agreed to
hire a room from the claimant for these two days for £75. The written contract did not state the
purpose of this. However, both parties understood that the sole purpose was that the
defendant and his friends could view the coronation process from the room. The King was ill
and so the coronation process was cancelled. The claimant sued the defendant for the contract
price.

It was held that the defendant did not have to pay because the contract had become frustrated.
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In a similar case, Herne Bay Steam Boat Co v Hutton (1903), the defendant had agreed to hire a
steamboat for two days in order to take passengers cruising around the fleet so that they could
watch the naval review. The King’s illness caused the naval review to be cancelled. The Court of
Appeal held that the contract was not frustrated since it was construed merely as a contract for
the hire of a boat, which could still be performed even when one of the motives of the hirer was
defeated.
RULES ABOUT FRUSTRATION

Before we examine the effects of a contract becoming frustrated, there are several points about
frustration which we should notice.

Performance required in a particular way

If a contract states that it should be performed in a certain way, then it will be frustrated if it
becomes impossible to perform in that way. For example, if a contract states that a cargo should
be carried on a particular ship, then it will be frustrated if that ship sinks. This is the case even if
the other ships could carry the cargo just as well.

Contract becomes more difficult to perform

A contract will not become frustrated merely because it becomes more difficult to perform.

In Davis Contractors Ltd v Fareham UDC (1956), the House of Lords held that a contract to build
78 houses in eight months was not frustrated when a shortage of labour and materials meant
that the contract took 22 months to perform. The builders should have considered that there
might be shortages of labour and materials before agreeing to do the job.

Force majeure clauses (unexpected circumstances)

If the parties to the contract foresee that there might be difficulties which they cannot control
and set out in the contract what should happen if these difficulties arise, the courts will give
effect to what has been agreed. Clauses which make such provisions are known as force
majeure clauses.

For example in Davis Contractors Ltd v Fareham UDC, the parties might have included a force
majeure clause dealing with what the position should be if there turned out to be a shortage of
labour and materials. Such a clause might have stated that if there was a shortage of labour and
materials, then the contract would be frustrated, or it might have said that, if there was a
shortage of labour and materials, the contract should not be frustrated, but the builder should
be given more time to do the work and paid more money. Whatever the force majeure clause
agreed, the court would have enforced the clause.

Frustrating event is foreseen

If one of the parties knows that the frustrating event might happen (or should have known this),
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then that party cannot claim frustration.

In Walton Harvey Ltd v Walker & Homfrays (1931), a hotel owner who had agreed to let the
claimant put advertisements on his hotel could not claim that the contract was frustrated when
the hotel was compulsorily demolished and the advertiser did not know this.

One party took the risk

If the interpretation of the contract and the surrounding circumstances indicate that one of the
parties took the risk of the ‘frustrating’ event happening, then the contract will not be
frustrated.

Self-induced frustration

A party to the contract who brought about a certain event cannot claim that this event
frustrates the contract. Self-induced frustration is no frustration.

In Maritime National Fish Ltd v Ocean Trawlers Ltd (1935), the claimants chartered a ship with
an otter trawl (a certain type of fishing net) to the defendants. Both parties knew that it was
illegal to fish with an otter trawl unless a licence had been gained from the Government. The
defendants applied for five licences because they had four other boats fitted with otter trawls.
However, the defendants were granted only three licences. They assigned these licences to
three of their own boats and claimed that the contract with the claimants was frustrated
because it would be illegal to use the chartered boat for fishing.

The contract with the claimants was not frustrated. The defendants were the ones who had
caused the charted ship not to have a licence and so they could not argue that the absence of a
licence frustrated the contract.

Effect of frustration of a contract

Where a contract is found to be frustrated, both parties are released from their obligations
under the contract and neither party may sue for breach. Frustration automatically brings the
contract to an end and renders it void. As a general rule, all sums paid by either party in
pursuance of the contract before it was discharged are recoverable, and all sums not yet paid
cease to be due.

DISCHARGE BY BREACH

If a party shows an intention not to be bound by the contract, this is known as a repudiation of
the contract. When one of the parties repudiates the contract before the time for performance
of the contract is due, this is known as an anticipatory breach. The injured party can either
accept the breach or keep the contract open. If the breach is accepted, the injured party can
treat the contract as terminated and sue for damages. If the anticipatory breach is not
accepted, the contact is still alive. The position then depends upon whether the anticipatory
breach becomes an actual breach (because the contract is not performed when performance
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becomes due). If it does not become an actual breach (because the contract is properly
performed in time), then there is no problem. If it does become an actual breach, the injured
party can sue for damages for breach of contract.
Hochster v De La Tour (1853)

In April 1852 the defendant contracted to employ the claimant as a courier for a three-month
period which was to begin on 1 June. On 11 May, the defendant told the claimant that he was
not in fact going to employ him. The claimant immediately sued for damages.

It was held that the claimant was entitled to sue for damages because he had accepted the
anticipatory breach. The claimant did not have to wait until the breach became an actual breach
(which it would have done on 1 June).

In Hochster v De La Tour, the claimant could have chosen to wait until the anticipatory breach
became an actual breach. If the defendant had then changed his mind, and decided to employ
the claimant after all, there would have been no breach of contract and no problems. If the
defendant did not change his mind, and did not employ the claimant after all, then there would
have been an actual breach on 1 June. However, there is a slight risk in waiting until an
anticipatory breach becomes an actual breach. The contract might become frustrated as the
following case shows.

In Avery v Bowden (1856), the defendant contracted to supply the claimant’s ship with a cargo.
The cargo was to be supplied at Odessa within 45 days. When the claimant’s ship reached
Odessa, the defendant repeatedly told the claimant that no cargo would be delivered. The
claimant kept his ship in Odessa, hoping that the defendant would change his mind. The
Crimean War broke out before the 45 days had expired.

It was held that the outbreak of war frustrated the contract because Odessa had become
controlled by the enemy and it is illegal to supply an enemy occupied country. The right to sue
had been permanently lost.
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UNIT 10: REMEDIES FOR BREACH OF CONTRACT

BREACH OF CONTRACT

Nature of breach

A breach of contract occurs where a party to a contract fails to perform, precisely and exactly,
his obligations under the contract. This can take various forms for example, the failure to supply
goods or perform a service as agreed. Breach of contract may be either actual or anticipatory.

Actual breach occurs where one party refuses to perform his side of the bargain on the due
date or performs incompletely. For example: Poussard v Spiers and Bettini v Gye.

Anticipatory breach occurs where one party announces, in advance of the due date for
performance, that he intends not to perform his side of the bargain. The innocent party may
sue for damages immediately the breach is announced. Hochster v De La Tour is an example.

Effects of breach

A breach of contract, no matter what form it may take, always entitles the innocent party to
maintain an action for damages, but the rule established by a
long line of authorities is that the right of a party to treat a contract as discharged arises only in
three situations. The breaches which give the innocent party the option of terminating the
contract are:

(a) Renunciation

Renunciation occurs where a party refuses to perform his obligations under the
contract. It may be either express or implied. Hochster v De La Tour is a case law example of
express renunciation. Renunciation is implied where the reasonable inference from the
defendant’s conduct is that he no longer intends to perform his side of the contract.

For example in Omnium D’Enterprises v Sutherland (1919), the defendant had agreed to hire a
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ship to the claimant but before the hire period was to commence, he actually sold the ship to
someone else. It was held that the sale of the ship amounted to a clear repudiation of the
contract. The claimant could sue for breach from that date.

(b) Breach of condition

The second repudiatory breach occurs where the party in default has committed a breach of
condition. Thus, for example, in Poussard v Spiers the employer had a right to terminate the
soprano’s employment when she failed to arrive for performances.

(c) Fundamental breach

The third repudiatory breach is where the party in breach has committed a serious (or
fundamental) breach of an innominate term or totally fails to perform the contract. A
repudiatory breach does not automatically bring the contract to an end. The innocent party has
two options:

He may treat the contract as discharged and bring an action for damages for breach of contract
immediately. This is what occurred in, for example, Hochster v De La Tour.

He may elect to treat the contract as still valid, complete his side of the bargain and then sue for
payment by the other side.

For example in White and Carter Ltd v McGregor (1961), P agreed to advertise D’s business for
three years on plates attached to litter bins. D repudiated the contract on the same day that it
was made. P, nevertheless, manufactured and displayed the plates as originally agreed, and
claimed the full amount due under the contract. A majority of the House of Lords upheld the
claim, their reason being that a repudiation does not, of itself, bring the contract to an end. Its
effect is to give the innocent party a choice of whether or not to determine the contract. If he
chooses to affirm the contract, it remains in full effect.

Damages

Any breach of contract allows the injured party to sue for damages. Contract damages are
intended to put the injured party into the same position as if the contract had been performed.
It follows that if the injured party has suffered no loss as a result of the breach, only nominal
damages will be available. Damages will, therefore, be available for putting right the defects
caused by the breach of contract. They will also be available for any other losses, such as loss of
profits, as long as these were caused by the breach of contract. If the defendant’s breach causes
the claimant to pay damages to a third party, these damages paid are also recoverable.

Example

Mulenga agrees to service Z Ltd’s oven for K2, 000. Mulenga knows that Z Ltd will need the oven
to operate their bakery. Z Ltd tell Jerry that the service must be finished on time because
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otherwise Z Ltd will be in breach of a very profitable contract to do bakery for Y Ltd. Mulenga
performs the service so badly that Z Ltd’s oven cannot work at all. Mulenga cannot fix the
problem. Z Ltd hunt around for someone else to fix the oven. The only person they can find is
Tom, who fixes the oven one week after Mulenga should have fixed it. As Z Ltd could not do the
bakery for Y Ltd, they are themselves in breach of contract and will have to pay Y Ltd K4, 000
damages. Mulenga will have to pay damages to Z Ltd as follows:
a) the cost of Tom putting right the fault which Mulenga caused;
b) the amount of ordinary business profit lost by Z Ltd as a consequence of not being able
to use the oven for one week;
c) the profit Z Ltd would have made if they had been able to perform their contract with Y
Ltd;
d) the amount of damages which Z Ltd had to pay to Y Ltd.

In Addis v Gramophone (1909), the claimant was employed as a manager by the defendant.
The defendant in breach of contract dispensed with his services and replaced him with a new
manager. The claimant brought an action for breach of contract claiming that the level of
damages should reflect the circumstances in which he was dismissed damaged his reputation
and ability to find suitable employment.
Held: Contract law seeks to put the parties in the position they would have been in had the
contract been performed. He was, therefore, limited to claiming wages and loss of commission
during the contractually agreed notice period. There was no right to exemplary damages or
damage to reputation in contract claims. Such claims would have to be actioned in the law of
tort.

In order to recover substantial damages, the innocent party must show that he has suffered
actual loss; if there is no actual loss he will only be entitled to nominal damages in recognition
of the fact that he has a valid cause of action.

In making an award of damages, the court has two major considerations:

Remoteness of damage – for what kind of damage should the claimant be compensated?

The measure of damages – what monetary compensation should the claimant receive in
respect of damage which is not too remote?

The second consideration is quite distinct from the first, and can be decided by the court only
after the first has been determined.

Note carefully the distinction between damage and damages. Damage is the loss suffered by
the claimant. Damages are the financial compensation awarded to the claimant. It is very
important to use the correct phrase.

Remoteness of damage

Under the rules of remoteness of damage in contract law set out in Hadley v Baxendale (1854),
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a claimant may only recover losses which may reasonably be considered as arising naturally
from the breach or those which may reasonably be supposed to be in the contemplation of the
parties at the time the contract was made:

The crankshaft broke in the claimant’s mill. He engaged the services of the defendant to deliver
the crankshaft to the place where it was to be repaired and to subsequently return it after it
had been repaired. Due to neglect of the defendant, the crankshaft was returned 7 days late.
The claimant was unable to use the mill during this time and claimed for loss of profit. The
daefendant argued that he was unaware that the mill would have to be closed during the delay
and therefore the loss of profit was too remote.

Held: The damages available for breach of contract include:

1. Those which may fairly and reasonably be considered arising naturally from the breach of
contract or

2. Such damages as may reasonably be supposed to have been in the contemplation of both the
parties at the time the contract was made.

The rules on remoteness of damage provide an important limit on the amount of contract
damages. A breach of contract can have many unforeseeable consequences. If there were no
rules on remoteness, the person in breach of contract, would always be liable for these
consequences. This would make people unwilling to make contracts.

Thus in Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd (1949), the claimants agreed
to buy a boiler from the defendants. The defendants knew that the boiler was to be use
immediately in the claimant’s laundry. They also knew that there was a big demand for general
laundry services at this time. The defendants delivered the boiler 20 weeks late. Two claims for
damages were made by the claimants. First, they claimed £16 a week, which represented the
extra profit they could have made by doing more general laundry work with the new boiler.
Second, they claimed £262 a week which had been lost on account of the claimants not being
able to use the boiler to fulfil a very profitable contract to dye army uniforms.

The claimants were entitled to £16 a week under the first rule in Hadley v Baxendale. The £262
was not available under either rule. It would have been available under the second rule if the
claimants had told the defendants , at the time when the contract was made, that such a very
profitable contract would be lost if the boiler was not delivered in time.

Liquidated damages/Penalty clauses

Parties to a contract may legitimately agree the amount of damages to be paid in the event of a
breach and provide for this in their contract terms. This provides certainty to each party so that
they know exactly what they are liable to pay should they be unable to perform their
obligations. Such a clause will be enforceable by the courts only in so far as it is a genuine pre-
estimate of loss. If it is a genuine pre-estimate it is known as a liquidated damages clause. It
will be valid and enforceable by either party to the contract. Thus, if the actual damages
suffered by the innocent party are greater than the damages provided for, he can only claim the
specified amount.
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Thus in Cellulose Acetate Silk Co v Widness Foundry (1933), a contract for the building of a
factory contained a clause providing for payment of a fixed sum in compensation for each day’s
delay in completion of the work. The work was finished late and the claimants suffered losses
considerably greater than those envisaged when the contract was made. It was held that the
claimants were only entitled to the contract rate of damages: that figure had represented a
genuine estimate of loss when it was inserted in the contract.

If however, the amount specified in the contract is not a genuine pre-estimate of loss but is
aimed at deterring a breach of contract or punishing the party in breach, this is known as a
penalty clause which is not enforceable.

The measure (or quantum) of damages

In assessing the amount of damages payable, the courts use the following principles:

The amount of damages is to compensate the claimant for his loss not to punish the defendant.
Damages are compensatory – not punitive. The most usual basis of compensatory damages is to
put the innocent party into the same financial position he would have been in had the contract
been properly performed. This is sometimes called the ‘expectation loss’ basis.

In Victoria Laundry v Newman Industries, for example, Victoria Laundry were claiming for the
profits they would have made had the boiler been installed on the contractually agreed date.

Sometimes a claimant may prefer to frame his claim in the alternative on the ‘reliance loss’
basis and thereby recover expenses incurred in anticipation of performance wasted as a result
of the breach.

In Anglia Television v Reed (1972), Reed was engaged to play the leading role in a TV play. The
claimants incurred expenses in preparing for filming. Reed repudiated the contract. Anglia could
not find a suitable replacement and had to abandon the project. It was held that Anglia could
recover their wasted expenditure from Reed.

In a contract for the sale of goods, the statutory (Sale of Goods Act 1893) measure of damages
is the difference between the market price at the date of the breach and the contract price, so
that only nominal damages will be awarded to a claimant buyer or claimant seller if the price at
the date of breach was respectively less or more than the contract price.

Mitigation

The innocent party must take all reasonable steps to mitigate (minimise) his loss, for example,
by trying to find an alternative method of performance of the contract. No substantial damages
can be claimed in respect of a loss which could have been mitigated by taking reasonable steps.

In Brace v Calder (1895), the claimant was employed by a partnership of four people for a fixed
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two-year period. The partnership was dissolved when two of the partners left. The two
remaining partners immediately agreed to employ the claimant on exactly the same terms as he
had previously been employed. The claimant refused this offer and sued for breach of contract.

There had been a breach of contract because the four partners had not employed the claimant
for the full two-year period. However, the claimant was entitled to nominal damages only (from
the original partners). He should have mitigated his loss by accepting the alternative
employment.

Action for the Price

When a seller sues for the contract price, this is not the same thing as suing for contract
damages. This is an action for a specified sum.

Repudiation

Repudiation is a remedy available for breach of contract. Repudiation involves bringing an end
to the contract. It is only available for breach of condition as oppose to breach of warranty. See
Bettini v Gye (1876) and Poussard v Spiers (1876).

Rescission

Rescission is an equitable remedy available at the discretion of the judge. Rescission seeks to
place the parties back in their pre-contractual position and thus represents an unraveling of the
contract. Rescission is available where a contract is voidable as a result of a vitiating factor such
as misrepresentation, undue influence or duress. The right to rescind may be lost if the claimant
affirms the contract, where a third party acquires rights in the goods or through lapse of time.

Specific performance

Specific performance is an equitable remedy available at the discretion of the judge. It is an

order by the court requiring one party to perform their contractual obligation. Whilst it is often
said that contracts are made to be performed and parties should be held to their contractual
obligations, the courts are often reluctant to order a party to unwillingly perform the contract
and specific performance is only available in limited circumstances. In considering whether to
grant specific performance the courts look to whether damages would be an adequate remedy,
the type of contract and whether equity requires such an order.

1. Where damages are an inadequate remedy:

If the claimant could adequately be compensated by an award of damages for the breach of
contract, the courts are unlikely to order specific performance.

Thus in Nutbrown v Thornton (1805), the claimant entered a contract to purchase some
machinery from the defendant. The defendant, in breach of contract, refused to deliver the
machines. The defendant was the only manufacturer of this type of machinery. The claimant
bought an action for breach of contract seeking specific performance of the contract.
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Specific performance of the contract was granted. Whilst an award of damages would ordinarily
be given for non-delivery of goods, damages would be inadequate to compensate the claimant
because he would not be able to buy the machines elsewhere.
In Cohen v Roche (1927), the claimant owned a furniture shop and entered an agreement to
purchase a quantity of Hepplewhite chairs to sell in his shop. The defendant, in breach of
contract, refused to deliver the chairs. The claimant sued for breach of contract and sought
specific performance for delivery of the chairs. The court refused to grant specific performance.
The claimant would be adequately compensated by an award of damages. The chairs were
considered ‘ordinary articles of commerce and of no special value or interest’. The claimant
could have purchased the chairs elsewhere.

Specific performance is most commonly ordered for contracts for the sale of land. The courts
are unlikely to order specific performance for contracts for personal service.

Specific performance will not be ordered where the claimant has behaves inequitably (unfairly).
This reflects the old saying that: “He who comes to equity must come with clean hands.”

In Lamare v Dixon (1873), the defendant wished to lease some cellars. He went to view cellars
owned by the claimant but saw that they were damp. The claimant promised that he would
make the cellars dry before the lease commenced and the defendant agreed orally to take the
lease. The claimant did not keep his promise and the defendant refused to complete the lease.
The claimant bought an action for breach of contract seeking specific performance of the lease
agreement.
Specific performance was refused due to the claimant not keeping his promise in making the
cellars dry. Lord Chelmsford stated : “The conduct of the party applying for relief is always an
important element for consideration.”

Specific performance will not be ordered where to order it would cause excessive hardship to
the defendant.
In Patel v Ali (1984), Mr. and Mrs. Patel contracted to sell their house to Mr. Ali. Completion of
the sale was delayed by Mr. Patel’s bankruptcy. At the time that they agreed to sell, Mrs. Patel
was healthy and had one child. However, during the delay, Mrs. Patel contracted bone cancer
and had to have a leg amputated. She became heavily reliant on friends and neighbours to
assist her with day to day activities. Mr. Ali sought specific performance of the contract. Specific
performance was denied on the grounds that it would cause hardship on Mrs. Patel if she was
required to move out.

Injunctions

Injunctions are another form of an equitable remedy available only at the discretion of the
judge. An injunction is a court order which requires a person to do or not to do a certain thing.
There are three types:

1. Interlocutory or interim (temporary injunction until a court hearing)

2. Prohibitory (a court order that a party must not do something)
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3. Mandatory (an order that a party must do something)

There is an overlap between mandatory injunctions and specific performance which has been
recognised by the courts. The courts will not grant an injunction in circumstances that would in
effect be an order for specific performance where it would not generally be allowed:

In Page One Records v Britton (1968), he claimant record company, owned by Larry Page, was
the manager of the pop group, The Troggs. By contract, The Troggs agreed that Page One
Records would be their manager and sole agent for 5 years in return for 20% of their profits. By
a term of the contract The Troggs agreed not to appoint anyone else for the duration. However,
their relationship with Larry Page broke down and The Troggs wrote a letter to the claimant
seeking to terminate the contract. The claimant sought an injunction to prevent The Troggs
appointing a new manager.

The injunction was refused. To grant an injunction would be akin to ordering specific
performance of a contract for personal services since the effect of the injunction would be to
compel The Troggs to continue to employ the claimant or not work at all.

The court may sever terms and only order an injunction in respect of partial obligations:

In Warner Bros v Nelson (1936), the defendant actress Bette Davis, agreed to act exclusively for
Warner Bros for two years. The contract stipulated not only that could she not act for another
but also she could take no employment of any kind. Bette Davis then moved to England and in
breach of contract entered an agreement to act for another. Warner Bros sought an injunction
to prevent her from doing so.

An injunction was granted but only in so far as it prevented Bette Davis from acting or
performing for another. The term relating to no employment of any kind was severed and did
not form part of the injunction.

Quantum Meruit (As much as he has earned)

Quantum meruit means ‘as much as it is worth’. It is not a claim for damages under a contract,
but an award to compensate a person in some circumstances.

Thus in Planche v Colburn (1831), the claimant agreed to write a book on costume and armour,
to be published by instalments in the defendant’s periodical. When the work was partly
completed, the defendants stopped publishing the periodical.

The claimant received reasonable remuneration for the work he had completed, on a quantum
meruit basis. (This case was previously outlined in the notes on discharge of a contract)
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UNIT 11: SALE OF GOODS

Objective.

At the end of this topic you should be able to understand:

1) The nature and the definition of contract of sale of goods

2) How a contract is formed
3) The terms of the contract
4) The passing of property
5) Risk
6) Delivery, acceptance and payment
7) Remedies

Introduction

The contract of sale of goods is one of the oldest and most common types of commercial
transaction. Contracts of sale of goods are entered into by millions of people on a daily basis
e.g. for the purchase of food, clothes etc.

The Sale of Goods Act 1893 is the act governing sale of goods in Zambia. This is an English Act
which is applicable to Zambia through the English Law (Extent of Application) Act, Chapter 11 of
the Laws of Zambia.

This Act is supplemented by common law principles which have been left untouched by the
statute.

TOPIC 1: Nature and Definition of Contract of Sale of Goods

Section 1 (1) of the said Act states that “a contract of sale of goods is a contract whereby the
seller transfers the property in goods to the buyer for a money consideration, called the price”.

Section 1 (3) goes on to state that, “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 there is a
condition thereafter to be fulfilled, the contract is called an agreement to sell”.
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It is clear that a “sale transaction “ is different from an “agreement to sell transaction”. A sale
transaction occurs where ownership of the goods is transferred from the seller to buyer,
whereas where ownership of the goods is to be transferred at some time in the future this
transaction is an agreement to sell.
A contract of sale of goods is distinguishable from several other transactions which are:

1) a contract of exchange
2) a contract of bailment
3) a contract of hire-purchase
4) a contract of loan on the security of goods
5) a contract for skill and labour
6) a contract of agency
In a contract for the sale of goods the statute recognizes the following:

a) The contract is between the seller and the buyer

b) There is property or goods to be transferred
c) There is money consideration called the price

1) Sale and Exchange

In a sale, money or consideration is exchanged for goods; the consideration being the price. An
exchange is normally an exchange of goods for goods.

2) Sale and Bailment

A bailment is a transaction where goods are delivered by the bailor to the bailee with the
intention of the goods being returned to the bailor. Normally the property does not pass and is
not intended to pass on delivery.

3) Sale and Hire Purchase

A Hire-purchase is a bailment of goods with an option to purchase them which may or may not
be exercised by the bailee. If the option to purchase is exercised then it becomes a contract of
sale.

4) Sale and loan on Security

A loan on security is where A borrows money from B and gives B goods as security for the
money borrowed. B retains possession of the goods until A repays the loan. If A fails to repay
the loan B has a right to take goods from A.

5) Sale and Skill and Labour

In a contract for skill and labour (or services) the person renders service for money.

6) Sale and Agency

If the transaction is an agency there may be privity of contract between the buyer and the
agents supplier where as if it is a sale there will be no privity between the buyer and the
sellers own supplier.
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The Price
Section 8 of the Act deals with the ascertainment of the price.

It states that:

1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in
manner thereby agreed, or may be determined by the course of dealing between the
parties.

2) Where the price is not determined in accordance with the foregoing provision the buyer
must pay a reasonable price. What is reasonable price is a question of fact dependant on
the circumstances of each particular case.

Formation of the Contract

Offer and Acceptance

It is inferred from section 61 (2) of the Act that the principles of the Common Law are applicable
to the formation of a contract of sale of goods, that is, by offer and acceptance.

Auction Sale

Section 58 of the act deals with auction sales. Subsections (1) and (2) are clear and straight
forward. Under subsection (4) if the auction is subject to a reserve price or to the right of the
seller to bid. The seller has a right not to sell below the reserve price or to bid himself.

In a case where an auctioneer mistakenly knocks the goods down below the reserve price by
mistake it was held in McManus v. Fortescue (1907) 2KB.1 that an action against the auctioneer
must fail. Since the sale was expressly subject to a reserve price the auctioneer could not be
made liable for breach of warranty of authority. With reference to section 58(3) if there is no
express statement made about a reserve price the auctioneer can refuse to accept any bid.
Furthermore, if the owner bids the buyer may set the contract aside or may sue for damages.

Even if a reserve price is notified the owner is still not entitled to bid unless this right is
expressly reserved and if he does bid and the reserve price is reached the contract may be
treated as fraudulent by the buyer.

Capacity

Section 2 of the Act states that, “Capacity to buy and sell is regulated by the general laws
concerning capacity to contract, and to transfer and acquire property provided that where
necessaries are sold and delivered to an infant, or to a person who by reason of mental
incapacity or drunkenness is incompetent to contract, he must pay a reasonable price thereof.

Necessaries in this section mean goods suitable to the conditions in the life of such infant or
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minor or other person, and to his actual requirement at the time of the sale and delivery.
Section 1 of the infant Relief Act 1874 provides that contract for goods supplied or to be
supplied, other than contract for necessaries with infant shall be void.
In the case of Stocks v Wilson (1913), an infant fraudulently told the plaintiff that he was a full
age and obtained goods from the plaintiff. It was held that the plaintiff could not recover.

Formalities

Section 3 of the act generally states that a contract can be made in any form. Corporations can
contract in the same way as a private person. For example a company limited by shares has legal
personality. It can sue and be sued in its corporate name.

Price

Section 8 (1) provides that the price in a contract of sale may be fixed in a manner agreed upon
by the parties. Section 9 (1) provides for a situation where no valuation takes place even though
there was an agreement for the price to be fixed by valuation. Section 9 (2) provides for a
situation where one of the parties prevents valuation taking place. In such instance the party
not at fault may maintain an action for damages against the party at fault.

Terms of the contract

The right to sell

The terms of a contract may be express or implied. Sections 12 to 15 of the Act deals with
implied terms of the contract.

Section 12(1) (a) of the Act provides that unless the circumstances show a different intention:

There is an implied condition on the part of the seller that in the case of a sale he has the right
to sell the goods, and in the case of an agreement to sell he will have such a right at the time
when the property is to pass.

This term, like the others is a condition. As we have seen, when a condition is reached the
injured party can treat the contract as terminated and also claim damages. If a seller breaches a
condition and the buyer therefore chooses to treat the contract as terminated, the buyer will
get all of the purchase price back.

In Rowland v Divall (1923) 2KB 500; ALL E R 270, a thief stole a car from its owner and sold
the car to the defendant. The claimant, a motor dealer bought the car from the defendant
for £334. The claimant did the car up and sold it to a customer for £400. On discovering that
the car was stolen, the police took it from the customer and returned it to its original owner.
The customer complained to the claimant who returned his £400. The claimant asked the
defendant for the return of £334 he had paid. The defendant refused to pay, saying that he
had no idea that the car was stolen.
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It was held that the claimant was entitled to all of his money back. Section 12 (1) provides
that the seller must have the right to sell, and when the defendant sold the car to the
claimant he did not have this right because he did not own the car. The thief never owned
the car. He, therefore, could not pass ownership to the defendant, who could not pass
ownership to the claimant, etc. None of the parties except the original owner had the right
to sell the car.
Section 12 (1) (b) implies a warranty of quiet possession of the goods. This normally means
that the buyer should not suffer any physical interference with his possession of the goods.

In Mason v Burningham (1945) 2K B 545, Lord Green, M.R. in the Court of appeal held that
the warranty had been broken where the buyer was compelled to return the goods bought
to the true owner.

Section 12 (3) of the act provides for an implied warranty that the goods shall be free from
any charge or encumbrances in favour of any third party, not declared or known to the
buyer before or at the time when the contract is made. This section was interpreted in the
case of Lloyd & Scottish Finance Limited v Modern Cars & Caravans (Kingston) Ltd (1966)
1QB 764. The defendant bought a caravan from a debtor. There was a writ of fifa issued
against that debtor by the sheriff. The defendant was aware of this later but proceeded to
sell the caravan to the plaintiff. The caravan was subsequently seized by the sheriff. It was
held that the defendant’s title was not free from the sheriff’s right and therefore they
transferred it to the plaintiff in breach of the warranty contained in section 12(3).

Correspondence with Description

Section 13 of the Act provides that:

Where there is a contract for the sale of goods by description, there is an implied condition that
the goods will correspond with the description.

“Description” is defined by Robert Lowe to mean the class or type to which the goods belong as
well as ingredients, thickness, packing and quantity. In other words they are the words used to
identify the goods. The sale of unascertained goods can be identified by description. Specific
goods can also be sold by description.

In Bowes v Shands (1877) 2AC 455, Lord Blackburn explained that:

“If you contract to sell peas, you cannot oblige a party to take beans. If the description of the article
tendered is different in any respect, it is not the article bargained for and the other party is not
bound to take it”.

The descriptive statement must form a term in the contract for section 13 to be applicable. A
seller has no obligation to describe the goods sold. Furthermore, the fact that a seller has made
a description does not necessarily mean that the goods were sold by that description so as to
bring in S. 13.
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Goods may be specific and unascertained, and S. 13 applies differently depending on the type
of goods. Specific goods will have been identified and agreed upon at the time of the contract.
The seller must deliver those specific goods, and no others, or be in breach of contract. If the
goods sold are unascertained goods, they will not have been identified and agreed upon at the
time of the contract.
If I agree to buy a particular second-hand bicycle from a shop, this is a sale of specific goods. If
the shop orders 30 new bicycles of a particular type from a manufacturer, without identifying
the specific bicycles to be delivered, this is a sale of unascertained goods. The manufacturer can
deliver any 30 bicycles which correspond with the description.

Sale by description extends to where the buyer sees the goods. In Beal v Tailor (1967) 1 WLR
1193, the defendant sold a car which he advertised as “Triumph Herald, Convertible white,
1961”, the car however, was the front of a 1948 Triumph Herald and the rear was 1961 model.
The purchaser saw the car and rode in it but neither party realized the physical state of the car.
It was held that the statement constituted a contractual description of the car and section 13 is
therefore applicable.

In a situation where the buyer does not see the goods but relies on the goods (unascertained)
description, there is a sale by description. In the case of Varley v Whipp (1900) 1KB 513, the
seller agreed to sell a second-hand reaping machine which he described as new the previous
year. The buyer had not seen the machine but relied on the description given to him. On arrival
it was found to be much older and the buyer rejected it. The seller sued for the price. The issue
was whether it was a sale by description. Whether the words relating to the age of the machine
formed part of the description. It was held that this was a sale by description and the words
relating to the machine formed part of the description.

Channel J. said “the term `sale of goods by description” must apply to all cases where the
purchaser has not seen the goods but is relying on description alone. The most usual
application of that section, no doubt, is to unascertained goods, but I think it also be applied to
cases such as this where there is no identification otherwise than by description “.

The seller has an obligation to deliver the goods in compliance with the contract description. If
section 13 is breached by the seller the buyer can either claim damages or reject the goods.

Quality and Fitness in Business Sales

Section 14 of the Act provides that subject to the Act and of any statutes in that behalf there is
no implied warranty or condition as to the quality or fitness for any particular purpose of
goods supplied under a contract of sale except as provided for under 14 (1)(2)(3) and (4).

Section14(1) deals with implied conditions, the quality or fitness of the goods, Section 14(2)
with the implied condition of merchantable quality. Section 14(3) deals with conditions and
warranties implied by usage.
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These are exceptions to the general rule of “caveat emptor” (let the buyer beware). Caveat
emptor at common law is when the buyer of goods required no warranty. He took the risk of
merchantable quality upon himself. He had no remedy available to him against the seller if he
chooses to rely on the representation made to him by the seller.
The term in the course of business does not necessarily mean buying and selling the type of
goods which are actually sold in the business e.g. if a clothes manufacturer sold one of its trucks
this would be “in the course of business”.

Where the goods are sold in the course of business it is an implied condition that they are of
merchandisable quality. However, for the buyer to rely on section 14(1) he should make it
known to the seller expressly the particular purpose for which the goods are required.

For example, Hannah visits a shop and buys a cake. Before buying the cake, Hannah asks the
seller whether or not the cake contains nuts, explaining that she is allergic to nuts. The seller
says that it does not. Relying on this, Hannah buys the cake and eats it. Hannah is made ill by
the cake because it did contain nuts.

In Priest v Last (1903) 2KB 148, the plaintiff bought a hot water bottle from a shop. The bottle
burst when the hot water was poured into it. The Court of Appeal held that a hot water bottle is
required for a particular purpose within the provisions of section 14 because it has one purpose
only and the buyer could only require it for that purpose.

In Grant v Australian Knitting Mills Ltd (1936), a customer who bought a pair of underpants
from a shop contracted dermatitis because a chemical used in the manufacture of underpants
had not been rinsed properly.

The court held that if the purpose for which goods are to be used is perfectly obvious, then the
buyer does not need to state the purpose. The seller was in breach of both section 14(3) and
section 14(2).

The term in section 14(3) will not protect a buyer who does not make known, expressly or
impliedly, the particular purpose for which the goods are bought.

In Griffiths v Peter Conway Ltd (1939), a customer with abnormally sensitive skin contracted
dermatitis from a tweed coat which she bought from a shop. The coat would not have affected
most people. The shop were not liable under s. 14(2) because there was nothing wrong with the
coat. The shop were not liable under s. 14(3) because the customer had not made her condition
known.

If on the other hand the goods can be used for a variety of purpose, the buyer in such a case is
obliged to indicate the particular one of these purpose for which he requires the goods.

In D.T.C. Industries Ltd. V Jimfat Nigeria Ltd (1975) CCHJ 175 the defendant agreed orally to
purchase from the plaintiffs thirteen tons of coil wire said to be of the quality of 16 British wire
gauge (BWG). The defendants did not expressly indicate to the plaintiff sellers the particular
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purpose for which the wire coils were required. A Lagos High Court found that the wire coils
supplied by the plaintiff were capable of being used for a variety of purposes and that there was
no evidence that the plaintiff were informed of the particular purpose for which the defendants
relied on their skill or judgment. The Court therefore held that the provisions of the sub-section
were inapplicable.
If goods are fit for the purpose for which goods of that kind are commonly bought such goods
are said to be merchantable.

In Rodgers and another v Parish (Scarborough) Ltd and another (1987) 2 ALL ER 237, a Range
Rover car was sold as new by the defendant to the buyer. It had a number of defects such as a
noisy gear box etc. due to poor storage. The buyer sued the seller for breach of contract arguing
that the vehicle was not merchantable. It was argued amongst others that the defects could be
repaired under the manufacturers warranty thus the vehicle was merchantable. It was held that
the car was not merchantable even if the defects could be repaired.

The implied condition as to merchantability does not apply where the buyer has examined the
goods as regards defects which such examination ought to have revealed.

In Thornett & Fer v Beer & Sons (1919), a buyer of glue carried out an examination of the
outside of the barrels of glue. The seller had given the buyer an opportunity for a more
thorough examination though the buyer did not take it. Had the buyer carried out a thorough
examination by looking inside the barrels, the defects complained of would have been
discovered.

The proviso contained in s. 14(2) applied and no condition of merchantability applied under the
circumstances. Under the proviso, it was not sufficiecnt that the buyer had the opportunity to
examine the goods. He must have examined them.

Sale by Sample
Section 15 provides that if goods are sold by sample, the following conditions are implied:

(a) The bulk of the goods must correspond with the sample in quality.

(b) The buyer should have a reasonable opportunity of comparing the bulk with the sample

(c) The bulk should be free from any defects, which would render the goods
unmerchantable, if these defects would not be discovered on a reasonable examination
of the sample.

In E & S Ruben v Faire Bros & Co. Ltd (1949) 1ALL ER, the sellers agreed with the buyers to
supply a certain type of rubber in accordance with a small sample. The sample provided was flat
and soft but the rubber delivered was crinkly and folded, though these defects could be easily
remedied by warming. It was held that the sellers were in breach of section 15 of the Act for
they were not in accordance with the sample.
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In Godley v Perry (1960), a six-year old boy bought a catapult which snapped and caused the
boy to lose an eye. The boy sued the shop under s. 14(2) and won. The shopkeeper sued the
wholesaler under s. 15 because, before buying the catapults, he had tested a sample catapult by
pulling back the elastic, and this sample had not snapped. The shopkeeper won under s. 15. The
defect was not apparent on a reasonable examination of the sample.
TOPIC 4: Passing of Property

Section 16 of the Act provides that where there is a contract for the sale of unascertained goods
no property in the goods is transferred to the buyer unless and until the goods are ascertained.
In the case of Kressman & Co. v Lekhain & Another (1964) EALR 49 Supreme Court of Kenya, the
second respondent bought goods from the plaintiff which were in a warehouse awaiting
collection. He instructed the warehouse to redeliver the goods to the appellant. The appellants
agreed to take delivery of the goods but before they could do so the first respondent obtained
an attachment order against the second respondent. It was held that property in the goods had
passed to the appellant since what had transpired amounted to an agreement to resale. The
attachment order was ineffective.

Property can pass only after the goods have been ascertained i.e. appropriated to the contract
with the consent of both parties, express or implied.

Section 17 of the Act deals with the passing of the property from the seller to the buyer in
specific or ascertained goods.

In Dennant v Skinner & Collom (1948), a swindler called King bought a car at an auction sale
paid by cheque and took possession of the car. King signed a document stating that the title of
the vehicle would not pass until the cheque had been cleared. King sold the car to the
defendant. The cheque was dishonored and king could not be traced. The auctioneer sued the
defendant. It was held that at an auction title passes at the fall of the auctioneers hammer.
According to section 18 Rule 1, property passes at the time of the sale, unless a contrary
intention appears.

In Clough Mill v Martin (1985) 1WLR 111 (1984), Clough Mill limited contracted to sell yarn to
the buyer on condition that the seller reserved title in the goods until payment had been made
and in case of default by the buyer the seller could enter the buyers premises and recover the
goods for resale. The Buyer became insolvent before paying in full. It was held that the
retention of title clause did not create a charge on the unused yarn. The seller had retained
legal title in the property as a form of security for itself. The seller’s action succeeded.

Section 18 states the rules for ascertaining the intention of the parties to the time at which
the property in the goods is to pass to the buyer.

Section 18 states that:

“Unless a different intention appears, the following are rules for the sale of ascertaining the
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intention of the parties as to the buyer.

Rule 1.- where there is an unconditional contract for the sale of specific goods, in a
deliverable state, the property in the goods passes to the buyer when the contract is made,
and it is immaterial whether the time of payment or the time of delivery, or both, be
postponed.

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

Rule 3. – Where there is a contract for the sale of specific goods in deliverable state, but the
seller is bound to weigh, measure, test, or do some other act or thing with reference to the
goods for the purpose of ascertaining the price, the property does not pass until such act or
thing be done, and the buyer has notice thereof.

Rule 4.- When goods are delivered to the buyer on approval or “on sale or return” or other
similar terms the property therein passes to the buyer;

a) When he signifies his approval or acceptance to the seller or does any other act
adopting the transaction:

b) If he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection, then if a time has been fixed for the return of the
goods, on the expiration of reasonable time. What is a reasonable time is a reasonable
time is a question of fact.
Rule 5.- (I) Where there is a contract for the sale of unascertained or future goods by
description and in a deliverable state are unconditionally appropriated to the contract, either by
the seller or with the assent of the seller, the property in the goods there upon passes to the
buyer. Such assent may be express or implied, and may be given either before or after the
appropriation is made.

(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a
carrier or other bailee or custodies (whether named by the buyer or not) the buyer is deemed
to have unconditionally appropriated the goods to the contract.

Rule 1

The case of Dennant v Skinner and collom applies. The contrary intention must be shown at or
before the making of the contract.

Rule 2

A “deliverable state” is defined in Section 62 of the Act.

In the case of Underwood Ltd v Burgh Cast Le Brick and cement Syndicate (1922) 1KB 343 the
 112

sellers sold a 30 ton condensing engine “free on rail London”. At the time of the sale it was
embedded in the floor of a factory. The sellers dismantled it and proceeded to load it on to a
truck, but in doing so part of the machine was accidentally broken. The Court of appeal held
that the buyers could reject it because at the time of the contract the machine was not in a
deliverable state. Section 18 rule 2 did apply as the risk was on the seller.
Rule 3

This rule applies where something has to be done by the seller.

In Turkey v Bates (1863) H & Co. 200, the seller sold clay to the buyer. The parties agreed that
the buyer would load and weigh the clay to ascertain the price. It was held that the property
passed to the buyer when the contract was made.

Rule 4

This applies where goods are sent on approval or on “sale or return”.

In Kikham v Attenborough (1897) 1QB 201, 204 Lopez L.J. said that a person may become a
purchaser of the goods in three different ways namely:

a) He may pay the price.

b) He may retain the goods beyond a reasonable time for their return.
c) He may do an act inconsistent with his being other than a purchaser.

Rule 5

This rule deals with unascertained or future goods.

In the case below, the buyers and traders in Costa Rica agreed to buy bicycles from the sellers
who were manufacturers (f.o.b.).The sellers were obliged under the contract to transport the
bicycles to Liverpool and load them into a designated ship. The seller packed the bicycles in
containers with the buyers name and address on them. Before the goods could be shipped the
sellers became bankrupt.

It was held that the appropriation act is usually the last act to be performed by the seller. In this
case the seller has yet to transport the goods to Liverpool and load them on the ship. Property
has therefore not passed.

Plearson J. in Carlos Fidespill & Co. SAV Charles Twigg & Co. Ltd. (1957) 1 Lloyds Rep 240 255
stated that “a mere setting apart or selection by the seller of the goods which he expected to
use in performance of the contract is not enough. If that is all, he can change his mind and use
in performance of some other contract and use some other goods in performance of this
contract. To constitute an appropriation of the goods to the contract, the parties must have had
or be reasonably supposed to have had an intention to attach the contract irrevocably to those
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goods and no others are the subject of the sale and become the property of the buyer.”
TOPIC 6: Delivery, Acceptance and Payment

Section 27 to 37 of the Act deals with delivery, acceptance and payment for goods.

Delivery

Delivery is defined in section 62 as voluntary transfer of possession from one person to another.

The five ways in which delivery can take place are:

a) Physical transfer of the goods themselves.

b) Delivery of the means of control e.g. handing the buyer the keys of the warehouse
where the goods are stored.
c) By atonement section 29(3) of the act deals with this. Atonement means
acknowledgement that one holds the goods on behalf of the buyer.
d) Delivery of a document of title.
e) Constructive delivery e.g. where the buyer is in possession on the sale. The buyer then is
in possession as buyer and not as bailee any longer.

Acceptance

Once the buyer accepts the goods he loses his right to reject the goods on the ground of breach
of condition. Section 35 of the Act deals with this issue.

Payment

The buyer has to pay for the goods for there to be delivery of the said goods.

Section 27 deals with the duties of the seller and the buyer. That is, it is the duty of the seller to
deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of
the contract of sale.

Section 28 deals with payment and delivery. It states that the seller must be ready and willing to
give possession of the goods to the buyer in exchange for the price and the buyer must be ready
and willing to pay the price in exchange for possession of the goods.

Section 29 states the rules as to delivery. There are five sub-sections under this section.

Section 30 deals with the delivery of wrong quantity. Sub section 30 (1) states that where the
seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may
reject them, but if the buyer accepts the goods so delivered he must pay for them at the
contract rate.

Sub section (2) states that where the seller delivers to the buyer a quantity of goods larger than
he contracted to sell, the buyer may accept the goods included in the contract and reject the
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rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered he
must pay for them at the contract rate.

Sub section (3) states 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 the rest, or he may
reject the whole.

Sub section (4) provides that this section is subject to any usage of trade, special agreement, or
course of dealing between the parties.

Section 31 provides that unless otherwise agreed, the buyer of goods is not bound to accept
delivery thereof by installments which are to be separately paid for.

Section 32 deals with goods delivered to carrier.

Section 33 provides for risk involved where the goods are delivered at distant places.

Section 34 provides for situation where goods are delivered to the buyer which he has not
previously examined and his right of examining such goods.

Section 35 provides for instances when the buyer is deemed to have accepted the goods.

Section 36 deals with the buyer who is not bound to return rejected goods.

Section 37 deals with the liability of the buyer for neglecting or refusing delivery of the goods.

TOPIC 7: Common Law or Statutory Power of sale

In certain circumstances, persons are allowed to sell goods although they are not the owners.

a) Disposal of Uncollected Goods Act, Chapter 410 of the Laws of Zambia.

Under this Act a bailee, in certain circumstances, is given the right as bailee to sell goods
under bailment left with the bailee for repair or other treatment for which the bailor fails to
pay his charges.

An example is when a person leaves his motor car with a garage for repairs. If he does not
pay the repair costs and collect his vehicle within a reasonable time, the garage has a
statutory right to sell the goods and recover its costs, provided that the statutory
requirements are complied with by the garage before the sale of the goods.

b) Sale in market overt- section 22 of the Act covers this. Market overt means open market.
It must be open, public and legally constituted. The buyer gets a good title if he buys the
goods in good faith.
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c) The Factors Act 1889- Section 2

Where a mercantile agent is with the consent of the owner in possession of goods, any sale
or pledge made by him when acting in the ordinary course of business is as valid as if it was
expressly authorized by the owner provided that the buyer buys in good faith and without
the notice of the agent’s want of authority.

A mercantile agent is a person whose business it is to sell or consign goods or to buy goods
or to raise money on the security of goods e.g. a broker, a garage but not their servants.

d) Writs of Execution- Writs of Fieri Facias. That is to enforce a judgment debt. The sheriff
seizes the goods and sells them to a buyer who gets good title. The Sheriff derives hic
powers from the Sheriffs Act Chapter 49 of the laws of Zambia.

Other persons who may have statutory or power to sell are Executors and Administrators of
estates, Liquidators and Trustees in bankruptcy and Mortgages in possession, Agents, Court
order.

TOPIC 8: Remedies of Seller

The seller has six remedies to compel the purchaser to pay for the goods.

1) A lien which is covered under sections 41 to 43 of the Act which covers seller’s lien, part
delivery and termination of lien.
2) A right of stoppage in transit which is provided for under sections 44 to 46 of the Act
which also deals with duration of the transit and how lawful stoppage in transit is
effected.
3) Unpaid sellers right under section 39(2) where the property has not passed to the buyer.
The seller has a right of lien, a right of stoppage of the goods in transit and a right of re-
sale.
4) A right to re-sale the goods under section 48 of the Act. The seller can re-sale the goods
and the buyer will obtain a good title.
5) An action can be commenced in court for the price of the goods where the buyer
neglects or refuses to pay. Section 49 covers this.
6) Section 50 of the act states that an action for damages can be brought in court against a
buyer who wrongfully neglects or refuses to accept and pay for the goods.
The buyer has six remedies to compel performance by the seller.

1) The buyer can reject the goods for breach of condition subject to section 11 (1) (C) if
there is provision express or implied in the contract to that effect.
2) Recover the price if he has already paid for the goods, that is, commence an action for
breach of warranty under section 53 and maintain an action against the seller for
damages for breach of warranty.
3) Section 53 provides that an action for breach of warranty can be brought as referred to
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in (2) above.
4) An action for damages for non delivery can be brought by the buyer as provided for
under section 51. This action can be brought in instance where the seller wrongfully
neglects or refuses to deliver the goods to the buyer.
5) An action can be brought for specific performance of the contract under section 52. That
is the buyer can commence an action for the contract to be performed specifically.
6) The buyer can sue the seller and the third party for possession of the goods in tort if he
is entitled to such possession.

THE PASSING OF OWNERSHIP AND RISK

The purpose of a contract of sale of goods is to pass ownership of the goods from the seller to
the buyer in return for payment of the price. The sale of Goods Act 1893 sets out rules which
determine exactly when ownership does pass. It can be important to know exactly when
ownership passes for two main reasons:

i. The goods might become lost or damaged. The party who owned the goods at the time
of the loss or damage will generally have to bear the loss.
ii. Either the buyer or the seller might become insolvent. The rights of the solvent party
will depend on whether or not ownership had passed at the time of the insolvency.

Section 16 of the Act provides that where there is a contract for the sale of unascertained goods
no property in the goods is transferred to the buyer unless and until the goods are ascertained.

In the case of Kressman & Co. v Lekhain & Another (1964) EALR 49, Supreme Court of Kenya,
the second respondent bought goods from the plaintiffs which were in a warehouse awaiting
collection. He instructed the warehouse to redeliver the goods to the appellant. The appellants
agreed to take delivery of the goods but before they could do so the first respondent obtained
an attachment order against the second respondent. It was held that property in the goods had
passed to the appellant since what had transpired amounted to an agreement to resale. The
attachment order was ineffective.

Property can pass only after the goods have been ascertained i.e. appropriated to the contract
with the consent of both parties, express or implied.

Section 17 of the Act deals with the passing of the property from the seller to the buyer in
specific or ascertained goods.

In Dennant v Skinner & Collom (1948) 2KB; @ALL ER 29, a swindler called King bought a car at
an auction sale paid by cheque and took possession of the car. King signed a document stating
that the title of the vehicle would not pass until the cheque had been cleared. King sold the car
to the defendant. The cheque was dishonored and king could not be traced. The auctioneer
sued the defendant. It was held that at an auction title passes at the fall of the auctioneers
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hammer. According to section 18 Rule 1, property passes at the time of the sale, unless a
contrary intention appears.
In Clough Mill v Martin (1985) 1WLR 111 (1984) 3 ALL ER 982, Clough Mill limited contracted to
sell yarn to the buyer on condition that the seller reserved title in the goods until payment had
been made and in case of default by the buyer the seller could enter the buyer’s premises and
recover the goods for resale. The Buyer became insolvent before paying in full. It was held that
the retention of title clause did not create a charge on the unused yarn. The seller had retained
legal title in the property as a form of security for itself. The seller’s action succeeded.

Section 18 states the rules for ascertaining the intention of the parties to the time at which the
property in the goods is to pass to the buyer.

Section 18 states that:

“Unless a different intention appears, the following are rules for the sale of ascertaining the
intention of the parties as to the buyer.

Rule 1 – Specific goods in a deliverable state

Section 18 Rule 1 provides that where specific goods in a deliverable state are unconditionally
sold, ownership passes to the buyer at the time of the contract, even if the times of delivery
and payment are postponed.

Goods are in a deliverable state when the seller has nothing more to do to the goods
themselves. Goods could be in a deliverable state even if they needed to be packed. Goods
would not be in a deliverable state if the seller had to overhaul them before the buyer was to
take delivery.

In Tarling v Baxter (1827), S sold a haystack to B on 6th January. The contract provided that B
was to pay the price on 4 February and the haystack was not to be moved until 1 May. The
haystack was burned down on 20 January. The court held that ownership had passed to the
buyer on 6th January.

Rule 2 – Specific goods which the seller must put into a deliverable state

Rule 2 provides that where there is a contract for the sale of specific goods and the seller is
bound to do something to the goods to put them into a deliverable state, ownership passes
when the seller has done the thing and the buyer has notice that it has been done.

In the case of Underwood Ltd v Burgh Castle Brick and Cement Syndicate (1922), on 20th
February, a 30 ton engine was sold. The contract obliged the seller to detach the engine from a
concrete casing and put it on a train. (This would take over two weeks.) while the engine was
being loaded on the train, it became damaged.

The court held that ownership had not passed to the buyer at the time of the damage. The
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engine was not in a deliverable state at the time of sale. The seller was obliged to free the
engine and put it on a train in order to put it into a deliverable state. Ownership would pass to
the buyer only when the seller had done these things and had told the buyer that they had
been done.
Comment: It was not the great weight of the engine which prevented it from being in a
deliverable state. A ship which the seller has finished building could be in a deliverable state,
even though it might weigh many thousand tons. The goods were not in a deliverable state
because when they were sold, the seller had to do something to the goods, that is to free them
from the concrete and put them on a train.

Rule 3 – Goods to be weighed, measured or tested by the seller to find the price

Rule 3 applies where the seller is to weigh, measure or test the goods, in order to find the price.
It provides that in such a case ownership is not to pass until the goods have been weighed,
measured or tested and the buyer has been informed of this. It is important to notice two
things here:

(a) The rule applies only where the weighing etc. is to be done by the seller.
(b) The weighing etc. is to required in order to find the price.

Example

Ben visits Bupe’s scrap yard and sees a heap of copper. It is agreed that Ben will buy the heap of
copper at K4, 000 a ton and that Bupe will weigh the heap to see how much Ben has to pay. The
ownership will pass when Bupe has weighed the heap and told Ben that this has been done. (If
it had been agreed that Ben would weigh the copper, then Rule 1 would have applied.
Ownership would, therefore, have passed to Ben as soon as the contract was made.)

In Turkey v Bates (1863), the seller sold clay to the buyer. The parties agreed that the buyer
would load and weigh the clay to ascertain the price. It was held that the property passed to the
buyer when the contract was made.

Rule 4 – Goods delivered on approval, sale or return or other similar terms

Goods are delivered on approval where the buyer has a choice as to whether or not to buy the
goods delivered. Goods are delivered on sale or return where it is understood that the buyer is
going to try to resell the goods. If the buyer cannot resell the goods then they will be returned
to the seller. Where goods are delivered on approval, sale or return or other similar terms, then
the ownership passes to the buyer in the following circumstances:

(a) When the buyer signifies approval

(b) When the buyer does an act which adopts the transaction (an act which would prevent
the buyer from returning the goods to the seller, such as selling the goods on to another
buyer or consuming the goods).
(c) When the buyer keeps the goods for longer than a time limit fixed by the contract
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(d) If no time limit is fixed by the contract, when the buyer keeps the goods for more than a
reasonable time.
Example

Simon delivers goods to Brian, a shopkeeper, on sale or return. Brian sells the goods to a
customer. This is an act adopting the transaction. Therefore, the ownership passed to Brian as
soon as the goods were sold on. Brian then immediately passed ownership to the customer
under s. 18 Rule 1.

In Kikham v Attenborough (1897), Lopez L.J. said that a person may become a purchaser of the
goods in three different ways namely:

d) He may pay the price.

e) He may retain the goods beyond a reasonable time for their return.
f) He may do an act inconsistent with his being other than a purchaser.

Risk, mistake and frustration

S. 20 of the Act provides that, unless the parties have agreed otherwise, the risk passes from
the seller to the buyer at the same time as ownership of the goods passes. So it is possible for
the parties to separate risk and ownership, but unless this is done, the two pass together.

Section 6 mistake

Section 6 provides that where there is a contract for the sale of specific goods, and the goods
without the knowledge of the seller have perished at the time when the contract is made, the
contract is void. Goods will have perished if they are stolen, damaged or destroyed. Goods will
also be regarded as having perished if they become damaged to the point where they can no
longer be regarded as the same thing, in the business sense, as the goods which were sold.

Example

Sally agreed to sell a combine harvester (specific goods) to Brian. Unknown to Sally, the
combine harvester had been destroyed in a fire half an hour before the contract was made. The
contract is rendered void by s. 6. Therefore, Sally will have no obligation to deliver the goods
and will not be in breach of contract for failure to do so. Brian will have no obligation to pay the
price and can recover any amount of the price already paid.

Section 7 frustration

Section 7 provides that where there is an agreement to sell specific goods and subsequently the
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goods, without any fault on the part of the seller or buyer, perish before the risk passes to the
buyer, the agreement is thereby avoided.

There are several points to notice about this section:

i. The perishing of the goods must not be the fault of the buyer or the seller. If it is the
fault of either party that party will bear the loss.
ii. The goods must perish after the contract to sell has been made but before the risk has
passed.
iii. Both ss. 6 and 7 can apply only if the goods were sold as specific goods. They can never
apply to unascertained goods

Example

Bupe agrees to sell a machine to Ben. The contract obliges Bupe to overhaul the machine before
delivery is made. The contract will be governed by s. 18 Rule 2 because it is a sale of specific
goods to be put into a deliverable state by the seller. After the contract has been made, but
before Bupe has overhauled the machine, the machine is destroyed in a fire. (The fire was not
caused by the fault of either Bupe or Ben.) Section 7 provides that the contract is frustrated.
Therefore, Bupe is not in breach of contract for failure to deliver the machine. Ben need not pay
the price and can recover any amount of the price which has already been paid. Other losses,
such as time spent by Bupe on trying to free the machine, lie where they fall. That is to say no
compensation can be claimed in respect of them.

Rule 5

Where there is a contract for the sale of unascertained or future goods by description, and
goods of that description and in a deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the
seller, the property in the goods thereupon passes to the buyer. Such assent may be express or
implied, and may be given either before or after the appropriation is made:

In Carlos Federspiel & Co SA v Charles Twigg & Co Ltd (1957), a seller who had sold
unascertained goods put goods matching the contract description into a crate. The crate was
labelled with the buyer’s name and the seller intended that the goods in the crate were the
ones to be used to fulfil the contract. The seller then became insolvent.

It was held that property had not passed because this was not an unconditional appropriation
because the seller could have changed his mind and used the goods in the crate to fill other
orders.
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Delivery, Acceptance and Payment

Section 27 to 37 of the Act deals with delivery, acceptance and payment for goods.

Delivery

Delivery is defined in section 62 as voluntary transfer of possession from one person to another.

The five ways in which delivery can take place are:

f) Physical transfer of the goods themselves.

g) Delivery of the means of control e.g. handing the buyer the keys of the warehouse
where the goods are stored.
h) By atonement section 29(3) of the act deals with this. Atonement means
acknowledgement that one holds the goods on behalf of the buyer.
i) Delivery of a document of title.
j) Constructive delivery e.g. where the buyer is in possession on the sale. The buyer then is
in possession as buyer and not as bailee any longer.

Acceptance

Once the buyer accepts the goods he loses his right to reject the goods on the ground of breach
of condition. Section 35 of the Act deals with this issue.

Payment

The buyer has to pay for the goods for there to be delivery of the said goods.

Section 27 deals with the duties of the seller and the buyer. That is, it is the duty of the seller to
deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of
the contract of sale.

Section 28 deals with payment and delivery. It states that the seller must be ready and willing to
give possession of the goods to the buyer in exchange for the price and the buyer must be ready
and willing to pay the price in exchange for possession of the goods.

Section 29 states the rules as to delivery. There are five sub-sections under this section.

Section 30 deals with the delivery of wrong quantity. Sub section 30 (1) states that where the
seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may
reject them, but if the buyer accepts the goods so delivered he must pay for them at the
contract rate.

Sub section (2) states that where the seller delivers to the buyer a quantity of goods larger than
he contracted to sell, the buyer may accept the goods included in the contract and reject the
rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered he
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must pay for them at the contract rate.

Sub section (3) states 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 he may reject the
whole.

Sub section (4) provides that this section is subject to any usage of trade, special agreement, or
course of dealing between the parties.

Section 31 provides that unless otherwise agreed, the buyer of goods is not bound to accept
delivery thereof by installments which are to be separately paid for.

Section 32 deals with goods delivered to carrier.

Section 33 provides for risk involved where the goods are delivered at distant places.

Section 34 provides for situation where goods are delivered to the buyer which he has not
previously examined and his right of examining such goods.

Section 35 provides for instances when the buyer is deemed to have accepted the goods.

Section 36 deals with the buyer who is not bound to return rejected goods.

Section 37 deals with the liability of the buyer for neglecting or refusing delivery of the goods.

Remedies of Seller

The seller has six remedies to compel the purchaser to pay for the goods.

1) A lien which is covered under sections 41 to 43 of the Act which covers seller’s lien, part
delivery and termination of lien.
2) A right of stoppage in transit which is provided for under sections 44 to 46 of the Act
which also deals with duration of the transit and how lawful stoppage in transit is
effected.
3) Unpaid sellers right under section 39(2) where the property has not passed to the buyer.
The seller has a right of lien, a right of stoppage of the goods in transit and a right of re-
sale.
4) A right to re-sale the goods under section 48 of the Act. The seller can re-sale the goods
and the buyer will obtain a good title.
5) An action can be commenced in court for the price of the goods where the buyer
neglects or refuses to pay. Section 49 covers this.
6) Section 50 of the act states that an action for damages can be brought in court against a
buyer who wrongfully neglects or refuses to accept and pay for the goods.
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The buyer has six remedies to compel performance by the seller.

7) The buyer can reject the goods for breach of condition subject to section 11 (1) (C) if
there is provision express or implied in the contract to that effect.
8) Recover the price if he has already paid for the goods, that is, commence an action for
breach of warranty under section 53 and maintain an action against the seller for
damages for breach of warranty.
9) Section 53 provides that an action for breach of warranty can be brought as referred to
in (2) above.
10) An action for damages for non delivery can be brought by the buyer as provided for
under section 51. This action can be brought in instance where the seller wrongfully
neglects or refuses to deliver the goods to the buyer.
11) An action can be brought for specific performance of the contract under section 52. That
is the buyer can commence an action for the contract to be performed specifically.
12) The buyer can sue the seller and the third party for possession of the goods in tort if he
is entitled to such possession.

SALE BY A PERSON WHO IS NOT THE OWNER

An old common law rule states that nemo dat quod non habet (nobody gives what they do not
have). The rule means that a person who does not own goods cannot pass ownership to anyone
else. Let us assume, for example, that Christopher, without permission, sells Sharon’s car to
Harriet. Christopher did not own the car and so cannot pass ownership to Harriet. Ownership of
the car will remain with Sharon. The rule is reaffirmed by SGA 1893 s. 21, which reads:

“Where goods are sold by a person who is not their owner, and who does not sell them under the
authority or with the consent of the owner, the buyer acquires no better title to the goods than the
seller had.”

In these circumstances, the buyer will be required to return the goods to their true owner. The
buyer’s only remedy is to sue the person who sold him the item for breach of s. 12. In most of
these cases, however, the seller is a rogue who disappears before the buyer can take action
against him. The unsuspecting buyer is left to bear the full brunt of the seller’s misdeeds. It is
not surprising, therefore, that exceptions to the nemo dat rule have been developed.

AGENCY (S. 21 SGA)

When an agent sells his principal’s goods, the whole point of the contract is that the agent (who
does not own the goods) passes ownership to the purchaser. However, in some ways agency is
not a true exception in that the owner (the principal) is really the one selling the goods. He is
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just using an agent to create the contract of sale. Section 21 of SGA impliedly recognises agency
as an exception to the nemo dat rule.
All of the following exceptions can apply only if the person claiming to have gained ownership
acted in good faith and without notice of the seller’s lack of ownership.

ESTOPPEL (S. 21 SGA)

A person who is estopped from denying that someone else is the owner of the goods is
prevented from denying it. Section 21 impliedly recognises estoppel as an exception the nemo
dat rule. So an owner of goods who represents that the seller has the right to sell the goods, or
who represents that the seller is the owner of the goods, will be estopped (prevented) from
denying this later.

In Eastern Distributors Ltd v Goldring (1957), a car owner wanted to borrow money but could
not provide adequate security. As part of a complicated, fraudulent scheme to borrow the
money, he gave the car dealer documents which made it seem that the dealer owned the car.
The scheme did not work, but the dealer went and sold the car to a finance company.

It was held that the finance company owned the car. The original owner had given the
impression that the car dealer had the right to sell the car, and so he was estopped from
denying this later.

SALE BY A PERSON WITH A VOIDABLE TITLE (S. 23 SGA)

When we looked at vitiating factors, we saw that a seller who is induced to make a contract by a
misrepresentation has the right to rescind the contract. a contract which is capable of being
rescinded is said to be voidable (capable of being made void). So a person who makes a
misrepresentation when buying goods does not acquire a complete title to the goods, but only
a voidable title, that is one which can be called off by the seller within a reasonable time. We
also saw that other matters, such as duress or undue influence, might make a contract voidable.

Section 23 provides that if a person with a voidable title sells the goods before the contract was
avoided then a new buyer who acts in good faith will get complete ownership of the goods. This
is an exception to the nemo dat principle because a seller with a voidable title is giving more
than he has got; he is giving a complete title.

In Lewis v Avery (1972), a rogue bought a car with a bad cheque, pretending to be Richard
Greene the television actor. As this was a fraudulent misrepresentation, the rogue gained only a
voidable title to the car. In the long run, this voidable title would have been worth very little as
the owner would surely have rescinded the contract as soon as he discovered that the cheque
was worthless. Before the owner discovered this, the rogue sold the car to the defendant, who
bought the car in good faith.

The defendant had a complete title to the car as he had bought it before the owner rescinded
the contract with the rogue.
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In Car and Universal Finance Co Ltd v Caldwell (1965), the Court of Appeal held that in the case
of a contract made voidable by a fraudulent misrepresentation, the contract is avoided if the
seller does some act which shows a definite intention not to be bound by the contract. In the
case, this was done by telling the police to look out for the car obtained by the fraudulent
misrepresentation. Unfortunately, the Court of Appeal refused to say whether or not the
contract would have been avoided in this way if the misrepresentation had not been fraudulent.
It should be noticed that if the rogue had been a thief who just stole the car then he would
never have had any title at all, and so could not have passed on any title at all. Therefore, the
owner would always get the car back. See Rowland v Divall (1923).

SALE BY A SELLER IN POSSESSION OF GOODS (S. 24 SGA)

Section 24 provides that if a seller sells goods to one buyer, but keeps possession of the goods,
and then sells the same goods to a second buyer, who takes delivery of the goods, then the
second buyer will get ownership of the goods. This an exception to the nemo dat rule whenever,
as is commonly the case, the first buyer would have got ownership of the goods as soon as the
contract was made. The disappointed first buyer may sue the seller for non-delivery of the
goods.

Example

A shop has a grand piano in its New Year Sale. Ronald makes a contract to buy the piano. This
means that Ronald is now owner of the piano by virtue of s. 18 Rule 1. By mistake, another shop
assistant sells the same piano to Catherine, who takes it away. Catherine will get title to the
piano. Ronald can sue the shop for selling his property.

This rule seems to be based on convenience. Either Ronald or Catherine will get ownership of
the piano and the other will be left with the right to sue the shop for damages. Ronald and
Catherine have behaved identically, and justice does not favour either one of them more than
the other. It is more convenient to let Catherine keep the piano, as she already has possession
of it, than to say that Ronald has ownership of the piano.

SALE BY A BUYER IN POSSESSION (S. 25 SGA)

Section 25 provides as follows:

“Where a person who has bought or agreed to buy goods obtains possession of the goods with the
consent of the seller, any resale to a person who takes the goods in good faith and without notice of the
rights of the original seller, has the same effect as if the person making the delivery or transfer were a
mercantile agent in possession of the goods…with the consent of the owner.”

Example

Patrick manufactures leather coats and sells 50 coats to a shop. The contract provides that
ownership will not pass to the shop until the full price is paid. Before the full price is paid, the
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shop goes into liquidation. So the shop had agreed to buy the coats but never owned them.
Coats sold by the shop to members of the public cannot be recovered by Patrick. S. 25 protects
these members of the public because the shop sold the goods as a buyer in possession.
This exception to the nemo dat rule is illustrated in the following case:

In Newtons of Wembley Ltd v Williams (1964), the plaintiffs sold a car to a rogue, who paid for
it by cheque which was later dishonoured. The plaintiffs took immediate steps to rescind their
contract with the rogue by informing the police. Some time later, the rogue resold the car in
Warren Street in London, a well-established street market in used cars. The buyer then sold the
car to the defendant.

The defendant acquired a good title to the car. When the rogue sold the car in Warren Street,
he was a buyer in possession with the owner’s consent and he acted in the same way as a
mercantile agent (or dealer) would have done. He passed a good title to the purchaser, who in
turn passed title to the defendant.

Section 25 does not operate so as to make good a defective title, that is where the goods are
stolen.

In National Employers Mutual Association Ltd v Jones (1987), thieves stole H’s car. H
successfully claimed for her loss under her car insurance policy. The thieves sold the car to L
who sold it to T, who sold it to A (a dealer), who sold it to M (a dealer) who finally sold it to
Jones. The insurer sought to recover the car from Jones.

Jones had not acquired a good title to the car by virtue of s. 25. If a person buys a car from a
thief and then resells it, he is not a seller within the terms of the section because the
transaction with the thief was not a contract of sale. A resale to a third party in these
circumstances cannot cure a defective title.

SALE UNDER COMMON LAW OR STATUTORY POWER

Certain persons have the power under common law or statute to sell goods that belong to
another. A pawnbroker, for example, has the right to sell the goods which have been pledged
with him, where the loan has not been repaid. The purchaser will acquire a good title to the
goods.

SALE UNDER THE DISPOSAL OF UNCOLLECTED GOODS ACT (CHAPTER 410)

The Disposal of Uncollected Goods Act authorises the disposal of goods which are held in the
course of a business under a bailment for repair or other treatment but which are not re-
delivered to the bailor. Sale by the bailee in such a case shall give good title.

An example is when a person leaves his motor car with a garage for repairs. If he does not pay
the repair costs and collect his vehicle within a reasonable time, the garage has a statutory right
to sell the goods and recover its costs, provided that the statutory requirements are complied
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with by the garage before the sale of the goods.

MERCANTILE AGENCY (S. 2(1) FACTORS ACT 1889)

Section 2(1) of the Factors Act protects a person who buys goods from a mercantile agent. It
says that if a mercantile agent sells, pledges or disposes of goods, this is as valid as if the owner
had expressly authorised him to do so. A mercantile agent is a person whose business it is to
sell or consign goods or to buy goods or to raise money on the security of goods e.g. a broker, a
garage but not their servants.

There are, however, six requirements which need to be fulfilled:

i. The agent must be a mercantile agent. That is to say, he must be in business and must,
at least occasionally, sell or deal with other people’s goods.
ii. The agent must either be in possession of the goods or of documents of title to them.
iii. This possession must have been gained with the consent of the owner.
iv. Possession must have been acquired by the agent for some purpose connected with
sale.
v. The sale or disposition of the goods must have been made in the ordinary course of
business as a mercantile agent.
vi. The person taking the goods must have done so in goods faith, without notice of the
agent’s lack of authority.

Example

If a customer left a watch with a jeweller, telling him to repair the watch so that it could later be
sold, ownership would pass to an innocent party who bought the watch from the jeweller. The
customer who left the watch with the jeweller could of course sue the jeweller for damages.
This example assumes that the jeweller sometimes sells goods for others.

As long as possession was gained with the consent of the owner, it does not matter that the
owner was tricked into giving this consent.

In Folkes v King (1923), a mercantile agent gained possession of a car by deception. The owner
had given the car to the mercantile agent but had expressly instructed him not to sell for less
than £575. The mercantile agent immediately sold the car to A, who bought it in good faith, for
£340. The car passed to several other buyers before passing to K. the original owner sued K to
recover the car. It was held that the original owner could not recover the car. A good title had
passed to A under s. 2(1) Factors Act, and this title had passed through the other buyers to K.

WRITS OF EXECUTION- WRITS OF FIERI FACIAS.

That is to enforce a judgment debt. The sheriff seizes the goods and sells them to a buyer who
gets good title. The Sheriff derives his powers from the Sheriffs Act Chapter 49 of the laws of
Zambia.Other persons who may have statutory or power to sell are Executors and
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Administrators of estates, Liquidators and Trustees in bankruptcy and Mortgages in possession,

Agents, Court order.

UNIT 12: AGENCY

WHAT IS AGENCY?

An agent is a person who has the power to alter the legal position of another person, known as
the principal. Agency is the relationship that exists between two legal persons, the principal
and the agent, in which the function of the agent is to form a contract between the principal
and a third party. Examples include insurance brokers, estate agents, auctioneers, travel agents.
Generally, an agent has the power to make contracts on the principal’s behalf. Once the contract
has been made, it is the principal and not the agent who will be bound by it. It is an established
principle of law that a person cannot acquire rights or duties under a contract unless he or she
is a party to that contract (privity of contract). However, if a contract is concluded by an agent
on behalf of his principle, the acts of the agent are treated as if they are the acts of the
principal. The principal steps into the shoes of his agent and becomes a party to the contract
through his agent. Agency is essential to the business world. If every person making a contract
had to do so personally, then the business world would come to a standstill. Without agency,
companies and partnerships could not exist. Agency is also far more common than most people
think. Shop assistants, for example, are agents. The goods which they sell belong not to
themselves but to the owners of the shops in which they work.

As well as having the power to make contracts, agents often also have the power to receive
payment on behalf of their principals. For example, shop assistants have the power to receive
payment for goods sold on their principal’s behalf. If a dishonest shop assistant pockets money
paid by a customer, this is not the concern of the customer. Having paid the price in good faith
to the shop assistant, the customer is regarded as having paid the price to the shop owner.

EXAMPLES OF AGENTS

The law recognises the following as agents even though they do not bear the title of agent.

Company directors and other company officials

Being an artificial person, a company has to act through human agents. The authority to act as
company agents is vested in the board of directors. This authority may be delegated to one or
more executive directors by the articles of the company to allow him to manage the day-to-day
operations of the company.
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Partners
As a partnership has no separate legal identity from its members, every partner in a firm is an
agent of the firm as well as all other partners for the purpose of the business of the firm. Thus,
a partner who performs an act for the purpose of carrying out the business of the firm binds the
firm as well as the other partners.

Employees
Employees may be agents. A shop assistant is the agent of the shop owner for the purposes of
making a contract of sale for the owner. He has the authority to make statements about goods
that are binding on the shop owner, his employer.

Professionals
A professional acting on behalf of clients may be the agent of those clients. For example, a
lawyer conducting litigation is his client’s agent and may have authority to settle the case. That
settlement will bind the client. Thus the lawyer, not the client, normally signs a consent
judgment. Similarly, an accountant’s agreement or statement to the taxation authority will bind
the client in accordance with agency principles.

CREATION OF AGENCY

The principal/agent relationship can be created in a number of ways. It may arise as the
outcome of a distinct contract, which may be made either orally or in writing, or it may be
established purely gratuitously, where some person simply agrees to act for another. The
relationship may also arise from the actions of the parties.

An agency relationship may be formed in a number of ways.

EXPRESS APPOINTMENT

This is the most common manner in which a principal/agent relationship comes into existence.
In this situation, the agent is specifically appointed by the principal to carry out a particular task
or to undertake some general function. In most situations, the appointment of the agent will
itself involve the establishment of a contractual relationship between the principal and the
agent, but need not necessarily depend upon a contract between those parties.

The Authority of an Agent

An agent cannot act on behalf of a principal unless he has some authority to do so. There are
different types of authority which arise in different ways. It is important to know which type of
authority an agent has, because the different types have different effects.
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Actual Authority

The most important type of authority is called actual authority. Actual authority refers to a
legal relationship between principal and agent created by a consensual agreement to which
they alone are parties. Actual authority arises because the principal agrees with the agent that
the agent should have the authority. The principal might agree this using express words, in
which case the authority is known as express actual authority, or the principal might agree it
impliedly, without express words, in which case it is known as implied actual authority. When
an agent is appointed to a certain position, then the principal will have impliedly agree with him
that he should do what the person holding that position would usually do. It is important to
remember that both types of actual authority arise because the principal has agreed that the
agent should have the authority.

In Hely-Hutchinson v Brayhead Ltd (1968), the board of directors of a company allowed the
company chairman to act as if he were the managing director of the company. In fact, the
chairman had never been appointed managing director and so had no express authority to bind
the company. The chairman made a contract with a third party on the company’s behalf.

It was held that the chairman had implied actual authority to bind the company and so the
company was bound by the contract which the chairman had made. The company, by its
conduct, had impliedly agreed with the chairman that he should have the same authority as if
he had actually been appointed managing director.

Apparent Authority

Apparent or ostensible authority is the authority of an agent as it appears to others. Under the
doctrine of apparent authority, the principle is bound to third parties as his agent appeared to
have authority. Apparent authority arises because the principal represents to a third party that
the agent has authority. It is the authority as it appears to others. This is agency by estoppel.
Once the third party has acted on the representation, by agreeing the contract with the agent,
the principal is not allowed to deny the truth of what he said. He is estopped from denying it. It
is essential that the representation is made by the principal or by someone authorised by the
principal. It cannot be made by the agent. Nor will apparent authority arise if the third party
either knows or ought to know that the agent has no authority.

Apparent authority can be inferred in the following situations:

a. X is appointed to act as Y’s managing director. Y expressly places a limitation on X that

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he can only enter into a contract with a third party worth more than K50m if he first gets
the approval of the Board of Directors. X then orders goods worth K100m from a third
party who is unaware of the limitation of X’s actual authority. Here, X has apparent
authority to buy the goods and Y is bound by the contract.

b. X is appointed to act as Y’s agent, but his agency is terminated. Thereafter, X continues
to act and enters into a contract with a third party who is unaware of the termination. Y
is bound as the principal.

c. X is never appointed to act as an agent but Y allows him to act as if he were or leads a
third party to believe that X is Y’s agent. Y will be bound to a third party in transactions
entered into by X on his behalf and within the scope of his authority.

In Freeman & Lockyer v Buckhurst Park Properties Ltd (1964), the defendant company was a
property company and it had four directors, none of which had been appointed as the
managing director. One director effectively ran the business himself and entered into a number
of contracts with the complainants for the surveying of land. On previous occasions, the board
on behalf of the company had honoured the contracts and paid the claimants. However, on this
occasion, the board refused to pay arguing that the director had no express authority to make
the contract because he was not the managing director.

Although the director had no express authority to make the contract, the director had acquired
authority by estoppel. This was because by honouring similar contracts in the past, the company
as the principal, had given the impression that the director had the authority to make this sort
of contract. The claimants had relied on this representation by continuing to deal with the
director when purporting to act on behalf of the company.

Consequences of Types of Authority

We need to tell which type of authority an agent has because the different types of authority
have different consequences.

If an agent with actual authority makes a contract with a third party on behalf of the principal,
then the consequences are as follows. The contract takes effect between the principal and the
third party, just as if the principal had made it personally, and either the principal or the third
party can enforce the contract against the other.

If an agent who has only apparent authority makes a contract with a third party, then the
consequences are not the same. The third party can enforce the contract against the principal,
because the principal made a representation which he is estopped from denying. The principal
cannot enforce the contact against the third party, because the third party did not make any
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representation. Also, if the agent acts with apparent, but not actual authority, the agent will be
liable to the principal if this causes the principal to suffer a foreseeable loss.

RATIFICATION

In certain circumstances, a principal can ratify a contact made previously by an agent who had
no actual authority to make the contract at the time he did make it. If the principal does ratify
the contract, then the agent is regarded as having backdated actual authority. Four conditions
must be satisfied for a ratification to be effective.

i. The agent must have claimed to have acted as an agent, and the third party must have
been able to work out who the principal was.

In Keighley Maxted & Co v Durant (1901), an agent was authorised to buy wheat on
behalf of a principal at a certain price. The agent bought wheat at a greater price, by
telegram, intending it to be for the principal. The agent did not tell the seller that he was
buying the wheat for the principal, but this was always his intention. The principal
ratified the contract the following day. Later, the principal refused to accept delivery of
the wheat.

The ratification was not effective, and so the principal could refuse to accept delivery,
because the agent made the contract in his own name rather than in the principal’s
name. The seller could not have worked out that the wheat was intended to be bought
for the principal.

ii. The principal must have had full contractual capacity to make the contract both when
the agent made the contract and when it was ratified.
iii. At the time of the ratification, the principal must have either known all the material facts
or intended to ratify no matter what they were.
iv. The unauthorised act must be capable of ratification. This means that act must not be
void or illegal.

In Brook v Hook (1871), an agent forged the signature of his brother-in-law on a

promissory note made out in favour of the plaintiff. Before the maturity date, the
plaintiff discovered the truth and threatened legal action. The brother-in-law purported
to ratify the agent’s act.

It was held that a forgery is an illegal act which is void. It, therefore, could not be
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ratified.

Watteau v Fenwick Authority

The following difficult case does not fit within any of the established ways in which agency can
be created. However, authority was found to have existed.

In Watteau v Fenwick (1893), a pub owner let the manager (the agent) run a pub. The owner
authorised the manager to buy only bottled drinks and expressly forbade him to buy tobacco on
credit. The tobacco salesman had no idea that the manager was an agent. He thought that the
manager owned the pub because the manager used to own the pub and his name was still
above the door of the pub. The seller sued the owner, claiming that the owner was liable on the
contract.

Held: The owner was liable on the contract.

AGENCY OF NECESSITY

In commercial situations, an agent will have authority imposed by the law, on the grounds of
necessity, if:

i. There was a commercial emergency which made it necessary for the agent to act as he
did;
ii. It was impossible for the agent to obtain the principal’s instructions;
iii. The agent acted in good faith and in the principal’s best interests;
iv. The agent acted reasonably in the circumstances.

Such agency of necessity is usually found in maritime emergencies. Old cases gave the captains
of ships the power to sell cargoes which were perishing. If there is an agency of necessity then
the consequences are the same as if the agent had had actual authority. The principal and the
third party will be bound by the agent’s actions, and the agent will have no liability for acting as
he did.

Occasionally, agencies of necessity can be found on dry land.

In Great Northern Railway Co v Swaffield (1874), a horse arrived at a railway station, but
nobody picked it up. The railway company, being unable to contact the defendant, felt obliged
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to feed the horse and put it into a stable. When the owner collected the horse, he refused to
reimburse the railway company.

It was held that the owner had to pay for the feeding and the stabling as there was an agency of
necessity.

In Springer v Great Western Rly Co (1921), a consignment of tomatoes arrived at port, after a
delayed journey due to storms. A railway strike would have caused further delay in getting the
tomatoes to their destination, so the railway company decided to sell the tomatoes locally. It
was held that the railway company was responsible to the plaintiff for the difference between
the price achieved and the market price in London. The defence of agency of necessity was not
available, as the railway company could have contacted the plaintiff to seek his further
instructions.

The actions of the agent must be as a result of some pressing need for action, usually an
emergency of some kind, involving for example perishable goods or starving animals.

In Prager v Blatspiel, Stamp and Heacock Ltd (1924), an agent of a fur merchant bought skins
on behalf of his principal, but could not send them to the principal because of the prevailing
wartime conditions. Being unable to communicate with the principal, he sold the skins. It was
held that he was not an agent of necessity. He could have stored the skins until after the war
since they were not likely to drop in value.

In Sachs v Michlos (1948), M agreed to store furniture which belonged to S. After a

considerable time had elapsed M needed storage space for his own use. He tried to contact S to
get the furniture removed but was unable to trace S. M then sold the furniture. S sued M for
conversion and M pleaded agency of necessity in making the sale.

It was held that there was no agency of necessity since no emergency had arisen and M had
sold the furniture for his convenience. If M’s house had been destroyed by fire and the furniture
left in the open M would then have been justified in selling it.

DISCLOSED AGENCY

Agency is disclosed when the agent indicates that he is acting as an agent, whether or not the
principal for whom he is acting is actually identified.

If an agent makes a contract for a disclosed principal, then generally the agent incurs no liability
on the contract. By disclosing that he was acting for a principal, the agent will be taken to have
shown the third party that he did not intend to become personally liable on the contract.
However, an agent who intends to act for a disclosed principal can incur personal liability if the
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circumstances do make it clear to the third party that the agent was acting as agent, rather than
for himself.

UNDISCLOSED AGENCY

Agency is undisclosed if the third party did not know that the agent was acting for a principal. In
such cases, the agent will initially be liable to the third party on the contract. If the agent had
actual authority to make the contract, the principal is allowed to intervene and enforce the
contract against the third party, under the doctrine of the undisclosed principal. Once the
principal has revealed himself, the agent will no longer be able to enforce the contract against
the third party. However, both the agent and the principal will now be liable to the third party
on the contract. Where such joint liability arises, the third party can choose to sue either the
agent or the principal on the contract. However, having made an absolute decision to hold one
or the other liable on the contract, the third party will not be able to change his mind and then
sue the other.

If the agent did not have actual authority to make the contract to make the contract, then the
doctrine of undisclosed principle cannot take effect to allow the principal to enforce the
contract against the third party. The principal cannot even ratify the contract, because
ratification is permissible only where the agent purported to act as an agent nor will the
doctrine make the principal liable on the contract.

THE AGENT’S LIABILITY FOR BREACH OF WARRANTY OF AUTHORITY

An agent can be liable to a third party for breach of warranty of authority. This is quite different
from being liable on the contract made on the principal’s behalf. Liability for breach of warranty
of authority arises if:

i. an agent makes a representation to a third party, warranting that he has authority to act
for a principal;
ii. the agent does not, in fact, have such authority; and
iii. the third party acts on his representation to his detriment.

Usually, the third party will act upon the warranty by making the contract with the principal. An
agent can become liable for breach of warranty of authority where he has no authority at all, or
where he exceeds the authority which he does have. Liability can arise even if the agent could
not have known that his authority had been revoked.
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In Yonge v Toynbee (1910), a client (the principal) instructed a solicitor (the agent) to defend a case. The
principal became certifiably insane and this automatically terminated the agent’s authority to act for
him. The agent did not know that the principal had become insane and continued to act for him. It was
held that as soon as the principal was certified insane, the agent lost his authority to act for him. All
proceedings taken after this date were, therefore, struck out, and the agent had to pay all the costs of
the other party to litigation which were incurred after this date.
THE RIGHTS AND DUTIES OF THE AGENT

CONTRACTUAL DUTIES

Agents owe both contractual and fiduciary duties to their principals. The three contractual
duties are as follows:

i. The duty to obey the principal’s instructions.

ii. The duty to show an appropriate amount of care and skill.
iii. The duty to perform the agency duties personally.

The Duty to Obey the Principal’s Instructions

An agent, who makes a contract, agreeing to perform certain duties, will be liable in damages if
he fails to do what he agreed to do. Even agents who have no contract with their principals
because they are not being paid must perform the instructions given by their principals. Agents
who are not paid are known as gratuitous agents.

In Turpin v Bilton (1843), an insurance agent agreed to arrange insurance for the principal’s
ship. He forgot to do so, and the ship was lost at sea. It was held that the agent was in breach of
this duty and liable to compensate the principal.

The duty to show an appropriate amount of care and skill

The common law requires an agent to show an appropriate degree of care and skill. The level of
skill to be exercised, however, should be that appropriate to the agent’s professional capacity
and this may introduce a distinction in the levels expected of different agents. For example, a
solicitor would be expected to show the level of care and skill that would be expected of a
competent member of that profession; whereas a layperson acting in a gratuitous capacity
would only be expected to perform with such degree of care and skill as a reasonable person
would exercise in the conduct of their own affairs. See Keppel v Wheeler (1927), where the
defendant estate agents were held liable for failing to secure the maximum possible price for a
property.

A gratuitous agent can be held liable for failing to show an appropriate amount of care and skill.

In Chaudry v Prabhakar (1988), the principal had just passed her driving test. She asked her
friend, the agent, to look out for a car. The principal specified that she did not want any car
which had previously been in an accident. The agent had no mechanical expertise and was not
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being paid for his services. He recommended a car which was being sold by a firm of panel
beaters. The principal bought the car, asking the agent whether it had been in an accident. The
agent said it had not. The principal later discovered that it had previously been in an accident
and sued both the agent and the panel beaters.
The agent was liable for not exercising reasonable care. The standard of care required of an
agent is a standard which is reasonable in the light of all the circumstances, whether the agent
acted under a contract or not.

The duty to perform the agency duties personally

Delegation of the duties which the agent has undertaken is allowed only if the principal
expressly or impliedly authorised it, or if the act delegated required no care and skill.

In Debussche v Alt (1878), Debussche, an owner of a ship, engaged an agent to sell the ship at a
minimum price of $90,000, at any of the ports where it happened to be in its travels. With the
consent of the owner of the ship, the agent engaged the defendant, Alt (sub-agent), in Japan to
sell the ship. After efforts to find the buyer, Alt bought the ship himself for $90,000. He later
resold the ship in Japan for $160,000. Debussche then sued Alt claiming that Alt was his agent
and was, therefore under a duty to account for any secret profit made.

It was held that an agent cannot, as a general rule, delegate his duties to a sub-agent. In certain
circumstances, however, a right to delegate may be implied from the circumstances surrounding
the transaction such as usage of the trade, the conduct of the parties or in the event of
anticipated emergencies. In this case, since the ship was expected to move from one port to
another, both parties contemplated that a sub-agent would be appointed in any of those ports.
When Alt sold the ship, there existed a relationship of principal and agent between Debussche
and Alt. Alt was, therefore, obliged to account for the secret profit that he had made.

FIDUCIARY DUTIES

The relationship of the agent to the principal is a fiduciary one, which means that the principal
places great faith and trust in the agent. This fiduciary nature of the relationship places extra,
fiduciary duties on the agent. These fiduciary duties are:

i. To act in good faith and to avoid any conflict of interest.

ii. Not to make a secret profit.
iii. Not to take a bribe.
iv. The duty to account
v. The duty to preserve confidentiality.

To act in good faith and to avoid any conflict of interest

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Agents must act in good faith and must not allow their own interests to conflict with the
interests of their principals. For example, an agent who is employed to sell the principal’s
property cannot buy it himself, unless he makes full disclosure of this to the principal. Similarly,
an agent employed by the principal to buy cannot perform the contract by selling his own
property to the principal. In both situations, there is the obvious potential for conflict of interest
as the seller’s interest is to get the highest possible price while that of the buyer is to pay as
little as possible. The agent is in breach of his fiduciary duty unless there is full disclosure to the
principal of all the relevant facts and the principa consents to the transaction

Thus in Armstrong v Jackson (1917), an agent, a stockbroker, was asked by a principal to buy
shares in a certain company. The agent sold the principal 600 of his own shares in the company,
pretending that he had bought the shares in the open market. Some years later, the principal
discovered what had happened.

It was held that the principal could have the purchase set aside. McCardie J said: ‘It matters not
that the agent sells at the market price, or that he acts without intent to defraud … The
prohibition of the law is absolute. It will not allow an agent to place himself in a situation which,
under ordinary circumstances, would tempt a man to do that which is not the best for his
principal.’

An agent will still be in breach of duty even if he deals with the principal through a third party.

In McPherson v Watt (1873), the agent was instructed to sell property, but arranged for his
brother to buy it for him. When the principal discovered, he refused to complete.

The court refused to order specific performance because of the agent’s breach of duty. Where
an agent deals with his principal in breach of this duty, the principal may rescind the contract.

Not to make a secret profit

An agent is under a duty not to make a secret profit out of the transactions that he enters into
on behalf of his principal. It is irrelevant that:

 The agent acted in good faith

 The principal suffered no loss
 The agent made the profit that the principal could not have made or that the principal’s
actually benefited from the agent’s actions.

The liability arises from the fact that the profit was made. This duty also applies to unpaid or
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gratuitous agents. An agent who makes a profit will be in breach of the duty unless all of the
circumstances are disclosed to the principal and the principal consents to the agent retaining
the profit. Where the duty is breached by the agent, he may be required by the principal to
account for the secret profit.

Not to take a bribe

Agents must not take bribes. In this context, a bribe does not always indicate corruption. Any
secret payment to an agent, which is made by a third party dealing with the agent, is likely to be
regarded as a bribe. For example, if a firm’s buyer is given inducements to favour a particular
supplier, this will be regarded as a bribe, whether the agent does in fact favour that supplier or
not.

In Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1957), Ansell was managing director of the
claimant company. He accepted a ‘commission’ (bribe) from a supplier to order goods from that
supplier, on behalf of the company. When the company found out, he was dismissed.

It was held that the defendant was in breach of his fiduciary duty as the agent of the company.
It could recover the commissions paid to him.

The duty to account

This duty requires that the agent keeps his own property separate from the principal’s property.
If the agent mixes the two up, the principal will be entitled to all the property unless the agent
can clearly show what property belonged to him. The duty also obliges the agent to keep
records which the principal can ask to inspect.

The duty to preserve confidentiality

Agents have a duty to keep the affairs of their principals confidential, and this duty can carry on
after the agency has ended.

REMEDIES FOR BREACH OF FIDUCIARY DUTIES

The fiduciary duties are very strict indeed. If any of them are breached. If any of them are
breached, the principal is given very wide remedies. Potentially, these remedies include:

i. The right to dismiss the agent without notice

ii. The right to refuse to pay his commission.
iii. The right to recover any secret profit.
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iv. The right to rescind the contract which the agent made with third party.

If the agent takes a bribe, the principal can in addition either recover the amount of the bribe or
claim for any loss suffered as a result of the bribe. If the amount of the bribe is invested by the
agent, and increases in value, the principal can recover these profits as well. This is because a
bribe, like a secret profit, can be regarded as having been held by the agent on constructive
trust for the principal.

RIGHTS OF THE AGENT

The agent’s contract with the principal may expressly provide that the agent should be paid. If
this is not the case, then the agent will not be entitled to payment unless an implied term gives
such a right. Such a term will be implied on the same basis as any other term implied by the
courts.

Indemnity

Unless the contract which created the agency provides otherwise, an agent will be entitled to
an indemnity from the principal for liability incurred, or money spent, in the performance of the
agency. This means that the principal must repay any expenses which the agent has properly
incurred while acting within his actual authority.

In Adamson v Jarvis (1827), an auctioneer was asked by the principal to sell goods, and the
goods were duly sold for over £6, 000. In fact the principal did not own the goods. After the
auctioneer had sold the goods, he was sued by the real owner and had to pay damages to him.

It was held that the auctioneer could recover and indemnity from the principal to cover him for
his liability to the true owner.

Lien

A lien is a right to hold on to property until a debt has been paid. An agent to whom the
principal owes money may have lien over the principal’s goods. A lien can arise only if the agent
has possession of the goods. Furthermore, the lien must not be excluded by the contract
between the principal and the agent.

To exercise the lien, the agent must have lawfully come into possession of the principal’s
property and have done so in his capacity as an agent. The agent’s lien is a particular lien rather
than a general lien, and can, therefore, be exercised only over property in respect of which the
debt became due. It does not give a right to sell or dispose of the property. An agent may lose a
lien by waiving it, or by voluntarily giving up possession of the goods.
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Example

A is given actual authority to buy jewellery on P’s behalf. A is to be paid a commission of 5 per
cent of the purchase price, payable one week after the purchase was made. A bought a
diamond ring for P, and took possession of it from the seller. Three weeks later,A has not been
paid his commission, despite his asking for it. A can keep possession of the ring until he is paid
what he is owed. Once he is paid what he is owed, the right will disappear. A has no right to sell
the jewellery, and if he did so, he would be liable to P in the tort of conversion. If A surrenders
possession of the ring, then he will lose his right to the lien. Similarly, A would lose his right to
the lien if he waived the right. This would be done by telling P, either expressly or impliedly, that
he did not want the right to a lien.

TERMINATION OF AGENCY

An agent acts for a principal on account of having the principal’s actual authority to do so
(although an agent can make a principal liable on account of having apparent authority). Apart
from some exceptional circumstances which make an agency irrevocable, the principal can
withdraw the agent’s authority at any time. However, unless third parties are informed of this,
the agent might still be able to bind the principal on account of having apparent authority.

In Trueman and others v Loder (1840), it was well known that an agent in London represented a
certain principal in St. Petersburg, and that the agent conducted no business on his own
account. The principal withdrew the agent’s actual authority, but the agent went on to buy
tallow from a third party, who believed that the agent was still acting on behalf of the principal.

It was held that the principal was bound by the contract. The agent still had apparent authority
to act for him.

If the principal does withdraw the agent’s authority, then this might or might not be a breach of
contract, depending upon what was agreed between the principal and the agent. Similarly, an
agent who terminates the agreement might be liable for breach of contract. If the parties agree
to end the agency, there can be no question of breach of contract. If either principal or agent
does commit a breach of contract by ending the agency early, damages will be assessed on
normal contract principles under the rule in Hadley v Baxendale. Specific performance will not
be ordered to compel a party to continue to act as agent, as it will not be ordered to enforce
personal service contracts. Nor will an injunction be ordered if it would, in effect, amount to
specific performance of an agency contract.
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A fixed term agency ends when the term is up. If the agency is not for a fixed term, either party
can end it by giving a reasonable amount of notice of his intention to do so. If the principal
unilaterally ends the contract of agency under which the agent was an employee, there may be
a claim for unfair dismissal, as well as for damages for wrongful dismissal.

Agency is terminated automatically in the following ways:

i. by frustration;
ii. by the death of either party;
iii. by the bankruptcy of the principal; or
iv. by bankruptcy of the agent if this would render him unfit to perform his duties.
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UNIT 13: BUSINESS ORGANISATIONS

THE SOLE TRADER
This is believed to be the oldest type of business in the world. Some big international and
multinational companies began as an individual trading on one’s own account. A sole trade is
by far the simplest to establish, for business can commence just by opening the doors of the
business premises. There are hardly any legal formalities, obligations and constraints as
opposed to other forms of business. The main formality facing the sole traders on
commencement of business is registration under the Registration of Business Names Act, Cap
389 if the individual intends to trade under a name other than one’s own. Non-registration,
therefore, is the greatest attraction to this type of business. The other attractions are that a
sole trader is his or her own boss, making and enjoying the profits alone, making the business
decisions, hiring and firing employees as the business demands. There is no red tape to block
timely decisions.

However, a sole trader also incurs all liabilities alone, and as business grows, may fail to cope
with its demands of time and management, and may lack access to finance and skill necessary
to expand or improve business according to changing market conditions. Furthermore,
bankruptcy, illness, death, insanity or other infirmity of the sole trader may bring an end to the
business. Moreover, there is no “business life” separate from the personal life of the proprietor.
Personal creditors can seize business assets as well as personal assets if the business fails.
Liability is unlimited.

PARTNERSHIPS

INTRODUCTION

A partnership is a form of business organisation. It is a very common relationship in the

professions. The word ‘firm’ is correctly used to describe a partnership. It is not correct to call a
registered company a ‘firm’. A partnership is an unincorporated association. It is not a person in
law.

DEFINITION

Partnership has been defined by section 1(1) of the Partnership Act 1890 as:

“The relation which subsists between persons carrying on a business in common with a view to
profit”.

A partnership is, thus, based on a contract between its members and, since it can be created
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informally and dissolved informally, it differs completely from a corporation. You will remember
that a corporation must be created by statute and, once formed, it has a continuous legal
personality. Partnership, on the other hand, can be formed by means of a deed, i.e. an
agreement under seal signed by the persons who agree to become partners, or by means of a
simple agreement in writing, or even by an agreement made orally or simply implied from the
actions of the persons concerned.

It is ‘a relationship between persons’

By virtue of the fact that it is a relationship, this denotes that a partnership can only be possible
where there are two or more persons associated. Therefore, it is not a partnership where a
person has started a firm as an individual with no other persons involved in the running of the
firm. In Zambia, it is endemic to find firms such as accountancy and law firms where there is
only one person in the firm, but is called a partnership. It ought to be stressed here that a
partnership can only exist where there are two or more persons.

Business is carried on in common

The fact that business has to be carried on common denotes that the nature of the activity in
the partnership has to be common. In other words, the 1890 Act does not envision a situation
where there are two or more persons associated for a lawful purpose but where they have
different trades. Carrying on business in common therefore denotes that the partners have to
do things in common with a common business entity.

With a view of Profit

The fact that members in a partnership have to come together with a view of profit does not
mean that parliament intended partnerships to be making profits all the time. It is the intention
which is important here, not the actual profits. In other words, this part of the definition of a
partnership excludes philanthropic entities from being run as partnerships. The fact that
philanthropic organisations are not meant to make profits means that they cannot be run as
partnerships.

CREATION

THE PARTNERSHIP AGREEMENT

Form of the agreement

The agreement can be made orally, or in writing, or implied from the circumstances. There is no
requirement for it to be in writing. However, in practice, there are advantages in setting down in
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writing, signed by the partners, the terms of the partnership agreement. This is known as the ‘
articles of partnership’. It fills in details which the law will not imply, for example, the nature of
the firm’s business and the place of the firm’s bank account

The agreement will override terms which would otherwise be implied by the Partnership Act
1890, for example, that partners share in profits equally. In many firms, profits are split in
proportion to the capital contributed in the business. If there is a dispute between the partners
concerning their rights, it is easier to resolve if those rights are set out in writing in the
partnership agreement.

RELATIONSHIP OF PARTNERS TO EACH OTHER

The partnership agreement is a contract. The partners when acting on behalf of the business
are acting as agents of each other. The partners are subject to the rules of agency, when dealing
with each other and on behalf of the business.

Duties of the Partners

Fiduciary Duty

The fiduciary nature of the relationship means that each partner has a duty to act in good faith,
in the best interests of the firm. In addition to this general fiduciary duty, the Partnership Act
1890 lays down certain specific duties:

The duty of disclosure

S28 states that all partners must render true accounts and full information relating to all things
affecting the partnership to the other partners or to their legal representatives.

In Law v Law (1905), one partner accepted an offer from another partner to buy his share of
the firm. He later discovered that certain assets belonging to the business had not been
disclosed to him and he took action to have the contract set aside.

As the purchasing partner had breached the duty of disclosure, the agreement could be set
aside.

The duty to account

S29 states that a partner must account for any profit made by him, without the consent of the
others, from using the firm’s property, name or business connections.
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In Bentley v Craven (1853), Craven was in partnership with the claimant in a sugary refinery
business. He bought sugar on his own account and later sold it to the firm, without declaring his
interest to the other partners.

It was held that craven was in breach of S29 and the partnership was entitled to recover the
profit from him.

The duty not to compete

S30 states that where a partner carries on his own business in competition with the partnership
or is involved in a competing business, without the consent of the partnership, he is liable to
account to the partnership for all the profit made in the course of that business.

RELATIONSHIP OF PARTNERS TO THIRD PARTIES

The principal source of law for determining the relationship between partners and outsiders is
agency.

Partners’ Powers

When entering into a contract to carry out the business, each partner is acting as the agent of
all partners. All partners are jointly liable on such contracts. The express or actual authority of a
partner is set out in the partnership agreement. The implied or apparent authority is set out in
S5 Partnership Act 1890.

The authority of the partners to bind the firm

S5 Partnership Act 1890 states that every partner is the agent of the firm and of the other
partners. This means that each partner has the power to bind all partners, including himself, to
all business transactions entered into during the course of the Partnership Agreement.

Under S5, every partner is presumed to have the implied or apparent authority to enter into the
following transactions to:

 sell the firm’s goods

 buy goods necessary for, or usually implied, in the business
 receive payments of debts due to the firm
 engage employees
 employ a solicitor to act for the firm.

The above implied powers apply to both trading and non-trading partnerships. Partners in non-
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trading partnerships have the following additional powers to:

 accept, draw, issue, or endorse bills of exchange or other negotiable instruments on

behalf of the firm
 borrow money
 use the firm’s goods as security for a loan

In order to be acting within his implied authority, the individual partner must be acting within
the usual scope of a partner’s powers in the particular business concerned.

Thus, in Mercantile Credit Co. Ltd v. Garrod (1962) P and G were partners in a car repair
business and garage. The Articles forbade any buying and selling of cars by way of trade. The
business was run by P, and G was a “sleeping” partner with no share in management. P sold a
car to M by way of trade, in defiance of the Articles and without G’s knowledge. M later found
that the firm did not own the car, and claimed compensation from G. It was held that G was
liable, since M was unaware of the restriction in the Articles and P had appeared to be acting
within the usual scope of a garage business.

Partners’ Liabilities

Every partner is responsible for the full amount of the firm’s liability. Outsiders have the choice
of taking action against the partners collectively, i.e. the firm, or against the individual partners.
Where damages are recovered from one partner only, the other partners are liable to
contribute equally to the other amount paid.

Liability on debts and Contracts

S9 states that partners are jointly liable on any contracts and for any debts of the business.

Liability for torts

S10 states that when a tort is committed during the ordinary course of the partnership’s
business, the partners are jointly and severally liable to the person who has suffered loss. This
means that the partners are liable together and separately. There is no bar on taking successive
actions against partners to recover all that is due. If the tort is committed outside the scope of
the partner’s business, then the partner is severally liable.

In Hamlyn v Houston and Co (1905), one of the partners in the defendant firm bribed a clerk
employed by the claimant, in order to obtain information about a rival’s business. The claimant
sued to recover the loss he claimed to have suffered as a result.
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It was held that the defendant firm was liable for the wrongful act of the individual partner
because he had acted within the usual scope of his authority even though he had used illegal
methods to do so.
Liability for incoming and outgoing partners

S17 states that a person who is admitted as a partner into an existing firm is not personally
liable to the creditors of the firm for anything done before they became a partner.

A retiring partner remains liable for any debts due at the time of retirement. The date of the
contracts determines responsibility. If a person was a partner when the contract was made, he
will be liable even if the goods purchased are delivered after he has retired. However, there may
be an agreement between the partners that when a partner retires, the remaining partners will
indemnify the retiring partner against any such claims.

Where someone deals with a partnership after a change in membership, they are entitled to
treat all of the apparent members of the old firm as still being partners, until they receive notice
of any change in the partnership.

Partnership by estoppel

Where no notice is given of a retirement of a partner, he is still being held out as a partner, the
partnership will be estopped or prevented from denying his authority and the firm will still be
bound by his actions. As he has retired, he has no actual authority to act on behalf of the
business and he will be personally liable to the other partners for any loss suffered.

DISSOLUTION OF A PARTNERSHIP

Partnership can be terminated in any of the following ways:

WITHOUT COURT ORDER (NON-JUDICIAL DISSOLUTION)

The expiry of a fixed term or the completion of a specific enterprise

If a partnership is created for a fixed time and that time has come to an end, the partnership
will be dissolved. If it was formed to achieve one objective and that objective has been carried
out, the partnership will be dissolved.

The giving of notice

If the partnership has no fixed duration (partnership at will), it can be brought to an end by any
one of the partners giving notice of an intention to dissolve the partnership.
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The death any partner

Under section 33 (1) of the Act, the death of a partner (but not a limited partner) dissolves the
firm. The share of the partner who has died goes to his representatives who are usually
appointed by his will. They have the rights of a partner in dissolution.

However, partnership agreements usually provide that the firm shall continue after the death of
a partner so that the dissolution is only a technical one. A deceased partner’s shares is paid out
to his personal representatives, although partnership agreements sometimes provide for
repayment of capital by instalments, or by annuities, to a spouse or other dependent. Of
course, there is bound to be a true dissolution of a two-partner firm when one partner dies
since if the other carries on business, it is as a sole trader.

Bankruptcy of a Partner

By reason of section 33(1) of the Act, the bankruptcy of a partner (not a limited partner)
dissolves the firm. The partnership agreement usually provides that the business shall continue
under the non-bankrupt partners, which means the dissolution is again only a technical one,
and the bankrupt partner’s share is paid out to his trustee in bankruptcy. The agreement to
continue the business must be made before the partner becomes bankrupt.

Illegality

Under section 34 of the Act, a partnership is in every case dissolved by illegality. There are two
types of illegality:

1 Where the business is unlawful, for example, where the objects are unlawful

In Stevenson and Sons Ltd v AG for Fur Cartonnagen Industries (1918), the English company,
Stevenson, was in partnership with a Germany company as a sole agent to sell the Germany
company’s goods. This would obviously involve the day to day trading with an enemy in war
time. The partnership was, therefore, dissolved.

In Everett v Williams (1725), this was a claim by one highwayman against another to recover his
share of the profits derived from a partnership covering activities as highwaymen. The claim
was dismissed because the partnership was illegal, being to commit crime. The ‘partners’ were
sentenced to death by hanging.

2 Where the partners cannot legally form a partnership to carry on what is otherwise a legal
business.
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Thus in Hudgell, Yeates and Co v Watson (1978), practicing solicitors are required by law to
have a practicing certificate. One of the partners in a firm of solicitors forgot to renew his
certificate which meant that it was illegal for him to practice.

It was held that the failure to renew the practicing certificate brought the partnership to an end.

BY COURT ORDER (JUDICIAL DISSOLUTION)

S35 Partnership Act allows a court order to order dissolution in the following circumstances:

 where a partner is suffering from mental disorder

 where a partner suffers some other permanent incapacity and is permanently incapable
of carrying out the partnership agreement, e.g. he or she becomes permanently
disabled by an accident.

In Whitewell v Arthur (1865), a partner was paralysed for some months. He had
recovered when the court heard the petition and it would not grant dissolution.

Partnership agreements often contain express clauses which allow dissolution after a
stated period of incapacity.

In Peyton v Mindham (1971), a clause allowing a fixed-term partnership to be dissolved

after nine months’ incapacity was enforced. Section 35(b) of the Act states that the
incapacitated partner cannot petition. It is up to his co-partners to do so, otherwise he
continues as a partner.

 where a partner has been guilty of misconduct in his or her business or private life, for
example, he is convicted of theft.

In Essel v Hayward (1860), a solicitor misappropriated £8, 000 of trust money in the
course of his duties as a partner. This was a ground for dissolving a partnership for a
fixed term, i.e. the joint lives of the partners.

It may also be conduct outside the partnership’s business. This will usually justify
dissolution if it results in a criminal conviction for fraud or dishonesty. Moral conduct is
not enough unless, in the view of the court, it is likely to affect the business. An
individual partner and not the partnership as a whole is liable personally for any
criminal offence committed in the course of the partnership business.

In Snow v Milford (1868), one partner was alleged to have committed ‘massive adultery
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all over Exeter’. This was not regarded by the court as sufficient grounds for dissolution
under section 35(c) of the Act. There was no evidence that the adulterous conduct had
affected the business of the partnership.

Section 35(c) of the Act forbids petition by the partner in default.

 Section 35(d) provides that where a partner persistently breaches the partnership
agreement or makes it impractical for the other partners to carry on in business with
him or her. It includes for example, refusal to meet on business or keep accounts,
continued quarelling and very serious internal disagreements. However, the conduct
must be very serious. Thus, occasional rudeness or bad temper would not suffice.

In Cheeseman v Price (1865), a partner failed 17 times to enter small amounts of money
he had received in the firm’s books. The court ordered dissolution. The essential trust
between the partners had gone.

 where the business can only be carried on at a loss. Section 35(e) is not available if the
losses are temporary.

In Handyside v Campbell (1901), a sound business was losing money because a senior
managing partner was ill. He asked the court for dissolution. The court refused to grant
it. The other partners could manage the firm back to financial prosperity.

 By section 35(f) where it is just and equitable to do so, for example, where one of the
partners has been wrongfully excluded from the management of the business.

In Harrison v Tennant (1856), a judicial dissolution was ordered where a partner was
involved in long and messy litigation which he refused to settle. A similar order was
made in Baring v Dix (1786), where the objects of the firm could not be achieved. The
partnership was to further a patent device for spinning cotton which had wholly failed
but Dix would not agree to dissolution. The court dissolved the firm.

Any partner may bring a petition under this heading.

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COMPANIES

Company law is important for every modern economy since companies are a familiar part of
everyday life. Supermarkets, water and petroleum products producers are all companies. Every
person deals with a company as they purchase or use products and services of the companies
who provide them.

The company with which lawyers are concerned is the legal entity which owns the business
which the organisation has been created to carry on and which employs the people who work
for these companies. The remarkable thing about this entity is that it is created by a process of
law and exists only by virtue of the law. It is an artificial party to legal relationships. In Zambia,
companies are created and regulated by the Companies Act (Chapter 388 of the Laws of
Zambia) and the English Common Law.

Nature of Incorporation

Corporate Bodies

A corporation or a body corporate is an artificial legal person brought into existence through the
process of incorporation. Corporations are artificial legal entities created by a process of law.
They come into existence in several different ways.

Corporate bodies, which are created by an Act of Parliament or a special statute, are known as
statutory bodies. These statutory bodies are regulated and controlled by the Act. An example of
a statutory corporation is the Zambia Centre for Accountancy Studies (ZCAS) which has been
established and created under chapter 391 of the Laws of Zambia

For businesses, a simpler procedure for creation is possible under a general Act. The Companies
Act, chapter 388 of the Laws of Zambia, allows for the creation of a company. Registration of a
company is done through a public official, the Registrar of Companies. Once the legal formalities
of registration have been complied with, the company acquires the status of a separate legal
entity.

The third types of corporate bodies include non-trading bodies such as the Zambia Institute of
Chartered Accountants (ZICA), which are professional bodies that govern the conduct of people
who are members of that profession

Unincorporated Bodies

Any group of persons who come together and associate for business purposes are regarded as
an unincorporated association. A partnership formed under the Partnership of 1890 is an
example of an unincorporated body that lacks a legal personality of its own.

Another popular type of unincorporated bodies is the trade unions and the co-operative
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societies. Both these bodies require a form of registration process but neither acquires separate
legal existence.
Clubs, welfare associations and political parties including religious organisations all need to
apply for registration formalities. They are unincorporated bodies in spite of the registration
requirements.

THE CHARACTERISTICS OF COMPANIES

A company is created by registration under the Companies Act chapter 388 of the Laws of
Zambia. The people who want to create the company, the promoters must send certain
documents to the Registrar of Companies. If the documents are in order, the Registrar will issue
a certificate of incorporation and the company will exist as a corporate body.

Incorporation has several important consequences. To some extent, these are interconnected,
but they are easier to understand if considered separately.

The company is a separate legal entity

The most important consequence of incorporation is that a company is regarded as being a legal
person in its own right. This means that a company has a legal identity of its own which is quite
separate from legal identity of its owners. If a wrong is done to a company, it is the company,
and not its owners, which has the right to sue. Conversely, if a company injures a person, that
person can sue the company, but cannot sue the owners. This well-established principle was
laid down in the following case.

Salomon v Salomon & Co Ltd (1897)

For several years, Mr. Salomon had carried on a business as a boot repairer and manufacturer.
In 1892, he formed a limited company. In those days, the minimum number of shareholders was
seven and he had one share issued to himself, his wife and five of his children; his wife and
children held their shares as his nominees. He then sold his business to the company at a value
of £39, 000. The price was very much in excess of the true value, but as Salomon owned the
company, no one was, thereby, defrauded The company paid the purchase price in three ways,
as follows: first, by issuing Salomon with 20, 0000 £1 shares; second, by regarding him as having
loaned the company £10, 000; and third by making up the balance in cash. Salomon took all of
the company’s assets as security for the loan which had been made to him. Unsecured creditors
lent the company a further £8, 000. Shortly after its incorporation, the company got into
financial difficulty and was wound up. The assets of the company amounted to about £6, 000.
Creditors who have been given security for their loan are entitled to be repaid before unsecured
creditors. Salomon, therefore, took all of the £6, 000. In the confused lawsuit which followed,
the main body of unsecured creditors advanced two reasons:

a) The sale transaction was a sham and so Salomon was still the owner of the business and
liable for its debts
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b) The company was irregularly formed because six of the seven shareholders were mere
nominees of Salomon.
it was held that the company had been formed properly and without any fraud. Although
Salomon owned all but seven of the issued shares, he was one person and the company was
another. Salomon, therefore, had no more obligation to pay the company’s debts than he had to
pay his next-door neighbour’s debts.

Salomon’s case is regarded as one of the most important in English law, mainly because of the
protection which it offers to the owners of limited companies. However, the decision that a
company has a legal personality of its own has many other consequences, as the following cases
show.

In Macaura v Northern Assurance Ltd (1925), Macaura owned a timber estate. He formed a
limited company and sold the timber estate to it. Like Salomon, he was basically a ‘one-man
company’. Before he sold the estate to the company, it had been insured in his own name. After
the sale to the company, he neglected to transfer the insurance policy to the company. The
estate was destroyed by fire. It was held that Macaura could not claim under the policy because
the assets that were damaged belonged to a different person, namely the company, and M, as a
shareholder, had no insurable interests in the assets of the company.

In Tunstall v Steigmann (1962), Mrs. Steigmann ran a pork butcher’s shop and leased the shop
next door to Mrs. Tunstall. Mrs. Steigmann wanted to end the lease. As the law stood at that
time, Mrs. Steigmann could order Mrs. Tunstall to leave the shop only if she intended to occupy
the building herself, to carry on business there. Mrs. Steigmann did intend to occupy the shop
herself to carry on her butchery business, but before the case came to court, she turned her
business into a company. Mrs. Steigmann claimed that as she owned all but two of the shares in
the company, it was still she herself who wanted to take over the premises.

Mrs. Steigmann lost. It was not she who wanted to take over the business, her company wanted
to take it over. Wilmer L. J. said: “There is no escape from the fact that a company is a legal
entity entirely separate from its corporators. Here the landlord and her company are entirely
separate entities. This is no matter of form; it is a matter of substance and reality. Each can sue
and be sued in its own right; indeed there is nothing to prevent the one suing the other. Even the
holder of 100% shares in a company does not by such holding become so identified with the
company that he or she can be said to carry on the business of the company.”

A rather more extreme example of the effect of the doctrine of incorporation arose in Lee v
Lee’s Air Farming Ltd (1960). This case involved an aerial crop-spraying business, in which Mr.
Lee, who owned the majority of the shares (all but one) and was the sole working director of
the company, was killed while piloting the aircraft.

Although he was the majority shareholder and sole working director of the company, he and
the company were separate legal persons and, therefore, he could also be an employee of it for
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the purpose of the relevant statute with rights against it when killed in an accident in the course
of his employment.
Limited liability

In Salomon’s case, we saw that Salomon was not personally liable for the debts of the company.
When people buy shares in a limited company, the only commitment they make is that they
agree to pay the price of their shares. Often, they do not pay the full price immediately. A
shareholder who has already paid the full price of the shares held has no liability to pay any
more.

It must, of course, be emphasized that it is the shareholders who have limited liability, and not
the company. If a company has debts, it must pay these debts, even if this means selling all of its
assets and going into liquidation.

Perpetual succession

A company can be liquidated at any time if the members of the company pass a special
resolution that it should be liquidated. A special resolution is passed if at least three-quarters of
company members who vote are in favour of passing it. If a company is liquidated, then the
company will cease to exist. However, companies can continue in existence indefinitely, and
therefore they are said to have perpetual succession.

Shareholders, of course, must die. However, even if all the shareholders in a company die, their
shares will be inherited by others and the company will continue in existence.

Ownership of Property

A company can own property, and this property will continue to be owned by the company
regardless of owns the shares in the company. This can be important when a company is trying
to borrow money because the company can give its own property, both present and future
assets, as security for a loan.

Contractual capacity

A company has the power to make contracts and can sue and be sued on these contracts. This
power must be delegated to human agents, and is the company directors and other agents who
actually go through the process of forming the contracts. But the important point is that it is the
company itself which assumes the rights and liabilities which the contract creates. A company
can also sue and be sued in tort.

CLASSIFICATION OF COMPANIES

Companies can be classified in several different ways, but from a business perspective, only four
classifications are useful.

PUBLIC COMPANIES AND PRIVATE COMPANIES

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The major differences between private companies and public companies are:
1. Transferability of Shares

The shares of a public company are freely transferable (Section 14(5) of the Companies Act, Cap
388 of the Laws of Zambia) a private company will, in contrast, wish to remain under the control
of the ‘family’ or ‘partners’ concerned. Public companies can offer their shares and securities
for sale to the public. The articles of private companies restrict the sale of the company’s
shares. The most common restrictions are either that the shares must be offered to other
members of the company, or that the shares can be sold only to persons of whom the directors
approve. No matter what the articles of association say, it is a criminal offence for a private
company to offer its shares for sale to members of the public. It is possible for a private
company to re-register as a public company and vice versa. If this is done, a new certificate of
incorporation is issued.

2. Purpose

Public and private companies fulfil different economic purposes. The purpose of a public
company is usually to raise capital from the public to run the enterprise.

3. Issue of Capital

A public company may raise capital by advertising its securities (shares and debentures) to the
public. It is illegal for a private company to advertise its securities to the public. Because of this
legal prohibition, it follows that securities of a private company cannot be dealt with on the
stock exchange. Thus only securities of public companies are a medium for investment by the
general public. Private companies are, therefore, relatively small and controlled by family
members. It is this ability of the public company to raise large capital sums from the public
which is the most important factor when choosing between the different types of companies.
Very few companies (other than mergers of existing businesses) are formed as public
companies; they convert to this status.

4. Company Name

The name of a public company must end with the words ‘Public Limited Company’ which may
be abbreviated to Plc. (S. 37(1)) a private company’s name must end with ‘limited’. This may be
abbreviated to ‘Ltd’.

5. Trading certificate

A public company may not begin business or exercise borrowing powers until it is issued with a
further certificate to commence business. A private company may commence business
immediately upon incorporation and being issued with a certificate of incorporation and a
certificate of share capital

UNLIMITED COMPANIES
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Some registered companies are unlimited companies. These companies do have a legal
personality of their own, distinct from that of the company members, but the members have
agreed that they will have unlimited liability for the debts of the company. If the company goes
into liquidation, the liquidator (but not the creditors of the company) can require members to
contribute as much as is necessary to enable the company to pay its debts in full. Public
companies may not register as unlimited companies.
Unlimited companies enjoy some advantages over limited companies. For example, their
accounts need not be published or delivered to the Registrar of companies. However, these
advantages are generally considered to be far outweighed by the unlimited liability of the
members. The names of unlimited must not contain the words ‘limited’ or ‘Ltd’.

LIMITED COMPANIES

Limited companies can themselves be classified into two types: companies limited by shares
and companies limited by guarantee.

Companies Limited by Shares

The vast majority of companies are limited by shares. The liability of members of a company
limited by shares is based on the company having a ‘share capital’ and the members taking
‘shares’ issued to them by the company. When such a company allots shares it fixes a price,
which the allottee agrees to pay in money or in money’s worth at or soon after the time of
allotment. Part payment may be made by instalments, whereby the contract of allotment states
that payment of the unpaid balance shall be made on specific dates. This means that in the
event of liquidation of the company, a member’s liability is limited to paying off any amount
unpaid on his or her shares.

Companies Limited by Guarantee

The liability of companies limited by guarantee is limited to paying an amount which they have
agreed to pay in the event of the company going into liquidation. This amount is usually small
and is usually spelt out in the memorandum of association, a document which must be
registered with the Registrar of Companies when the company is formed. Members cannot be
called upon to contribute beyond that stipulated amount. Each subscriber will sign a declaration
of guarantee that will specify the amount. Its Articles of Association then states the amount,
which each member undertakes to contribute in the event of liquidation. As with a company
limited by shares, a creditor has no direct claim against a member under his guarantee, nor in
this case can the company require a member to pay up until the company goes into liquidation.

UNIT 14: LAW OF TORT

Introduction

A tort is a civil wrong. Tortious liability arises from the breach, through harmful conduct, of a
duty primarily fixed by law. This duty is towards persons generally, and its breach is redressible
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by an action for unliquidated damages.

Unlike the obligations voluntarily accepted by the parties to a contract, a tort consists of breach
of a duty imposed by the law. The law of tort seeks to provide a legal remedy for the victims of
certain forms of harmful conduct. Duties are owed to a wide range of persons and are not
dependent on the existence of a contractual relationship. Although this area of law is often
referred to as the law of tort, in reality a number of distinct areas of tortious liability have been
developed to protect people from the many forms of wrongful conduct that may occur in
modern society.

Tort and other wrongs

The law gives various rights to persons. When such a right is infringed, the wrongdoer is liable in
tort.

Tort is distinguished from other legal wrongs.

(a) It is not a breach of contract, where the obligation which is alleged to have been breached
arose under an agreement between two parties.

(b) It is not a crime, where the object of proceedings is to punish the offender rather than
compensate the victim.

Types of torts

The nature of tort can best be understood by examining examples of torts.

Trespass to land

Trespass to land involves one or a combination of the following acts without lawful justification:

 Entering land that is owned by the defendant

 Remaining on the land
 Placing objects or projections onto the land

Liability for trespass is strict, which means that even if the action is accidental or no damage
results from it, the trespasser is still liable. There is a fundamental right to the privacy of the
home under common law.

Nuisance

Landowners have the right to use their land as they see fit and not to have their land interfered
with. Nuisance occurs where the use of land by one occupier causes damage to a neighbouring
occupier or their land.
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There are two types of nuisance, private and public.

Private nuisance
This is the 'unlawful interference with a person's use, or enjoyment of land, or some right or in
connection with it' (Winfield and Jolowicz).

Cases of private nuisance often involve neighbours and are caused by noise, smell, vibrations,
animals, trees and incursions by other such items. Judging liability is a balancing act, occupiers
are entitled to 'reasonable comfort' but no more.

Public nuisance
Public nuisances are not related to private nuisance as they are created by statute and are
therefore criminal offences. Examples include obstructing the highway, takeaway restaurants
creating litter and odours and 'raves' that attract hundreds of people late at night creating noise
and disturbance to a wide area.

These nuisances are 'acts or omissions that materially affect the reasonable comfort and
convenience of the life of a class of Her Majesty's subjects ' Att.-Gen v P.Y.A. Quarries Ltd 1957.
The key point to realise is that the claimant is not required to have an interest in land before
being entitled to sue, unlike private nuisances.

The number of people that have to be affected before a liability under public nuisance is
created is a question of fact. However the claimant does not have to prove the whole
community was affected, just that a representative cross-section was inconvenienced.

Trespass to the person

The acts of battery, assault and false imprisonment are commonly considered within the scope
of trespass to the person. You should note that the acts often result in a criminal action against
the defendant as well.

Battery

Battery involves the intentional bringing of a material object into contact with another person.
It is not just restricted to violent acts, but can also include non-violent acts such as the
application of 'tone rinse' to a scalp – Nash v Sheen (1953). For liability to be created it is just
the act that must be intentional – not the injury.
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Assault

Assault is the intentional act of putting another in reasonable fear or apprehension of

immediate battery. Words may not be enough to create a liability unless they are accompanied
by menacing or threatening actions. For example, telling someone you will shoot them may not
be classed as assault unless you are pointing a gun at them as well. The claimant does not have
to prove the defendant intended to cause battery, it is sufficient to prove that the claimant was
in reasonable fear of it. Therefore pointing an unloaded gun constitutes assault even though
there is no intention to cause injury.

False imprisonment

False imprisonment involves unlawfully arresting, imprisoning or preventing a person from

leaving from where they are. The claimant does not have to prove damage was caused as it was
their liberty that was taken from them.

Defamation

The expression or publication of false or defamatory statements that is not lawfully justified
are known collectively as defamation. In other words, defamation involves the ridicule of an
individual or holding them in contempt. The words libel and slander are often used to describe
this tort. In legal terms, libel refers to visible acts such as writing, pictures and even effigies.
Slanderous acts are those that are spoken or gestured. You should note that libel is a criminal
act which will be actionable in all cases and slander is a civil injury and in almost all cases
damage must be proved.

Deceit, injurious falsehood and 'passing-off'

Deceit is a wrong whereby the claimant is misled into taking actions that are to his detriment. A
typical example of deceit is the con-artist who encourages an individual to pay him money for
goods that he has no intention of supplying.

Injurious falsehood involves the defendant making false statements about the claimant that
cause the claimant damage through the actions of others. An example in business is the tort of
passing-off. Passing-off is the use of a name, mark or description by one business that misleads
a consumer to believe that their business is that of another. This tort often occurs when
expensive 'designer' products such as watches or clothing are copied and sold as 'originals' to
unsuspecting customers. The development of the Internet has seen the routine selling of
domain names to those who wish to buy them. This has created the opportunity for individuals
to set up a website that has the intention of mimicking an established brand and stealing their
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customers. The issue of what is misleading under the tort of passing-off has been the subject of
numerous cases, but it appears that the businesses do have to be very similar indeed.

In Stringfellow v McCain Foods GB (1984), the owner of a famous nightclub failed to prevent a
manufacturer of long, thin oven chips from calling their product by the same name. When
Midland Bank in the UK rebranded as HSBC they were subject to a passing-off claim from the
long established HFC Bank. The case failed on the grounds of there being insufficient chance of
public confusion: HFC Bank v Midland Bank (2000).

NEGLIGENCE

The tort of negligence is far and away the most important tort. Other torts are narrower and
more specific, applying in more limited circumstances. The tort of negligence is very widely
defined and can be committed in a number of ways. In order to establish the tort of negligence,
the claimant must prove three things on a balance of probabilities:

 that the defendant owed him or her a duty of care;

 that the defendant breached the duty; and
 that a foreseeable type of damage was caused by the breach

That a duty of care was owed

In Donoghue v Stevenson (1932), the claimant and her friend visited a café. The claimant’s
friend bought some ice cream and a bottle of ginger beer for the claimant. The claimant poured
some ginger beer over the ice cream and ate some of this mixture. When the claimant’s friend
poured out the rest of the ginger beer, the remains of a decomposed snail fell out of the bottle.
The contamination of the ginger beer caused the claimant to suffer gastroenteritis and the sight
of the snail caused her to suffer nervous shock. The claimant could not sue the café which had
sold the ginger beer because she had no contract with the café. Instead, she sued the
manufacturer of the ginger beer, claiming that the manufacturer owed a duty of care to
customers. The manufacturer denied that any such duty was owed.

The claimant won. Manufacturers owe a duty of care to their customers.

Lord Atkin said: “You must take reasonable care to avoid acts and omissions which you can
reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour?
The answer seems to be – persons who are so closely and directly affected by my act that I
ought to reasonably have them as being so affected when I am directing my mind to the acts or
omissions which are called in question.”

Using Lord Atkin’s famous neighbour speech, the courts have established certain recognised
duty situations. For example, it is well established that road users owe a duty of care to other
road users and pedestrians. Similarly, manufactures and repairers owe a duty of care to their
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customers, and professional advisors owe a duty of care to their clients.

Breaching the Duty

Merely owing a duty of care is not enough to give rise to liability for the tort of negligence.
Almost everybody owes a duty of care to everybody every day. For example, every car driver
owes a duty of care to other road users and pedestrians. The driver is not liable to be sued by
such people unless he or she injures them by breaching the duty of care which is owed.

A duty of care will be breached if the defendant does not take the care which a reasonable
person would take in all the circumstances. This is an objective standard. A duty of care will not
have been breached unless it could reasonably have been foreseen that the defendant’s actions
would cause injury.

In Roe v Minister of Health (1954), the claimant was paralysed by an anaesthetic used by a
hospital in 1947. The anaesthetic was kept in glass ampoules, which were stored in disinfectant.
Traces of disinfectant had seeped through the glass ampoules into the anaesthetic and this
disinfectant had caused the paralysis.

It was held that the defendant was not liable because in 1947 no one knew that fluid could
permeate glass. Of course, a hospital could have liable if a similar accident had occurred after
this fact had become known. In the Court of Appeal, Lord Denning said that we: ‘must not look
at the 1947 accident with 1954 spectacles’.

The thing speaks for itself (res ipsa loquitur)

As negligence is a civil action, the burden of proof is on the claimant to prove his case on a
balance of probabilities. Sometimes, the claimant will not be able to prove in precisely what
ways the defendant was negligent. In Donoghue v Stevenson, for example, the claimant would
not have been able to exactly prove how the defendants were negligent in allowing the snail to
get into the bottle of ginger beer.

By claiming that the thing speaks for itself (res ipsa loquitur), the claimant can reverse the
burden of proof, so that the defendant must prove that the damage was not caused by his
failure to take reasonable care.

The claimant will be able to say that the thing speaks for itself only if the following three
conditions are satisfied:

 The defendant must have been in control of the thing that caused the damage;
 The accident must be the kind of accident which would not normally happen without
carelessness;
 The cause of the accident must be unknown.

Ward v Tesco Stores (1976) provides an example. A customer in the defendant’s supermarket
slipped on yogurt which had been left on the floor. The defendants would have breached the
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duty of care if the yogurt had been left on the floor for an unreasonable time, but not
otherwise. The claimant did not know how long the yogurt had been on the floor. The
defendants were able to prove that they swept the supermarket floor six times a day. The Court
of Appeal held that the duty of care which the defendants owed to the claimants had been
breached. The claimants could not prove that the defendants were at fault. However, the
claimants had shown that something had happened, which in the absence of any explanation,
made it more likely than not that the defendants were at fault. Once the claimants had proved
this, the defendants would be liable unless they could prove that they were not at fault. The
defendants could not prove this and so they were liable.
A foreseeable type of damage was caused by the breach of duty

In order to recover damages for the tort of negligence, the claimants must prove that the
defendant’s breach of duty caused the loss for which damages are being claimed. Furthermore,
the claimant must prove that the loss was a type of loss which would foreseeably follow from
the defendant’s breach.

In Michael Chilufya Sata v Zambia Bottlers (2003), the appellant claimed for damages for
personal injuries and consequential loss and damage caused by the negligence and/breach of
statutory duty by the respondent in the manufacture and bottling of one bottle of sprite
beverage. The facts were that the appellant bought a case of sprite from an outlet known as
Melissa Supertmarket for K12, 000 on 3rd June, 1998. The sprite was manufactured by the
respondent company involved. When the bottle was about to be opened, it was found to
contain a dead cockroach. Neither the appellant nor any of his children opened the bottle or
drunk its contents. On seeing the cockroach in the bottle, the appellant alleged that he and his
children fell sick and went to see a private medical practioner who treated them for nausea.

Held: The claim failed. The appellant and his children did not consume the adulterated drink
and did not suffer any injury.

Causation

The claimant can recover damages in respect of a loss only if it can be proved that the loss was
caused by the defendant’s actions. Generally, the courts use a ‘but for’ test in assessing this.
That is to say, they ask whether the claimant would have suffered the loss but for the defendant
breaching the duty. If the claimant would not, then this suggests that the defendant’s breach of
duty caused the loss. If the claimant would have suffered the same loss even if the claimant had
not breached the duty, then the defendant would not be liable for the loss. For example in
Barnett v Chelsea Hospital (1969), a patient who visited the hospital suffering from vomiting
was negligently turned away by a doctor and died from arsenic poisoning. The patient would
have died anyway, even if the doctor had given him all possible treatment, and so the hospital
was not liable for the patient’s death.

Multiple causes
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The courts often have difficulty in determining causation where there are a number of possible
causes of injury including the negligent act. The courts must decide on the facts if the negligent
act was the one that most likely caused the injury.

In McGhee v National Coal Board (1972), the claimant’s employers asked him to clean out brick
kilns. No washing facilities were provided even though the work was hot and dirty and exposed
the claimant to clouds of brick dust. The claimant used to ride his bicycle home while caked
with sweat and grime. The claimant soon developed dermatitis. This was caused by working in
the kiln, but the risk of dermatitis was materially increased by the claimant cycling home
without washing.

Held: The defendants were liable in negligence. A defendant is liable to a claimant if his breach
of duty caused, or materially contributed to, the claimant’s injury. This was the case even if
there were other factors which contributed to the injury.

In Fairchild v Glenhaven Funeral Services Ltd & Others (2002), the claimants all contracted a
disease caused by contact with asbestos over extended periods of time with several different
employers. The defence claimed that the disease could be contracted by exposure to one
asbestos fibre and as the claimants were employed by a number of employers it could not be
established at which employer they contracted the disease.

Held: The House of Lords held that all the employers (who had failed to take reasonable care),
contributed to the cause and were all liable.

Novus actus intervieniens

Courts will only impart liability where there is a cause of events that are a probable result of the
defendant's actions. Defendant's will not be liable for damage when the chain of events is
broken. There are three types of intervening act that will break the chain of causation.

Act of the claimant

The actions of the claimant themselves may break the chain of causation. The rule is that where
the act is reasonable and in the ordinary course of things an act by the claimant will not break
the chain.

In McKew v Holland, Hannen and Cubbitts (Scotland) Ltd (1969), the claimant had a leg injury
which was prone to causing his leg to give way from time to time. Whilst at work he failed to ask
for assistance when negotiating a flight of stairs. He fell and was injured as a result.

Held: The fact that the claimant failed to seek assistance was unreasonable and was sufficient
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to break the chain of causality.

Act of a third party

Where a third party intervenes in the course of events the defendant will normally only be
liable for damage until the intervention. For example, in Knightley v Johns 1982 the defendant
caused a road traffic accident. A police inspector negligently handled traffic control following
the accident. This negligence led to the claimant, a police officer, being killed. The defendant
who caused the accident successfully argued that the negligent handling by the police inspector
broke the chain of causation between his negligence and the death of the officer.

In Lamb v Camden LBC (1981), the defendant negligently caused a house to be damaged, and
as a result it had to be vacated until it could be repaired. During the vacant period, squatters
took up residence and the property suffered further damage.

Held: Intrusion by squatters was a possibility that the defendant should have considered, but it
was not held to be a likely event. Therefore, the defendant should not be liable for the
additional damage caused by the intervening actions of the squatters.

Natural events

The chain of causality is not automatically broken due to an intervening natural event. In
situations where the breach puts the claimant at risk of additional damage caused by a natural
event the chain will not be broken. However, where the natural event is unforeseeable, the
chain will be broken.

In Carslogie Steamship Co Ltd v Royal Norwegian Government (1952), a ship owned by the
claimants was damaged as a result of the defendant's negligence and required repair. During
the trip to the repair site, the ship was caught in severe weather conditions that resulted in
additional damage being caused and therefore a longer repair time was required. The claimants
claimed loss of charter revenue for the period the ship was out of action for repairs caused by
the original incident.

Held: The House of Lords held that the defendants were liable for loss of profit suffered as
result of the defendants' wrongful act only. Whilst undergoing repairs, the ship ceased to be a
profit-earning machine as the weather damage had rendered her unseaworthy. The weather
conditions created an intervening act and the claimants had sustained no loss of profit due to
the ship being out of action as it would have been unavailable for hire anyway due to the
weather damage.

Remoteness of damage
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Even where causation is proved, a negligence claim can still fail if the damage caused is 'too
remote'. Liability is limited to damage that a reasonable man could have foreseen.

In The Wagon Mound (1961), a ship was taking on oil in Sydney Harbour. Oil was spilled onto
the water and it drifted to a wharf 200 yards away where welding equipment was in use. The
owner of the wharf carried on working because he was advised that the sparks were unlikely to
set fire to furnace oil. Safety precautions were taken. A spark fell onto a piece of cotton waste
floating in the oil, thereby starting a fire which damaged the wharf. The owner of the wharf
sued the charterers of the Wagon Mound.

Held: The claim must fail. Pollution was the foreseeable risk: fire was not.

Professional Negligence

Professional individuals and organisations have a special relationship with their clients and
those who rely on their work. This is because they act in an expert capacity.

Development

We shall now turn our attention to how the law relating to negligent professional advice, and in
particular auditors, has been developed through the operation of precedent, being refined and
explained with each successive case that comes to court. It illustrates the often step-by-step
development of English law, which has gradually refined the principles laid down in Donoghue v
Stevenson and Anns v Merton London Borough Council to cover negligent misstatements which
cause financial loss.

The special relationship

Before 1963, it was held that any liability for careless statements was limited in scope and
depended upon the existence of a contractual or fiduciary relationship between the parties.
Lord Denning's tests of a further (later termed 'special') relationship were laid down in the
Court of Appeal in his dissenting judgement on Candler v Crane, Christmas & Co 1951

According to Lord Denning, to establish a special relationship the person who made the
statement must have done so in some professional or expert capacity which made it likely that
others would rely on what he said. This is the position of an adviser such as an accountant,
banker, solicitor or surveyor. It follows that a duty could not be owed to complete strangers, but
Lord Denning also stated at the time: 'Accountants owe a duty of care not only to their own
clients, but also to all those whom they know will rely on their accounts in the transactions for
which those accounts are prepared.' This was to prove a significant consideration in later cases.

However, Lord Denning's view was a dissenting voice in 1951 in the Candler case, where the
Court of Appeal held that the defendants were not liable (for a bad investment based upon a
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set of negligently prepared accounts) because there was no direct contractual or fiduciary
relationship with the claimant investor.

It was twelve years later that the special relationship was accepted as a valid test. Our starting
point is a leading case (Hedley) on negligent misstatement which was the start of a new judicial
approach to cases involving negligent misstatement. You must make sure that you are familiar
with it.

In Hedley Byrne & Co Ltd v Heller and Partners Ltd (1963), HB were advertising agents acting
for a new client, Easipower Ltd. HB requested information from Easipower's bank (HP) on its
financial position. HP returned non-committal replies, which expressly disclaimed legal
responsibility, and which were held to be a negligent misstatement of Easipower's financial
resources.

Held: While HP were able to avoid liability by virtue of their disclaimer, the House of Lords went
on to consider whether there ever could be a duty of care to avoid causing financial loss by
negligent misstatement where there was no contractual or fiduciary relationship. It decided (as
obiter dicta) that HP were guilty of negligence having breached the duty of care, because a
special relationship did exist. Had it not been for the disclaimer, a claim for negligence would
have succeeded.

In reaching the decision in Hedley Byrne, Lord Morris said the following:

'If someone possessed of a special skill undertakes….to apply that skill for the assistance of
another person who relies on that skill, a duty of care will arise….If, in a sphere in which a
person is so placed that others could reasonably rely on his skill….a person takes it on himself to
give information or advice to….another person who, as he knows or should know, will place
reliance on it, then a duty of care will arise.'

Note that at the time liability did not extend to those who the advisor might merely foresee as
a possible user of the statement
.
However in a subsequent case, the courts extended potential liability, and started to take
account of third parties not known to the adviser. The following case echoed the principles laid
down in Anns and addressed the question of reasonable foresight being present to create a
duty of care.

In JEB Fasteners Ltd v Marks, Bloom & Co (1982), the defendants, a firm of accountants,
prepared an audited set of accounts showing overvalued stock and hence inflated profit. The
auditors knew there were liquidity problems and that the company was seeking outside finance.
The claimants were shown the accounts; they took over the company for a nominal amount,
since by that means they could obtain the services of the company's two directors. At no time
did MB tell JEB that the stock value was inflated. With the investment's failure, JEB sued MB,
with the following claims.

(a) The accounts had been prepared negligently.

(b) They had relied on those accounts.
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(c) They would not have invested had they been aware of the company's true position.
(d) MB owed a duty of care to all persons whom they could reasonably foresee would rely on
the accounts.

Decision: Even though JEB had relied on the accounts (b), they would not have acted differently
if the true position had been known (c), since they had really wanted the directors and not the
company. Hence the accountants were not the cause of the consequential harm and were not
liable. Significantly (although this did not affect the decision as to liability) it was the judge's
view that MB did indeed owe a duty of care through foresight (d) and had been negligent in
preparing the accounts (a).

Decisions since JEB Fasteners have, however, shied away from the foresight test and gone back
to looking at whether the adviser has knowledge of the user and the use to which the
statement will be put.

The Caparo decision

The Caparo case is fundamental to understanding professional negligence. It was decided that
auditors do not owe a duty of care to the public at large or to shareholders increasing their
stakes in the company in question.

This important and controversial case made considerable changes to the tort of negligence as a
whole, and the negligence of professionals in particular. It set a precedent which forms the
basis for courts when considering the liability of professional advisers.

In Caparo Industries plc v Dickman and Others (1990), Caparo, which already held shares in
Fidelity plc, bought more shares and later made a takeover bid, after seeing accounts prepared
by the defendants that showed a profit of £1.3m. Caparo claimed against the directors (the
brothers Dickman) and the auditors for the fact that the accounts should have shown a loss of
£400,000. The claimants argued that the auditors owed a duty of care to investors and potential
investors in respect of the audit. They should have been aware that a press release stating that
profits would fall significantly had made Fidelity vulnerable to a takeover bid and that bidders
might well rely upon the accounts.

Held: The auditor's duty did not extend to potential investors nor to existing shareholders
increasing their stakes. It was a duty owed to the body of shareholders as whole.

In the Caparo case the House of Lords decided that there were two very different situations
facing a person giving professional advice.

(a) Preparing information in the knowledge that a particular person was contemplating a
transaction and would rely on the information in deciding whether or not to proceed with the
transaction (the 'special relationship').
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(b) Preparing a statement for general circulation, which could forseeably be relied upon by
persons unknown to the professional for a variety of different purposes.

It was held therefore that a public company's auditors owe no duty of care to the public at
large who rely on an audit report when deciding to invest – and, in purchasing additional
shares, an existing shareholder is in no different position to the public at large.

In MacNaughton (James) Papers Group Ltd v Hicks Anderson & Co (1991), it was stated that it
was necessary to examine each case in the light of the following.

 Foreseeability
 Proximity
 Fairness

This is because there could be no single overriding principle that could be applied to all
individual cases. Lord Justice Neill set out the matters to be taken into account in considering
this.

 The purpose for which the statement was made

 The purpose for which the statement was communicated
 The relationship between the maker of the statement, the recipient and any third party
 The size of any class to which the recipient belonged
 The state of knowledge of the maker
 Any reliance by the recipient

The law since Caparo

A more recent case highlighted the need for a cautious approach and careful evaluation of the
circumstances when giving financial advice, possibly with the need to issue a disclaimer.

In ADT Ltd v BDO Binder Hamlyn (1995), Binder Hamlyn was the joint auditor of BSG. In
October 1989, BSG's audited accounts for the year to 30 June 1989 were published. Binder
Hamlyn signed off the audit as showing a true and fair view of BSG's position. ADT was thinking
of buying BSG and, as a potential buyer, sought Binder Hamlyn's confirmation of the audited
results. In January 1990, the Binder Hamlyn audit partner attended a meeting with a director of
ADT. This meeting was described by the judge as the 'final hurdle' before ADT finalized its bid for
BSG. At the meeting, the audit partner specifically confirmed that he 'stood by' the audit of
October 1989. ADT proceeded to purchase BSG for £105m. It was subsequently alleged that
BSG's true value was only £40m. ADT therefore sued Binder Hamlyn for the difference, £65m
plus interest.

Held: Binder Hamlyn assumed a responsibility for the statement that the audited accounts
showed a true and fair view of BSG which ADT relied on to its detriment. Since the underlying
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audit work had been carried out negligently, Binder Hamlyn was held liable for £65m. The
courts expect a higher standard of care from accountants when giving advice on company
acquisitions since the losses can be so much greater.

This situation was different from Caparo since the court was specifically concerned with the
purpose of the statement made at the meeting. Did Binder Hamlyn assume any responsibility
as a result of the partner's comments? The court decided that it did. The court did not need to
consider the question of duty to individual shareholders, because Caparo had already decided
that there was none.

Following the ADT case, another case tested the court's interpretation.

In NRG v Bacon and Woodrow and Ernst & Young (1996), NRG alleged that the defendants had
failed to suggest the possibility that certain companies it was targeting might suffer huge
reinsurance losses. They had also failed to assess properly whether these losses could be
protected against, because defective actuarial methods had been used. As a result, it overpaid
for these companies by £255m.

Held: The judge observed that accountants owe a higher standard of care when advising on
company purchases, because the potential losses are so much greater, following ADT. However,
applying this higher standard of care to the facts, it was decided that NRG had received the
advice that any competent professional would have given, because the complex nature of the
losses that the companies were exposed to were not fully understood at the time. In addition,
the use of defective actuarial methods had
not led directly to the losses, because NRG would have bought the companies anyway.

NUISANCE

Private Nuisance

Private nuisance is a continuous, unlawful and indirect interference with the use or enjoyment
of land, or of some right over or in connection with it. Lord Lloyd in Hunter v Canary Wharf
(1997), stated that private nuisances are of three kinds. They are
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(1) nuisance by encroachment on a neighbour's land;

(2) nuisance by direct physical injury to a neighbour's land; and
(3) nuisance by interference with a neighbour's quiet enjoyment of his land.

Proof of damage is usually necessary

Foreseeability of harm is a prerequisite of the recovery of damages in private and also public
nuisance: per Lord Goff, Cambridge Water v Eastern Counties Leather (1994).

REQUIREMENTS

1. CONTINUOUS INTERFERENCE

There must be a continuous interference over a period of time with the claimant's use or
enjoyment of land.

In De Keyser's Royal Hotel v Spicer Bros Ltd (1914), Noisy pile driving at night during
temporary building works was held to be a private nuisance.

There are only rare examples where a single act has been held to amount to a private
nuisance:

In British Celanese v Hunt (Capacitors) Ltd (1969), Foil had blown from the D's land where it
was stored and had damaged an electricity substation, causing the electricity to an industrial
estate to be cut off. This had occurred once a few years previously because of the way in
which the material was stored. The trial judge held this to be a private nuisance.

In Crown River Cruises v Kimbolton Fireworks (1996), it was held that a firework display
constituted a nuisance when it was inevitable that for 15-20 minutes debris of a flammable
nature would fall upon nearby property, thereby damaging the property in the ensuing fire.

2. UNLAWFUL INTERFERENCE/UNREASONABLENESS

The claimant must prove that the defendant's conduct was unreasonable, thereby making it
unlawful. The rule is sic utere tuo ut alienum non laedas (So use your own property as not to
injure your neighbour's). As to impairment of the enjoyment of land, the governing principle
is that of reasonable user - the principle of give and take as between neighbouring occupiers
of land (per Lord Goff, Cambridge Water Co v Eastern Counties Leather [1994] 1 All ER 53 at
70).
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The court will take the following factors into account in assessing the reasonableness or
otherwise of the defendant's use of land:

The locality

It was stated in Sturges v Bridgman (1879) that: “What would be a nuisance in one area of
London might well not amount to nuisance in another.”

In Leeman v Montagu (1936), the defendant bought a house in a residential area which
bordered on open countryside. He kept a flock of 750 cockerels in an orchard about 100
yards away from the house. These cockerels crowed from 2 a.m. to 7 a.m., making it
impossible for the claimant to sleep. The claimant asked the court for an injunction to
prevent the claimant from keeping the cockerels on his land.

It was held that the defendant had committed a nuisance and so an injunction could be
granted.

Note
As we have seen, the location of the claimant’s land will be a factor in deciding the way in
which he or she can expect to use and enjoy the land. So a farmer who kept noisy cockerels
in a completely rural area would be unlikely to commit private nuisance. The length of time
for which harm is caused is also relevant in deciding whether interference is unreasonale. A
manufacturer who conducted a noisy cleaning process once a year would be less likely to
commit nuisance than a manufacturer who made a similar noise every day. Although one-off
events can amount to nuisance, most nuisances involve continuous interference.

Sensitivity of the claimant

The standard of tolerance is that of the 'normal' neighbour. Therefore, abnormally sensitive
plaintiffs are unlikely to succeed in their claims for private nuisance. Contrast:

In Robinson v Kilvert (1889), the P's claim was for damage to abnormally sensitive paper stored
in a cellar which was affected by heat from adjoining premises. The claim failed because
ordinary paper would not have been affected by the temperature.

In McKinnon Industries v Walker (1951), Fumes from the D's factory damaged delicate orchids.
As the fumes would have damaged flowers of ordinary sensitivity there was a nuisance.

The utility of the defendant's conduct

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It will be unlikely for an activity to amount to a nuisance if it is useful for the community as a
whole taking into account all the surrounding circumstances, such as locality and the duration
of the activities. Contrast:

In Harrison v Southwark Water Co (1891) - building work carried out at reasonable times of the
day did not amount to a nuisance.

In Adams v Ursell (1913) - a fried-fish shop was a nuisance in the residential part of a street. An
injunction would not cause hardship to the D and to the poor people who were his customers.

Malice

It is not necessary to establish malicious behaviour on the part of the defendant but it may be
regarded as evidence of unreasonableness.

Contrast:
In Christie v Davey (1893), P had been giving music lessons in his semi-detached house for
several years. D, irritated by the noise, banged on the walls, shouted, blew whistles and beat tin
trays with the malicious intention of annoying his neighbour and spoiling the music lessons. An
injunction was granted to restrain the D's behaviour.

Bradford Corporation v Pickles (1895), P deliberately diverted water flowing through his land,
away from his neighbour's property. P intended to force them to buy his land at an inflated
price. It was held that he was committing no legal wrong because no-one has a right to
uninterrupted supplies of water which percolates through from adjoining property.

In Hollywood Silver Fox Farm v Emmett [1936), D, motivated by pure spite, deliberately fired
guns near the boundary of P's land in order to scare the P's silver foxes during breeding-time.
Held to be a nuisance following Christie v Davey.

The state of the defendant's land

An occupier must take such steps as are reasonable to prevent or minimize dangers to adjoining
land from natural hazards on his land.

In Leakey v National Trust (1980), the NT owned land upon which there was a large mound of
earth which was being gradually eroded by natural processes, and was sliding onto the P's
property. It was held that an occupier must take such steps as are reasonable to prevent or
minimise dangers to adjoining land from natural hazards on his land.

3. INTERFERENCE WITH THE USE OR ENJOYMENT OF LAND OR SOME RIGHT OVER OR IN

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CONNECTION WITH IT

The claimant must usually prove damage, i.e. physical damage to the land itself or property;
or injury to health, such as headaches caused by noise, which prevents a person enjoying the
use of their land. Case examples include:
- Bliss v Hall (1838) 4 Bing NC 183 - smells and fumes from candle making
invading adjoining land.
-
- Halsey v Esso Petroleum [1961] 2 All ER 145 - disturbing neighbours' sleep by
noise and vibrations and damage to clothes from acid smuts.
- Bone v Seale [1975] 1 All ER 787 - smell from neighbours' pig farm.
- Solloway v Hampshire County Council (1981) 79 LGR 449 - allowing tree roots to
suck moisture from adjoining soil, thereby causing subsidence.

However, note the decision and points made by the House of Lords in Hunter v Canary Wharf
Ltd [1997] 2 All ER 426:

- Interference with TV reception by a tall building could not amount to an actionable

public or private nuisance, on the basis that this was not an interference with use or
enjoyment of land.

- “The general principle is that at common law anyone may build whatever he likes upon
his land. If the effect is to interfere with the light, air or view of his neighbour, that is his
misfortune. The owner's right to build can be restrained only by covenant or the
acquisition (by grant or prescription) of an easement of light or air for the benefit of
windows or apertures on adjoining land.” (per Lord Hoffman at p17; see also Lord Goff at
p2 and Lord Hope at p27.)

WHO MAY SUE

Only a person who has a proprietary interest in the land affected by the nuisance will succeed in
a claim, e.g. as owner or reversioner, or be in exclusive possession or occupation of it as tenant
or under a licence to occupy (but there may be anomalous exceptions, per Lord Hope, Hunter v
Canary Wharf).

In Malone v Laskey (1907), P was using a toilet. The lavatory cistern fell on her head because of
vibrations from machinery on adjoining property. Her claim failed as she was merely the wife of
a mere licensee, and had no proprietary interest herself in the land. However, today she would
be able to claim in negligence (per Lords Goff and Hoffman in Hunter v Canary Wharf).

This rule was upheld by the House of Lords in Hunter v Canary Wharf over-ruling the Court of
Appeal decision in Khorasandjian v Bush (1993) 3 All ER 669. However, the wife of a
homeowner would be able to sue as she has a beneficial interest in the matrimonial home, per
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Lord Hoffman, Hunter v Canary Wharf.

Note that jus tertii (right of a third person) is not a defence to an action of nuisance. A person
who is in exclusive possession of land may sue even though he cannot prove title to it (Foster v
Warblington UDC (1906) 1 KB 648, discussed by Lord Goff in Hunter v Canary Wharf).

WHO MAY BE SUED

Creator of the nuisance

Any person who creates the nuisance can be sued, whether or not that person is the occupier of
the land at the time of the action.

Occupiers
Occupiers who adopt and continue to allow nuisances on their land may also be liable, even if
such nuisances were created by predecessors in title, trespassers or third parties. See: Sedleigh
Denfield v O'Callaghan (1940) 3 All ER 349

Landlord
A landlord may be liable for nuisances emanating from land, e.g. if the landlord had knowledge
of the nuisance before letting, or where the landlord reserved the right to enter and repair the
premises. For example:

- Tetley v Chitty [1986] 1 All ER 663 - council granted permission for a go-kart track
on council owned land. Council liable in nuisance for noise.

Recent cases on who may be sued are the contrasting CA authorities:

- Hussain v Lancaster CC [1999] 4 All ER 125
- Lippiatt v South Gloucestershire C [1999] 4 All ER 149

DEFENCES

Prescription

Prescription is a property right which can give a right to continue committing what would
otherwise be a nuisance. The right is acquired by continuously doing the act which causes the
nuisance for 20 years. However. The act must be committed without force, openly and without
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permission. The act complained of must have amounted to a nuisance for a whole 20 years.

In Sturges v Bridgman (1879), a confectionary manufacturer used heavy pestles and mortars on
his premises, which were next door to a doctor’s premises. Although the pestles and mortars
caused noise and vibrations, this did not bother the doctor until he built a consulting room
which adjoined the room where the pestles and mortars were used. Then the doctor claimed
that the use of the pestles and mortars amounted to a nuisance.

The doctor was granted an injunction to prevent the use of the pestles and mortars. Although
the pestles and mortars had been making the noise and vibration for over 20 years, the
nuisance had not been committed until the new consulting room was used.

Statutory authority

There will be a defence to private nuisance if it can be shown that the activities complained of
by the claimant were authorised (expressly or impliedly) by a statute.

In Allen v Gulf Oil [1981), an Act of Parliament gave Gulf Oil the right to compulsorily purchase
land and build an oil-refinery on it. Once the refinery was running, a nearby resident said that
its noise, smell and vibrations amounted to a nuisance.

The House of Lords held that it was Parliament’s intention that the oil refinery should be built
and should operate on the site. As the noise, smells and vibrations were an inevitable
consequence of the operation of the refinery, the defendant had a complete defence.

Coming to the nuisance no defence

It is no defence to prove that the claimant came to the nuisance: Bliss v Hall (1838) 4 Bing NC
183, where P moved next to a candle-making factory which had been operating for three years;
followed by the Court of Appeal in the cricket ball case, Miller v Jackson [1977] 3 All ER 338.

REMEDIES

Injunction

An injunction is a court order requiring a person to behave in a certain way. In nuisance cases,
the injunction will order the defendant to stop committing the nuisance. A defendant who
disobeys a court order will be liable to punishment for contempt of court. An injunction will
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only be granted at the discretion of the court. For example, an injunction was refused in Miller v
Jackson (1977) 3 All ER 338, where a cricket club was liable for the nuisance created by balls
being hit out of the ground. An injunction may be interlocutory: Thompson-Schwab v Costaki
(1956) 1 All ER 652.

Damages

In cases of nuisance by encroachment or damage to land, the measure of damages will be the
diminution in the value of land; in cases of interference with enjoyment the measure will be the
reduction in amenity value (per Lord Lloyd in Hunter v Canary Wharf). The cost of repairs or
other remedial works is also recoverable (per Lord Hope). For the date of assessment see Alcoa
Minerals v Broderick [2000] 3 WLR 23.

Abatement
This is the remedy of self-help, eg removing over-hanging tree branches, which are a nuisance.
It allows the claimant to remove the nuisance in an emergency, or if this can be done without
entering onto the defendant’s land.

In Lemmon v Webb (1993), the Court of Appeal held that a land owner had the right to trim
branches of mature trees which hung over his land.

PUBLIC NUISANCE

A person is guilty of the crime of public nuisance (also known as common nuisance) who:

Does an act not warranted by law or omits to discharge a legal duty, if the effect of the act or
omission is to endanger the life, healthy, property, morals or comfort of the public, or to
obstruct the public in the exercise or enjoyment of rights common to all citizens.

CONDITIONS FOR THE TORT OF PUBLIC NUISANCE

For nuisance to be classified as public, it must be widespread and affect actually or potentially a
cross section of the public. In addition, the harm caused must be foreseeable.

Wide Spread Interference

To be actionable, a public nuisance, an activity or state of affairs must cause a wide spread
interference with the convenience, safety, etc. of the public generally or a section thereof.
Whether a section of the community affected comprises a sufficient number of people to
amount to a class of her majesty’s subjects is a question of fact to be judged objectively in each
case. However, in every case, interference would have to be “so wide spread in its range or so
indiscriminate in its effect that it would not be reasonable to expect one person to take
proceedings on his own responsibility to put a stop to it, but that it should be taken on the
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responsibility of the community at large.

In the criminal case R v Johnson (1996), it was held that the defendant who had made a number
of obscene telephone calls to different women had committed the crime of public nuisance and
that the women who had been telephoned were the class of ‘Her Majesty’, subjects affected.

Foreseeability of Harm

Although public nuisance is a strict liability tort in that liability could arise in the absence of fault
on the part of the defendant, the harm caused, as in private nuisance, has to be foreseeable.

OCCURRENCES OF PUBLIC NUISANCE

Public nuisance may occur in different forms such as obstructing or causing hazard on the
highway, constituting danger in premises adjoining the highway, multiple or amalgamated
private nuisance, and nuisances affecting a wide section of the public.

Obstructing or Causing Hazard on the Highway

Obstructing the highway or causing hazard thereat would amount to a public nuisance if it
endangers the safety or unreasonably interferes with the convenience of members of the public
or a cross-section of it.

In Dymond v Pearce (1972), a lorry parked on the highway (with parking lights on) was held to
constitute public nuisance. However, not all obstructions of the highway would constitute a
nuisance. To be a nuisance, the obstruction has to be unreasonable.

Danger from Premises Adjoining the Highway

Owners or occupiers of premises adjoining the highway are under a duty to keep them in a state
of repair. There is strict liability in public nuisance for damage occurring on highway from lack of
repair of a structure adjoining it unless it was due to an unseen an unforeseeable act of nature
or a third party.

In Tarry v Ashton (1876), a lamp on the wall of the front walls of the defendant’s house fell and
injured the claimant as he passed by on the street. The defendant had no knowledge of the
lamp’s defective state although he had recently employed an independent contractor to
maintain the lamp. The contractor was found to have been negligent in his work. The duty on
the occupier to keep the premises in a state of repair was absolute, non-delegable and required
no knowledge of the defect in it.

In Wringe v Cohen (1940), the gable end of the roof of the defendant’s lock-up shop (which he
had let to a tenant) collapsed on the claimant’s roof and damaged it. Although the immediate
cause of the collapse was storm, the gable end, pointing and collaring, had been defective for
about three years. The defendant denied liability on the ground of lack of knowledge of the
state of the premises. The Court of Appeal held that if due to lack of repair, premise on the
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highway become dangerous and constitute a nuisance, and subsequently collapse and injure a
passer-by or an adjoining owner, the occupier or owner of the premises, if he has undertaken
the duty to repair, would be liable in nuisance, whether or not he knew about the danger and
whether or not he ought to have known about it.
It was held that under the common law, it is an indictable offence for an occupier of premises
on a highway to permit them to get into a dangerous condition owing to non-repair and that it
is not to show that the occupier knew or had the means to know about the state of disrepair.

Conversely, in Noble v Harrison (1926), a branch of a tree growing on the defendant’s land and
overhanging the highway 30 feet above the ground broke and fell on the claimant’s motor
coach. The accident was due to a latent and invisible defect in the branch of which the
defendant was not, and could not have been, aware. The defendant was found not liable. Unlike
in cases of built or installed structures, there was no absolute duty to maintain a tree in a state
of repair and the defendant was not liable for damage caused by a latent defect.

Multiple Private Nuisance

Where the activities of the defendant in his promises affect many people in his neighbourhood,
this may give rise to private and public nuisance (in respect of neighbours whose properties
were affected) and to public nuisance in respect of other members of the public whose land
were not affected. For example, dust pollution emanating from a quarry might constitute a
private nuisance to neighbouring properties whose enjoyment of their land has diminished.
However, for other members of the public whose right to clean air has been denied, this would
be public nuisance. Moreover, because many properties are affected, those with proprietary
interests in those properties can also sue in public nuisance if they have suffered more than
members of the public as whole.

In Attorney General v PYA Quarries Ltd (1957), the blasting of a quarry affected many people in
the neighbourhood by the emitting of large amount of dust. It was held that the emissions
amounted to public nuisance.

In Colour Quest & Others v Total Downstream UK Plc (2009), an explosion in the defendants’
Buncefield oil storage depot caused significant damage to neighbouring properties and
businesses. Neighbours, residents and companies in the area brought actions against the
defendant in private nuisance, public nuisance and the rule in Rylands v Fletcher. It was held
that actions lay in private nuisance (for those whose properties were affected) and public
nuisance (for members of the public who suffered special harm.

Nuisance Affecting a Wide Section of the Public

This would arise where the defendant’s activities affect the “comfort and convenience” of a
wide section of the society in places other than their own premises. Such nuisances usually
involve highways and other public places and spaces. Examples include obstruction of the
highway (e.g. due to building or road work), creation of a hazard on the highway or other public
 180

space (e.g., by digging up and leaving holes on the road, selling food unfit for human
consumption, operating a brothel, and pollution of the environment.
RIGHT OF ACTION IN PUBLIC NUISANCE

The requirements for a right of action in public nuisance differs from that in private nuisance.
Those who could sue in public nuisance are the Attorney General, local authorities and persons
who have suffered special damage.

In Rose v Miles (1815), a canal was blocked by the defendant, thereby preventing people from
using it. Consequently, the claimant was unable to transport his goods through that canal,
thereby incurring extra costs. It was held that the claimant could recover damages since he had
suffered more than the members of the public generally.

PUBLIC NUISANCE

A person is guilty of the crime of public nuisance (also known as common nuisance) who:

Does an act not warranted by law or omits to discharge a legal duty, if the effect of the act or
omission is to endanger the life, healthy, property, morals or comfort of the public, or to
obstruct the public in the exercise or enjoyment of rights common to all citizens.

CONDITIONS FOR THE TORT OF PUBLIC NUISANCE

For nuisance to be classified as public, it must be widespread and affect actually or potentially a
cross section of the public. In addition, the harm caused must be foreseeable.

Wide Spread Interference

To be actionable, a public nuisance, an activity or state of affairs must cause a wide spread
interference with the convenience, safety, etc. of the public generally or a section thereof.
Whether a section of the community affected comprises a sufficient number of people to
amount to a class of her majesty’s subjects is a question of fact to be judged objectively in each
case. However, in every case, interference would have to be “so wide spread in its range or so
indiscriminate in its effect that it would not be reasonable to expect one person to take
proceedings on his own responsibility to put a stop to it, but that it should be taken on the
responsibility of the community at large.

In the criminal case R v Johnson (1996), it was held that the defendant who had made a number
of obscene telephone calls to different women had committed the crime of public nuisance and
that the women who had been telephoned were the class of ‘Her Majesty’, subjects affected.

Foreseeability of Harm

Although public nuisance is a strict liability tort in that liability could arise in the absence of fault
on the part of the defendant, the harm caused, as in private nuisance, has to be foreseeable.
 181

OCCURRENCES OF PUBLIC NUISANCE

Public nuisance may occur in different forms such as obstructing or causing hazard on the
highway, constituting danger in premises adjoining the highway, multiple or amalgamated
private nuisance, and nuisances affecting a wide section of the public.

Obstructing or Causing Hazard on the Highway

Obstructing the highway or causing hazard thereat would amount to a public nuisance if it
endangers the safety or unreasonably interferes with the convenience of members of the public
or a cross-section of it.

In Dymond v Pearce (1972), a lorry parked on the highway (with parking lights on) was held to
constitute public nuisance. However, not all obstructions of the highway would constitute a
nuisance. To be a nuisance, the obstruction has to be unreasonable.

Danger from Premises Adjoining the Highway

Owners or occupiers of premises adjoining the highway are under a duty to keep them in a state
of repair. There is strict liability in public nuisance for damage occurring on highway from lack of
repair of a structure adjoining it unless it was due to an unseen an unforeseeable act of nature
or a third party.

In Tarry v Ashton (1876), a lamp on the wall of the front walls of the defendant’s house fell and
injured the claimant as he passed by on the street. The defendant had no knowledge of the
lamp’s defective state although he had recently employed an independent contractor to
maintain the lamp. The contractor was found to have been negligent in his work. The duty on
the occupier to keep the premises in a state of repair was absolute, non-delegable and required
no knowledge of the defect in it.

In Wringe v Cohen (1940), the gable end of the roof of the defendant’s lock-up shop (which he
had let to a tenant) collapsed on the claimant’s roof and damaged it. Although the immediate
cause of the collapse was storm, the gable end, pointing and collaring, had been defective for
about three years. The defendant denied liability on the ground of lack of knowledge of the
state of the premises. The Court of Appeal held that if due to lack of repair, premise on the
highway become dangerous and constitute a nuisance, and subsequently collapse and injure a
passer-by or an adjoining owner, the occupier or owner of the premises, if he has undertaken
the duty to repair, would be liable in nuisance, whether or not he knew about the danger and
whether or not he ought to have known about it.

It was held that under the common law, it is an indictable offence for an occupier of premises
on a highway to permit them to get into a dangerous condition owing to non-repair and that it
is not to show that the occupier knew or had the means to know about the state of disrepair.

Conversely, in Noble v Harrison (1926), a branch of a tree growing on the defendant’s land and
overhanging the highway 30 feet above the ground broke and fell on the claimant’s motor
 182

coach. The accident was due to a latent and invisible defect in the branch of which the
defendant was not, and could not have been, aware. The defendant was found not liable. Unlike
in cases of built or installed structures, there was no absolute duty to maintain a tree in a state
of repair and the defendant was not liable for damage caused by a latent defect.
Multiple Private Nuisance

Where the activities of the defendant in his promises affect many people in his neighbourhood,
this may give rise to private and public nuisance (in respect of neighbours whose properties
were affected) and to public nuisance in respect of other members of the public whose land
were not affected. For example, dust pollution emanating from a quarry might constitute a
private nuisance to neighbouring properties whose enjoyment of their land has diminished.
However, for other members of the public whose right to clean air has been denied, this would
be public nuisance. Moreover, because many properties are affected, those with proprietary
interests in those properties can also sue in public nuisance if they have suffered more than
members of the public as whole.

In Attorney General v PYA Quarries Ltd (1957), the blasting of a quarry affected many people in
the neighbourhood by the emitting of large amount of dust. It was held that the emissions
amounted to public nuisance.

In Colour Quest & Others v Total Downstream UK Plc (2009), an explosion in the defendants’
Buncefield oil storage depot caused significant damage to neighbouring properties and
businesses. Neighbours, residents and companies in the area brought actions against the
defendant in private nuisance, public nuisance and the rule in Rylands v Fletcher. It was held
that actions lay in private nuisance (for those whose properties were affected) and public
nuisance (for members of the public who suffered special harm.

Nuisance Affecting a Wide Section of the Public

This would arise where the defendant’s activities affect the “comfort and convenience” of a
wide section of the society in places other than their own premises. Such nuisances usually
involve highways and other public places and spaces. Examples include obstruction of the
highway (e.g. due to building or road work), creation of a hazard on the highway or other public
space (e.g., by digging up and leaving holes on the road, selling food unfit for human
consumption, operating a brothel, and pollution of the environment.

RIGHT OF ACTION IN PUBLIC NUISANCE

The requirements for a right of action in public nuisance differs from that in private nuisance.
Those who could sue in public nuisance are the Attorney General, local authorities and persons
who have suffered special damage.

In Rose v Miles (1815), a canal was blocked by the defendant, thereby preventing people from
using it. Consequently, the claimant was unable to transport his goods through that canal,
 183

thereby incurring extra costs. It was held that the claimant could recover damages since he had
suffered more than the members of the public generally.

DEFENCES IN TORT

There are several defences that are available generally to a defendant facing an action in the
tort of negligence.

Contributory negligence

Contributory negligence is not a complete defence, but reduces the damages payable to the
claimant.

In Froom v Butcher (1975), a motorist was injured by an accident which was not, in any way, his
fault. He suffered injuries to his head, chest and finger. If he had been wearing a seatbelt (which
in those days was not compulsory, the injuries to his head and chest would have been avoided
altogether.
 184

The damages in respect of the head and chest injuries were reduced by 25 per cent. The
damages for injury to his finger were not reduced as these would have arisen even if the
claimant had been wearing a seatbelt.
In Badger v Ministry of Defence (2005), an award to a widow in respect of her husband’s death
was reduced by 20 per cent because he had not given up smoking, despite warnings that this
was harming his health. The husband had died at 63. Exposure to asbestos was the main cause
of death but smoking was a contributory factor.

In Ehrari v Curry (2006), it was held that a child of nearly 14 who walked into a road without
first looking for traffic was 70 per cent responsible for the accident. She was hit by a truck
driving at 20 mph. the truck driver was negligent in that he had not seen the child at all, even
though he knew that children were in the area.

Consent

Consent or assumption of risk as it is sometimes known, is a complete defence to an action in

tort. Consent may arise either from an express agreement to run the risk of injury or may be
implied from the plaintiff’s conduct. An example of express agreement is where a patient signs a
consent form before an operation. If this formality was not carried out, the surgeon could be
sued for trespass to the person (battery). Implied consent is often referred to as volenti non fit
injuria (no harm is done to one who is willing). Participants in a boxing match, for example, are
deemed to have consented to the intentional infliction of harm which would otherwise amount
to a trespass

It is a complete defence to show that the injured person voluntarily assumed the risk which
caused the injury.. It often defeats employees who are injured as a result of not following safety
procedures.

In ICI Ltd v Shatwell (1965), experienced shot firers were badly injured when they tested
detonators without taking the proper safety precautions. They sued their employer, who did not
know that the safety precautions had not been adopted.

The employer had a complete defence. The injured workers had voluntarily assumed the risk
which injured them.

Similarly in Morris v Murray (1990), the plaintiff and defendant had engaged in a prolonged
drinking session before taking a flight in a light aircraft piloted by the defendant. The plane
crashed, the defendant pilot was killed and the plaintiff was seriously injured.

The plaintiff’s actions against the deceased pilot’s estate was barred by volenti.

The defence of volenti is not normally available in what are known as ‘rescue cases’. These are
situations where a plaintiff is injured while attempting to rescue someone or something from a
dangerous situation caused by the defendant’s negligence. Provided the defendant’s actions are
reasonable in the circumstances, the defence of consent and contributory negligence will not
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apply.
In Hayness v Harwood (1935), the plaintiff policeman was injured trying to stop runaway horses
pulling a van along a crowded street. The defendant had left the horses and van alone and a
boy had caused them to bolt.

It was held that the plaintiff could recover damages for his injuries. The defence of volenti and
non fit injuria did not apply.

Statutory or common law justification

A person may have a good defence to an action in tort if he can show that his acts are covered
by statutory authority. For example, the Criminal Procedure Code Chapter 88 of the Laws of
Zambia sets out police powers of arrest, entry and search. If these powers are exercised
lawfully, the Act will provide a good defence to an action in tort. Self defence and chastisement
of a child by a parent are both defences to the tort of trespass to the person, provided the force
used is reasonable.

Necessity
If a person commits a tort but only from preventing a greater harm from occurring, he may be
able to raise the defence of necessity. The defendant must be able to show that there is an
imminent threat of the danger to person or property and that his actions were a reasonable
response to the circumstances.

UNIT 15: EMPLOYMENT LAW

THE CONTRACT OF EMPLOYMENT

Formation of a Contract of Employment.

The employment relationship is a contractual one. The basic rules of contract will apply. There
must be offer and acceptance, intention to create legal relations and consideration. Usually, the
offer comes from the employer and the acceptance from the employee: the consideration
provided by the employer is his promise to pay the employee and the consideration of the
employee is his promise to work for the employer.

As is well known, contract law is based on the notion of freedom to contract and the equality of
bargaining power in the market place. The reality in employment relations is that the employee
has very little freedom to choose employers or any power to meaningfully bargain for terms of
employment. For many job seekers, the disposition is to accept the job on whatever terms. Only
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very skilled workers and professionals in sectors experiencing shortages of manpower would
have the leeway to engage in a detailed scrutiny of terms and conditions of employment on
offer.
Both parties must have the capacity to contract. Generally, an employment contract is binding
on a minor if it is on the whole for his benefit. The minimum age at which a minor may be
employed is 13 and there are also statutory restrictions on employing children under the age of
16.

Generally, the contract may take any form. It can beoral or in writing, express or implied. There
is also a duty on employers to provide a written statement of particulars.

The vitiating factors of mistake, misrepresentation, duress, undue influence and illegality will
also apply to employment contracts. In a number of cases, attempts by the employer and
employee to evade the payment rendered the contract void for illegality. If the contract is void,
the employee will have no right to claim wages, redundancy, unfair dismissal, etc.

Finally, the contract may be discharged by performance, agreement, frustration and breach. The
remedies will include the usual contractual remedies plus the statutory remedies of unfair
dismissal and redundancy.

Oral Contracts of Employment

S. 24 of the Employment Act requires that oral contracts of employment be evidenced in

writing. In this regard every employer is required to prepare and maintain, at his expense, a
record of contract for every employee under an oral contract of service. The record must
contain the following details:

a) Sex
b) Nationality
c) Name, address and occupation of employer.
d) Date of engagement and capacity in which the employee is employed.
e) Type of contract
f) Place of employment
g) Rate of wages and additional payments in kind
h) Interval of payment of wages.

The law requires that the employee be given a copy of a record at the time of engagement and
any employer who fails to comply with this requirement commits an offence for which he is
subject to penalties.

In the absence of the record and in the event of a dispute concerning the terms and conditions
of employment, the courts will rely on the employee’s version of events or statement unless the
employer proves the contrary.

Written Contracts of Employment

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The following are contracts required to be in writing according s. 28 of the Employment Act:
a) Contract of employment for six months or more.
b) Contracts of foreign service
c) Work which cannot be expected to be completed within six months.

According to s. 29 of the Employment Act, a contract made under the provisions of s. 28 shall
not be enforceable unless it bears an attestation by a proper office to the effect that such a
contract was read over and explained to the employee in the presence of such officer.

Contents of Written Contract of Employment

According s. 30 of the Employment Act, a written contract of service shall not be attested by a
proper officer unless it contains the following:

1. Names of employer and employee

2. Names of the business undertaking in which the employer is to be employed.
3. Place of engagement.
4. Date of commencement.
5. Place where the work has to be done
6. Wages.
7. Mode of payment of wages.
8. Nature of employment.
9. Subsistence in case of Foreign Service.

Terms in a Contract of Employment

Express and Implied Terms of a Contract of Employment.

The terms in a contract of employment may be either express or implied. The express terms are
those terms which the employer and the employer would have agreed to in writing or orally.

If, for example, Mulenga agrees to a salary of K5000 payable on the last day of every month,
both the pay amount and the date of payment are express terms of this agreement.

On the other hand, implied terms are those terms which courts will read into a contract in order
to promote fairness, justice or workable results.

Owing to the fact that the services an employee will render and the conditions under which
he/she will work are never determined with certainty at the time of contract formation,
contracts of employment are more prone to implied terms under the common law than many
other types of contracts.

Terms Implied by Statute

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Legislation has provided the terms and conditions of service enjoyed by many employees. The
terms provided by statutes are regarded as minimums, below which affected employees should
not fall. For example, if under the Minimum Wages and Conditions of Service Act Chapter 276
of the Laws of Zambia, the salary of a guard is given as K750 per month, it is illegal to pay a
guard covered by the legislation K550. However, it is perfectly lawful to pay the same guard K1,
000 per month. In this case, statutory conditions are referred to as a ‘floor’ of rights. Employers
are allowed to go up but not below the floor.
Terms Established by Collective Agreements

Few employees are able to discuss details of their terms and conditions of service of
employment. For those working for company with trade unions, the probability is that the
details of conditions and terms are contained in an existing collective agreement. A new
employee is obliged to accept the collective agreement as part of his terms and conditions of
service on mutually agreed basis. After all, conditions and terms contained in a collective
agreement are only operationalised through imputation into contracts of employment.

In Robertson v British Gas (1983), meter readers and collectors employed by North Thames Gas
received an incentive bonus of £400 per month. The scheme was negotiated by their union and
was referred to in the written statement of terms of each employee. Management gave the
union six months to terminate the agreement. The union members successfully appealed in the
Court of appeal that this was a breach of contract.

In Joel v Cammel Laird Ship Repairers Ltd (1969), a collective agreement related to transfers of
employees between ship repair and ship building. It was held to be incorporated into the
contract of employment because the employees concerned had indicated that they were aware
of the provision.

In Kamayoyo v Contract Haulage (1982) ZR 13 (SC), the court held that a collective agreement
is a legally binding contract between the parties and that anything done outside these
contractual agreements are of no legal effect.

The point now is that collective agreements are a major source of conditions and terms of
employment for the majority of employees.

Custom and Practice

In many industries such agriculture and building construction, custom and practice governs
workplace relations as effectively as written agreements.

A custom may be so well known that it is not necessary that it is not necessary putting in
writing. In law, a custom can be binding if it meets three conditions;

a) It must be so ‘notorious’ that it is almost universally observed and everyone involved

knows about it.
b) It must be reasonable.
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c) It must be so certain that the parties know exactly what effect the custom has on
them.
See Sagar v Ridehalgh (1931) 1 AER 288 and also Devonald v Rosser & Sons Ltd (1906) 2
K.B. 728

VARIATION OF TERMS CONTAINED IN A CONTRACT OF EMPLOYMENT

Unlike many other contracts, a contract of employment is subject to constant changes both in
the substance of contractual terms and the very nature of the job the employee will be required
to do overtime. Indeed, the contract of employment can be very dynamic responding to internal
and external pressures exerted on the employer. A sudden growth in orders means that
employees will be required to adjust to a different type of work rhythm and a slump may mean
cutbacks and reorganisation of work arrangements. Changes in technology may mean different
patterns of work habits or other conditions of service. Changes in economic indicators such as
rising standards of living, inflation, interest rates or housing market prices may suddenly change
previous bargaining positions of the parties to an employment contract requiring changes to the
contract of employment.

The position of the law is that a contract of employment, being an outcome of the consent of
both parties, cannot be changed without the concurrence of the other party. In theory, at least,
no variations can be made to the contract of employment without the consent of the other
party. In practice, the sheer inequality of power between the employee and the employer often
means that the employer is able to push changes to the terms of employment. That does not
mean it is legal, but that the employee has other considerations than strict legal positions. It is
in these areas that a trade union becomes a useful tool to counteract the power of the
employer.

At common law, an employer who wishes to vary the terms of employment against the wishes
of the employee can do so by giving proper notice which has the effect of terminating the
current contract and offering a new one.

Where an employer varies the terms of employment in breach of contract, the employee must
elect as to what course he wishes to follow. He can leave the employment and claim damages
for wrongful dismissal or seek a declaration that the purported variations are unlawful or
unenforceable against him or can claim damages for any loss sustained by reason of the
employee’s breach.

If an employee does nothing in the face of a unilateral variation and carries on working as
normal, he will be deemed to have ‘affirmed’ the contract and will be bound by the new terms.
The acceptance of salary may be evidence of affirmation, but this can be rebutted by evidence
that it was accepted under protest or without prejudice to other rights or action taken to
contest the variation in a court of law.

In cases where an employee is represented by a union which is recognised for the purpose of
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collective bargaining, it will be assumed that the consent of the union to variations will bind the
employee unless the employee takes clear and unequivocal steps to disassociate himself from
the position of the union.

VICARIOUS LIABILITY

The first point to establish when considering the matter of vicarious liability is that it is not a
tort as such. It is a method or principle by which the courts have determined that someone else
should be held liable for the wrongdoings of others. The wrongdoer is known as the tortfeaser.

Vicarious liability is a system whereby A is liable to C for damage caused to C by B. The most
commonplace scenario which arises in case law is the one in which A is B’s employer, and B is in
legal terms A’s ‘servant’. In such situations, there is deemed to be a ‘special relationship’
between A and B, which renders A liable for B’s tortious acts. The criteria for establishing
liability is as follows: A must stand in a particular relationship to B, B must commit a tort, and
the tort must be referable in a certain manner to that relationship. A himself need not have
participated in the tort, nor breached any duty of care to C.

Many might argue that the principle is out of date and does not relate to present day legal
concepts. They may be right as the principle has its origins in conceptions about capability
stemming from control under the master and servant laws which have long been modernised.
The fairness of the principle is not necessarily so readily seen nowadays as it once may have
been.

The main thrust of the principle is that one party (the employer) is held liable for the torts of
another (the employee). It is strange that anyone other than the perpetrator should be held
liable so we need to see how this situation has come about.
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JUSTIFICATIONS FOR VICARIOUS LIABILITY

There are three main distinct purposes served by the doctrine of vicarious liability. The first is
underpinned by the ‘deep seated and intuitive idea’ that someone who sets a force in motion
generally for his own benefit, should take responsibility for its consequences. If there were no
vicarious liability, then there would be no incentive for employers to minimise the risks created
in the course of business.

The second purpose is based on practicality. It is a compelling argument that the employer will
have the ‘deeper pocket’, and is therefore the most practical person to sue from the point of
view of the claimant, the employee, and the law itself. The claimant is more likely to receive any
damages awarded, the employee does not have to insure himself against liability (which would
inevitably have a detrimental effect on the economic and employment structures within
society), and the law of torts is prevented from becoming stultified and impracticable. It also
solves the problem of assigning responsibility and identifying the correct defendant (i.e. in cases
that involve multiple contracts along a line of subcontractors), and maximises the efficiency of
employees, who can work safely in the knowledge that their liability is covered and they do not
have to be constantly looking over their shoulders.

Its final purpose is economic: the facilitation of the ‘loss distribution theory’. The employers
most likely to be caught by the doctrine are those who employ large workforces, and who are in
turn probably supplying products or services to a vast consumer body. The cost of the
employer’s potential liability is reflected in the prices which it charges, effectively insuring the
employer against claims by incrementally increasing the cost of said products or services to its
customers. This means that there is always an adequate source from which the claimant can
seek compensation, the employer does not end up disabling itself through having to make huge
payouts on behalf of an indeterminate number of negligent employees, and the employees are
not hit with legal penalties which they are financially unable to meet.

The courts, as usual, have imposed rules as to when such vicarious liability arises. The main
rules are that the tortfeaser must be an employee and that the tort must occur in the course of
employment.

We ought now turn to the question of whether the tort falls within the course of employment.
If it does then, under the rule, the employer would be found vicariously liable for the wrongful
acts of the employee and if the acts fell outside the course of employment then the employer
would not be liable.

Liability will follow if it can be shown that the wrongful acts were authorised or if authorised
acts are carried out in a wrongful way. Examples of where the employee has acted in an
unauthorised way include cases where the employee has ignored an express or direct
prohibition such as in Limpus v London General Omnibus Co 1862. This concerned the bus
drivers involvement in competitive driving and racing and blocking buses from a rival company,
thus going directly against orders and resulting in injury to a third party. The defendants (the
bus company) were liable. The driver was acting within the course of his employment at the
time of the incident. It made no difference that his act had been forbidden.
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Careless acts may also result in vicarious liability as in the leading case of Century Insurance v
Northern Ireland Road Transport Board (1942) when a delivery driver caused an explosion by
lighting a cigarette while refuelling a petrol tanker.

Vicarious liability was applied in the infamous case of Rose v Plenty 1976 which involved a
milkman who, against company orders, took a 13 year old boy with him on his round. The boy
was injured due to the milkman's negligent driving. The boy, who sued both the milkman and
the dairy, initially lost his case but the matter came before the Court of Appeal when Lord
Scarman found a crucial factor to be that the boy was actually helping in an unauthorised way
by helping deliver milk.

One question which has exercised the minds of the courts is what happens in the event of an
accident when an employee is travelling to and from work? The usual rule is that this would not
normally be thought to be within the course of employment unless the travel is particularly
closely related to the employee's work and therefore is outside the rule.

In Smith v Stages (1989), an employee was involved in a road accident whilst travelling back to
his normal place of employment. He had been working elsewhere. This was held to be within
the course of his employment. Lord Lowry considered a decisive factor being that he was paid a
normal working day pay for his day of travel.

The courts have held that vicarious liability does not arise in situations where the wrongful acts
are not within the course of employment. Activities which are clearly outside the scope of the
employment cannot give rise to vicarious liability as in Beard v London General Omnibus (1900)
, in this instance the plaintiff was run over by a bus belonging to the defendants. Beard brought
an action against the company for the negligence of the person who was driving the bus. The
person driving the bus at the time was not employed as a driver – he was employed as a bus
conductor. The bus company were found to be not liable due to the fact that a conductor,
whose job it was to collect fares, had been driving the bus and this was considered completely
outside the scope of his job.

An employer will not be found liable for the acts of an employee who goes off on a 'frolic of his
own' as in Hilton v Thomas Burton (Rhodes) Ltd (1961). Hilton went for a drink one lunchtime
with some of his colleagues. They drove to the pub in the work van belonging to the company
they worked for. On leaving the pub the van crashed due to the negligence of the driver and
Hilton, one of the passengers, was killed. Hilton's wife sued the company on the basis that they
were vicariously liable for the van driver's negligence. The employer was held not liable as
Hilton and his colleagues had been on a “frolic of their own” at the time of the accident and
were not acting in the course of their employment.

Likewise the courts have found no difficulty in denying liability in cases of employees giving
unauthorised lifts as in Twine v Bean's Express Ltd (1946) where the driver of a vehicle,
contrary to express orders from his employer, gave the claimant a lift.

EMPLOYMENT STATUS
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There are two types of working relationship:

1. Employee. A shop assistant who works for a large department 9 to 5 Monday to Friday,
with specific holidays and wages will be an employee of the store.

2. Self-employed. An electrician who runs his own business and comes in to do a one-off
rewiring job for the department store is not an employee of the store. He is self-
employed.

The legal distinctions between these two types of working relationship are important. In legal
terminology, the shop assistant is an employee under a contract of service and the electrician is
an independent contractor under a contract for services.

The Significance of the Distinction

The difference is important for a variety of reasons, the most important are. Only employees:

 are entitled to statutory rights given by various Acts of Parliament to protect employees
such as protection against dismissal, rights to time off, redundancy, leave entitlements
etc.
 have implied into their contract certain common law duties of employer and employee.
 can make their employers vicariously liable for their torts.
 are entitle to certain state benefits such as industrial injury benefit, statutory injury sick
pay, and statutory maternity leave.
 have their PAYE tax deducted.
 Have their National Pension Scheme (NAPSA) contributions deducted.

It is not always easy to determine whether a person is an employee or an independent

contractor, and the courts have developed a number of tests to make the distinction.

In many cases the nature of the relationship between the employer and employee will be
readily established but on other occasions the position may be less clear. To cover these
situations, the courts have developed a series of tests to help them determine whether the
wrongdoer is an employee. These basic tests consist of the control test, the integration test and
the economic reality or multiple test. It may be worth examining these tests and how they may
help.

The Control Test

The control test was the original test and as we have already noted it is not surprising that this
test has its origins in master and servant law. The test examines the nature and extent of the
control of the ‘employee’.

The first test adopted by the courts was devised in the nineteenth century and was known as
the ‘control’ test. Under this test, an employee is defined as ‘a person subject to the command
of his master as to the manner in which he shall do his work.’ (Yewen v Noakes). In other words,
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the more control the employer exercised over a person, the more likely it was that he was an
employee.

Thus a person was an employee if the employer could tell him not only what to do but how to
do it. Most of the cases in which this test was applied as the sole test were cases concerning the
possibility of the employer’s vicarious liability for employees’ wrongful acts. The test was based
on the fact that in an agricultural or early industrial society, the employer did have more
knowledge and skills than the employees.

However, with developing technology and specialisation, the control test became inappropriate
as employers would hire people for particular skills (e.g. a chemical engineer), which the
employer did not have sufficient knowledge or skill to instruct the manner in which they carried
out the work.

Therefore, several other tests have been developed. There is now no single test and the
operation of the various tests is far satisfactory.

The control test had evolved in later case of Walker v. Crystal Palace Football Club (1910),
Walker was employed as a professional footballer with the defendant club and it has become
important to decide whether Walker would be categorised under contract of service or contract
for service. The court held that he was employed under contract of employment because the
club has a control in form of training, discipline and methods of play.

Similarly, in Mersey Docks and Harbour Ltd v Coggins & Griffiths Ltd (1946), the Harbour Board
lent the defendants a crane plus operator of the crane. The contract for the hire of the crane
specifically indicated that the operator of the crane was to be the employee of the stevedores
(the hirers) and not the Harbour Board (the owners of the crane). The stevedores did not know
how the operator of the crane did his job and, therefore, did not exercise any control over how
he operated the crane. A checker was injured as a result of the negligence of the operator of the
crane.

It was held that although the contract stated that the operator of the crane was to be the
employee of the stevedores, the Harbour Board exercised sufficient control over how the
operator of the crane did his job and, therefore, he was their employee and not the employee
of the stevedores.

The Integration Test

Lord Denning, not one for shying away from a challenge, came up with the integration or
organisation test. Lord Denning put forward his ideas in Stevenson, Jordan and Harrison Ltd v
MacDonald and Evans (1952).

Lord Denning proposed that ‘It is often easy to recognise a contract of service when you see it,
but difficult to say wherein the difference lies. A ship's master, a chauffeur, and a reporter on the
staff of a newspaper are all employed under a contract of service; but a ship's pilot, a taxi-man,
and a newspaper contributor are employed under a contract for services. One feature which
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seems to run through the instances is that, under a contract of service, a man is employed as
part of the business; whereas, under a contract for services, his work, although done for the
business, is not integrated into it but is only accessory to it.’
In Cassidy v Ministry of Health (1951), the claimant underwent a routine operation on his hand.
The operation was incompetently performed, and made the claimant’s condition much worse.
He sued the health authority both in its own capacity and as the employer of the medical staff
involved under the principle of vicarious liability. The question arose whether there was a
‘master-servant’ relationship between the health authority and the surgeon.

The hospital was held to be his employers under the doctrine of vicarious liability although it
did not control his work because he was part and parcel of the organisation.

As a result, Professor Kahn-Freund, in an article in the Modern Law Review, suggested that the
decisive test might be “Did the alleged servant form part of the alleged master’s organisation?”

Similarly, in Whittaker v. Minister of Pensions (1967), a trapeze artist (who might normally have
been held to be an independent contractor) was held to be an employee, since in addition to
performing on the trapeze, she had to act as usherette, sell programmes, put out the seats, and
generally help in the running of the circus:

“She had to carry out her contractual duties as an integral part of the business of the company.”

As a consequence, she was able to claim compensation for injuries sustained during the course
of employment.

Similarly, in Beloff v Pressdam (1973), B was a regulator contributor to a newspaper. She had no
regular hours, wrote for other newspapers and journals, and had leave to write books. However,
she wrote regularly for this newspaper, including leaders and was an active member of the
editorial staff, attending regular meetings and taking part in editorial decisions. Was she an
employee? It was held that she was an employee; her work was an integral part of the business

However, this test is not satisfactory because it is sometimes difficult to decide what is integral
and what is accessory and it does not deal with certain cases, for example the worker who
provides their own equipment. Consequently, the multiple test was developed.

The Multiple (Economic Reality) Test

This test looks at the economic reality behind the relationship.

Thus in Ready Mixed Concrete v Ministry of Pensions (1968), the driver of a lorry had a contract
with a company under which he drove his lorry only on company business, obeyed instructions
of the foreman and wore company colours. He provided his own lorry which he had obtained
from the company on hire purchase and was painted in company colours. He could employ a
substitute driver. He was paid on the basis of mileage and quantity of goods delivered. He paid
the expenses of repair and maintenance of the lorry and his own national insurance and income
tax. The Minister of Pensions claimed that he was an employee and the company had,
therefore, to make the employer’s insurance contributions. The question about whether he was
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an “employee” or an independent contractor arose because the company was not paying
national insurance contributions on his behalf under the National Insurance Act 1965. If he was
self-employed they did not need to, but if he was an employee they did.

It was held that although the employer exercised some control over his work, the other factors
were not consistent with there being a contract of service. In particular, the fact that he owned
his own equipment and was operating at his own financial risk to a degree (i.e. was a ‘small
businessman’) meant that he was an independent contractor.

From the Ready Mixed Concrete case above, a list of factors to be considered will include:

 Degree of control by the ‘employer’ – still a relevant factor.

 Degree to which the worker risks loss/stands to gain from profit.
 Ownership of tools and equipment.
 Degree to which the workers work is an integral part of the business.
 Regularity method of payment.
 Regularity of hours.
 Whether there is a mutuality of obligations – i.e. is the employer under a duty to provide
work and the worker under a duty to accept it.
 Ability to provide a substitute (i.e. ability to delegate the performance of the contract).
 The terms used by the parties.

Note that the amount of work done is not a deciding factor. Thus a person who works part time
can be an employee or an independent contractor depending on which side of the line he falls
on the above tests.
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