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COMMERCIAL

AND
PERSONAL
PROPERTY
LAW

THE CONCEPT
OF PROPERTY

OUTLINE
1. The concept of property
2. Traditional classification of property
3. The nature of personal property
4. The indicia of property rights
5. The bundle of rights concept
6. The importance of identifying property

WHAT DO WE MEAN BY PROPERTY?

Property refers to the legal relationship we have with a thing; it refers to a degree of
power that is recognised in law, as power permissibly exercised over the thing
Our focus is not on the thing itself, but on our rights to it, and remedies that flow
from those rights

WHAT DO WE MEAN BY PROPERTY IS A RELATIONSHIP?

If the facts required to prove a particular form of property can be established, the
holder of that property may be able to convince a third person of his or her superior
legal position by asserting and documenting that claim
Failure to do so will require the contending parties to seek judicial resolution as to
who is the true owner, and, if necessary coercion by the state to enforce the rights of
the true owner
Thus, the property relationship can only exist if there are rights in relation to an
object or thing, and society or the state is prepared to enforce those rights by granting
remedies
Some examples of property rights
o Chattels or goods: person in possession has property; rights arise from CL
and statute e.g., Sale of Goods Act 1896 (Qld) and the Australian Consumer
Law in the Competition and Consumer Act 2010 (Cth)
o Books: person in possession has property, but the author is the owner of the
copyright in the work and can prevent unauthorised copying of the work
pursuant to the Copyright Act 1968 (Cth)

TYPES OF PROPERTY

Our next topic is the different species of property that are recognised by Australian
legal system
2 main branches:
o real property (land and interests in land)
o personal property (goods/ chattels)

There are two different types of rights in relation to property


o Proprietary rights:

rights in rem: enforceable against the world at large. e.g., rights in


relation to real property, such as land

o Personal rights:

rights in personam enforceable only against the person from whom


you derived the right. e.g. Pursuant to a legally enforceable contract

The taxonomy or broad subdivision of property is depicted in the next slide

TRADITIONAL CLASSIFICATION OF PROPERTY


Main subject
of this course

PERSONALTY

Chattels real: leaseholds


o Subset of personal property referable to interests which through their
association with land have the attribute of immobility and makes them
analogous to real property
o Limited and indeterminate duration
o Confined to leaseholds

Chattels personal: two types comprises any property other than real property or
chattels real
o Chose in possession: tangible chattel goods(eg car)

o Chose in action: intangible personal (eg a share in a company or a debt);


cannot be physically possessed
Can only be enforced in a court of law

Fundamental difference between chose in possession and chose in action: whether


the thing is corporeal (can be physical possessed)

GOODS

Goods: Goods are tangible, moveable and capable of possession


But our taxonomy (like all taxonomies) gives rise to some difficulties of classification
For example, land is not goods, but can crops be goods?
o Are minerals goods?
o Are fixtures goods?
o Is computer software goods?

The classification of property is sometimes determined by statute


o Consider some statutory definitions of property:
Sale of Goods Act 1896(Qld) defines goods:
includes all chattels personal other than things in action and
money, and also includes emblements and thing attached to
and forming part of the land which are agreed to be severed
before sale or under the contract of sale

Australian Consumer Law, s 2: goods includes:


(c) minerals, trees, crops, whether on, under or attached to
land or not; and
(d) gas and electricity; and
(e) computer software
o Thus, despite the fact that computer software is the
subject of copyright ( a chose in action, rather than a
chose in possession), can be downloaded and is not
capable of being physically possessed, it is to be treated
as goods for the purposes of the ACL and has all of the
statutory rights and remedies attached to that species of
goods

THE INDICIA OF PROPERTY RIGHTS

Next question is: How do we establish when a property rights exists?


To answer this question we turn to the indicia of property rights
Property requires a degree of control or dominion over the object
In addition, all forms of property confer three primary rights:
o Use and enjoy it
o Exclude others from it
o Alienate it

Judicial authority for this approach - Blackburn J in Milirrpum v Nabalco Pty Ltd
o I think that property in its many forms generally implies the right to use or
enjoy, the right to exclude others, and the right to alienate. I do not say that
all these rights must co-exist before there can be a proprietary interest or deny
that each of them may be subject to qualification.

BUNDLE OF RIGHTS

The three primary rights are sometimes expanded


Bundle of rights
o To possess (exert physical control)
o To use
o To take benefit (receive income)
o To transfer or sell
o To exclude others (management power)
o To consume
o To modify or destroy
o To rent out or lease

Property does not require all rights to co-exist

Yanner v Eaton where Mr Yanner used a traditional form of harpoon to hunt


crocodiles in QLD and was charged under s 7 Fauna Conservation Act 1974 (Qld)
(FCA) fauna = property of the Crown; took fauna without permit pursuant to s 54;
in HC it was held that property in s 7 does not necessarily mean full and exclusive,
beneficial ownership; concept of property is bundle of rights; held that term in Act
was no more than the aggregate of the various rights Crown had to limit what fauna
could be taken; held that Act did not extinguish Yanners native title rights and
outlined difficulty in identifying what fauna was owned by the Crown (e.g did they
own all migratory birds or every bird that has ever crossed the Qld border)

THE IMPORTANCE OF IDENTIFYING PROPERTY

In conclusion, identifying the type of property will determine the property owners
rights in relation to that thing
We can work out who has property in an object and thus what they're entitled to do
with it.
Once we know what their rights are, can work out what remedial action that person is
entitled to take against others if their property rights are violated.

FIXTURES AND
CHATTELS

OUTLINE
1. What is a fixture?
2. How do you determine when a chattel becomes a fixture?
3. What constitutes annexation?
4. What role does intention play?
5. Are there any other relevant considerations?

1.0 STATE THE PRESUMPTIONS

General maxim: Whatever is attached to the soil becomes part of it.


Test is: whether the circumstances, viewed objectively, evidence an intention on the
part of the owner (the affixer), that the item should remain permanently on the
land: Holland v Hodgson
In the absence of a contractual provision to the contrary, two rebuttable presumptions
for determining the intention of the owner of the chattel or thing being affixed:
o 1. Presumed to be fixture if the item is fixed to the land by more than its own
weight: Reid v Smith
Onus lies on the person asserting to the contrary (i.e. person asserting it
is not a fixture)
o 2. Presumed to be chattel if the item is fixed merely by its own weight: Reid
v Smith
Onus of proof lies on the person asserting to the contrary (i.e. person
asserting it is a fixture)
o Reid v Smith where Queenslander house resting on stumps; whether house
formed part of freehold depended on intention and degree of annexation;
tenant of land was required to build dwellings as a condition of the lease;
Court had regard to intention that they considered the house to be part of the
freehold; held to be fixture
o Leigh v Taylor where valuable tapestry attached by life tenant so it could be
removed; attached in such a way that they could be taken away when the lease
expired; tapestries held not to be fixtures, but chattels
o Re Whaley where pictures installed to enhance the ambience of the room were
fixtures

2.0 DETERMINE WHETHER PRESUMPTIONS CAN


BE REBUTTED

Consider the circumstances of each case, particularly two circumstances as indicating


objectively the intention of the owner of the chattel being affixed:
o 1. Degree of annexation: To what extent has the chattel been affixed?
Cemented, welded onto, hanging from a hook?
If removal would cause substantial damage, strong inference of fixture:
Belgrave Nominees v Barlin-Scott Airconditioning
If not substantial, strong inference of chattel: Belgrave
o 2. Object/Purpose of annexation: determine whether the intention of the
affixer of the chattel was for the better use of the land, or for the better use of
the chattel: Leigh v Taylor where the tapestries, easily removable and
intended to be enjoyed with the land, rather than improve the enjoyment of
the land; chattels
Temporary or permanent?

1. Purpose of annexation: Was the item fixed to the land for:

2. Was the object of annexation:

The better use and enjoyment of the land = Fixture: Re


Whaley or
The better use and enjoyment of the item itself = Chattel:
Leigh v Taylor

Temporary? Chattel
Permanent? Fixture

Leading case: Australian Provincial Assurance Co v Coroneo where issue was


whether theatre seats in building were fixtures; held that test is whether it had been
fixed with the intention that it remains in position permanently or for an indefinite
or substantial period of time or only for some temporary purpose

OTHER CONSIDERATIONS

Nature of the chattel


Manner in which it is used
Period of time for which it is affixed to land
Degree or mode of affixation can it be detached without substantial injury to the
thing itself or to that to which it is attached? (Coroneo)
Purpose for affixation (for better use and enjoyment of land or merely for a temporary
purpose) (Coroneo)

But each case depends on its own facts

Belgrave Nominees Pty Ltd v Barlin-Scott Airconditioning Pty Ltd where D supplied
and installed air conditioning plant to roof of Ps building; plant was placed on
platform and affixed by its weight on pads which acted as shock absorbers between
legs of plant and platform and connected to buildings water system with flanijures
and bolts; water pipes connected to water pump which was secured to a platform; D
removed air condition after not being paid for installation; P who owned building
sought injunction claiming air conditioning was fixture; Court considered nature,
positioning and connection of plant and how it formed an essential part of the
building; held that plant annexed to building to form fixture (determined by degree
and purpose of annexation) and intention could be inferred
Commissioner of State Revenue v Snowy Hydro Ltd where 6 electricity generators
in modules resting on concrete foundations, modules in a steel frame bolted to the
foundation; generators removal, mobile and transportable; held to be fixtures - clear
intention was not for temporary purpose, but for a permanent power station; units
were bolted down so the entire site could function safely

OWNERSHIP
AND
TRANSFER OF
OWNERSHIP

1.0 OWNERSHIP?

Ownership: the legal relationship between a person and an object - the greatest
bundle of rights that can exist in relation to property at law
Distinguish from possession: a person can own without possessing, and possess
without owning
Title refers to the owners ability to resist the competing claims of others to a thing.
Interest refers the bundle of rights the owner enjoys in relation to the object eg to
alienate, to use, to possess, to enjoy the benefits and income

2.0 TRANSFER OF OWNERSHIP

Ownership - Acquisition of Ownership


Original acquisition:
o 2.1 Creation
o 2.2 Abandonment

3.0 ACQUISITION OF OWNERSHIP

General principle for transfer of property or title in goods: Property in goods is


transferred only when the owner intends it to be transferred, and this intention must be
coupled with consent + delivery; however, may be cases in which ownership is
transferred without the owners intention
How ownership can change:
o Original: Acquisition of ownerless things (abandonment principles) or
creation of new property (eg offspring of domestic animals or copyright)
o Derivative: Transfer from a previous owner eg accession, commingling,
specification, sale, assignment, gift, affixing to land, death, bankruptcy

3.1 ORIGINAL ACQUISITION - CREATION

Creation of new property - original acquisition derived through the creation of


something new
Arises when the new thing is brought into existence eg copyright
Offspring of domestic animals are the property of the owner of the dam: CL case
1572, Case of Swans cited with approval by the HC in Yanner v Eaton at [24]

3.2 ORIGINAL ACQUISITION ABANDONMENT

The elements of abandonment are:


o i) physical abandonment, meaning a unilateral physical act and

o ii) intention to abandon which must be an intention to give up the rights of


ownership and possession of the goods.

Result: owners title is divested and property becomes capable of acquisition by a


taker
Contractual provisions may negative an intention to abandon: Moorhouse v Angus &
Robertson (No 1) Pty Ltd where leaving the manuscript with publisher for 6 years did
not amount to abandonment; publishing agreement reserved to author all rights not
specifically granted to publishers; Court also considered intention and held that mere
inactivity could not be abandonment
Re Jigrose Pty Ltd where REIQ Standard Contract for sale of land (1993 version)
clause 28 Removal of chattels; V obliged to remove chattels; any not removed deemed
abandoned; P may appropriate or remove or dispose of as P thinks fit; held Cl
28 amounted to deemed representation by the V that he had no further interest in
the hay

3.3 DERIVATIVE ACQUISITION ACCESSION

Accession: the attachment of a minor chattel to a dominant chattel where the identity
of the principal chattel is not changed. The owner of the dominant chattel becomes the
owner of the principal object which now includes the accessory chattel.
The owner of the subservient chattel may have remedies eg damages
Injurious removal test: One chattel is added to or accedes to another chattel in
circumstances where the accessory cannot be removed from the principal without the
destruction of, or serious injury to, the chattel as a whole
Intention: Generally, ownership in a chattel can only pass if the owner intends;
however, the effect of the doctrine of accession is that ownership of the accessory is
transferred to the owner of the dominant chattel where the necessity of the case
requires it
o 2 issues can arise:
The necessity of the case
Which is the principal chattel and which is the accessory
chattel?

3.3.1 NECESSITY OF THE CASE

Property in a chattel can be deemed to have passed by operation of law where the
necessity of the case requires that to occur
As a matter of practicability, the accessory chattel cannot be identified or, if identified,
it has been incorporated to such an extent that it cannot be detached from the principal
object: Rendell v Associated Finance Pty Ltd where Pell hired engine from R and
truck from AF under HP agreements. P installed the engine in the truck; Clause:
accessories attached to the truck become part of the truck; issue over who owned the
engine; held that Rendell owned it, because it could be readily detached from the
truck

3.3.2 WHICH IS THE PRINCIPAL CHATTEL AND WHICH IS THE ACCESSORY


CHATTEL?

Apply McKeown v Cavalier Yachts Pty Ltd where plaintiff supplied hull worth $ 1
777; Defendant did work worth $24 409 he claimed it on the ground that he had not
been paid and that the work involved was worth much more than the value of the hull
supplied by the plaintiff; held (1)The plaintiff was the owner of the yacht and was
entitled to its return. The doctrine of accession applied to the work done on the hull
which was the principal chattel; (2) However, the second defendant was entitled to
be compensated for the improvements

3.4 DERIVATIVE ACQUISITION - COMMINGLING

the mixing together of goods, which belong to two or more people in such a way as to
produce an inextricable mixture which results in common ownership of the resultant
mass or bulk
Importantly, does not involve a change in the physical or chemical state of the mixed
or merger things
Agreement: Where commingling has been agreed, then as agreed or as tenants in
common in proportion to their contributions
No agreement:
o Accidental mixing
If contribution can be determined: each party takes as tenant in
common in proportion to his/her contribution Coleman v Harvey
If cannot be determined: each party takes as tenants in common in
equal shares: Buckley v Gross

Deliberate mixing
o The resultant mixture is owned as tenants in common
o The innocent party receives back their contribution with any doubt as to
quantity being resolved in favour of the innocent party.
o If the innocent party suffers loss by the mixing, it is entitled to claim
damages from the mixing party.
Indian Oil Corporation v Greenstone Shipping SA (Panama) where
deliberate mixing of buyers oil with residue on ship; mixture of oils could
not be separated; the buyer claimed the oil, but failed; the buyer was
entitled only to the oil it had contributed (bought)

3.5 DERIVATIVE ACQUISITION - SPECIFICATION

Specification is the process under which one product is transformed into a different
state by the application of some physical, mechanical or chemical process

Who owns the product: depends on whether the transformation into the different
product was lawfully done

3.5.1 SPECIFICATION LAWFULLY DONE?

If the specification is done lawfully, the derived product will belong to the maker:
Associated Alloys Pty Ltd v Metropolitan Engineering and Fabrications Pty Ltd
where sellers steel made into a new product by the buyer; buyer in liquidation;
Romalpa clause (retention of title) - title to the goods does not pass to the buyer until
it has paid the purchase price of the goods;
o Associated Alloys applied the general principle: Where As material is
lawfully used by B to create new goods, whether or not B incorporates new
material of his own, the property in the new goods will vest in B: Clough
Mill Ltd v Martin

3.5.2 SPECIFICATION NOT LAWFULLY DONE?

If specifically done unlawfully, the derived product will belong to the owner of the
original material: Silsbury v McCooon where stolen corn was used to make whiskey;
specifically done unlawfully by non-innocent wrongdoer; new product belonged to
owner of original material who was entitled to the new product or to its improved
value in an action for damages

SUMMARY

Relationship between the doctrines of accession, commingling and specification


o Specification: impossible to reverse the process; involves a physical or
chemical alteration the original goods
o Accession: physical or chemical state is not altered; goods identifiable, but
not separable
o Commingling: homogeneous goods are blended; no alteration in the physical
or chemical state of the goods

3.6 DERIVATIVE ACQUISITION - SALE

Bilateral transaction involving a seller and a buyer


Contract of sale transfers ownership of, or property in, the goods from the seller to the
buyer

3.7 DERIVATIVE ACQUISITION ASSIGNMENT

Assignment: the immediate transfer of an existing proprietary right from the assignor
to the assignee

The proprietary interest in a chose in action can be transferred by way of assignment.


o A legal chose in action is a right of action that can be enforced in a court of
law such eg a debt
o An equitable chose in action is a right of action that can only be enforced in a
court of equity eg interest of a beneficiary under a deceased estate

Legal assignment must be in accordance with - s199 Property Law Act 1974 (Qld):
Assignment must be in writing under the hand of the assignor
Assignment must be absolute and not purport to be by way of charge (e.g.
must give the assignee sole right to the debt as against the debtor)
Notice in writing must be given to the debtor, trustee or other person from
whom the assignor would have been entitled to claim the debt or thing in
action
Consideration is not necessary

3.8 DERIVATIVE ACQUISITION - GIFT

Gift: a gratuitous transfer of the ownership of property from one person (the donor) to
another person (the donee) with the full intention that the thing should not be returned
to the donor
Elements:
o (i) Delivery of possession;
o (ii) Intention of the donor to transfer the property right to the done
o (iii) Intention of the donee to accept the transfer
o (iv) No valuable consideration

3.8.1 DELIVERY OF POSSESSION?

delivery must involve surrender of both possession and control


can be actual or constructive delivery

3.8.2 INTENTION TO TRANSFER PROPERTY RIGHT TO DONEE?

intention must be to give the donee the absolute right to the exclusive enjoyment of
the chattel
donor must communicate that intention to the donee

POSSESSION
AND REMEDIES
FOR
INTERFERENCE
WITH
POSSESSION

OUTLINE

1.0

Possession as an interest in property


Transfer of possession
Remedies for interference with possession

POSSESSION

Topics considered:
o Possession vs Ownership
o The relevance of possession
Confers rights enforceable at law
Confers a possessory title
Prima facie evidence of ownership
Remedies founded on possession
Title (ownership) may pass without possession passing

Elements of possession
o No exhaustive definition which suits all contexts
o The meaning always depends on the context
o A relationship in fact between a person and some material object
o Elements:
Control
Intention to possess

Six forms of possession


o custody
o actual possession
o legal possession
o lawful possession
o constructive possession
o right to possession

1.1 FORM 1: CUSTODY


Custody - physical holding or control of a chattel which does not amount to
possession: FCT v ANZ where issue was whether bank had custody of documents in
safe deposit box; had K with customer that only the customer would have access to
box; bank had spare keys in case customer lost theirs; held bank had custody of
contents in box and had to produce documents in its custody or control to FCT

1.2 FORM 2: ACTUAL POSSESSION

Physical possession evidenced by some outward act


the person holds the item for their own benefit;
the control enables the possessor to exclude others

1.3FORM 3: LEGAL POSSESSION

State of being a possessor in the eye of the law; coexists with the fact of physical
control, making the exercise of that control rightful
Need not have lawful origin
o So even one who has proceeds from drug money will have legal possession

1.4 FORM 4: LAWFUL POSSESSION

Legal possession + legal right to possess


It is not wrongful and is the possession of the true owner

1.5 FORM 5: CONSTRUCTIVE POSSESSION

Legal possession without actual possession; right to claim actual possession


Example: Goods being stored in a locked warehouse; owner sells goods and give key
to buyer
o Buyer has constructive possession of goods

EXAMPLE OF HOW DIFFERENT TYPES INTERACT

Example: Pollock and Wright, An Essay on Possession in the Common Law (1888)
o Tailor sends coat to JS: JS has legal possession once he accepts delivery
o Servant takes coat back to tailor for alterations: servant has custody;
o Z robs servant: Z has complete control over the coat and legal possession, but
wrongful possession
o JS is able to defeat Zs claim by proof of a superior title

1.6 FORM 6: RIGHT TO POSSESSION

The legal right to acquire actual possession


o E.g in a bailment, where one delivers goods into the custody or care of
another, the bailee the bailor has an immediate right to possession if the act
is wholly repugnant to the holding as bailee: Penfolds Wines v Elliot

More than one type of possession may exist at the same time: not mutually exclusive

2.0 TRANSFER OF POSSESSION?

Transferred in three ways


o 2.1 Delivery
o 2.2 Abandonment
o 2.3 Finding

2.1 DELIVERY?

Delivery: means of divesting and acquiring possession in relation to choses in


possession (chattels/ goods)
Voluntary and consensual transfer of possession from one person to another eg by sale
or gift; intention of person making delivery (transferor in possession): transferee
should acquire possession
o (i) Actual delivery usually goods are handed over or taken;
o (ii) Constructive delivery goods are delivered without any change in their
actual possession

2.2 ABANDONMENT?

Abandonment: means of divesting possession


Absolute relinquishment of private goods
Elements:
o (i) unilateral physical abandonment
o (ii) intention to abandon
Moorhouse v Angus & Robertson (No 1) where manuscript abandoned for
six years with publisher Robertson; under terms of K it was said that
manuscript would be retained by the author, so even though the author did
nothing with it for six years, that inactivity did not evince an intention to
abandon the manuscript

2.3FINDING?

A person in possession of an object has rights even where the person is not the true
owner: Armory v Delamirie
o finder does not acquire absolute property, but can keep it against all but the
rightful owner
o Usually a dispute between the finder, the occupier of land, and the owner of
the land
o Principles vary according to circumstances of the finding
Rights acquired are possessory, not ownership
Right is to keep it against all but true owner

Where goods are attached to the land: Elwes v Briggs Gas Co where dispute between
owner of land (lessor) and occupier (lessee); held owner had better claim

Where goods are not attached to the land, occupier has better claim but only if
occupier manifests an intention to exercise control over the building; if no intention
to exercise control over the building, finder has better claim: Parker v British
Airways Board where dispute between occupier and finder; Parker waiting as
passenger in executive lounge of terminal 1 in London airport and found a
gentlemans gold bracelet on the floor lost by its rightful owner; delivered it to
employee and orally requested that in the event of it not being claimed that it should
be returned to him; bracelet never claimed but despite request the Board subsequently
sold it; issued proceedings; held that Board could not assert rights because they did
not manifest intention to control the lounge and all things in it

3.0 REMEDIES FOR INFRINGEMENT OF


POSSESSORY RIGHTS

3.1 Trespass to goods (based on possession, not ownership)


3.2 Detinue (based on possession, not ownership)
3.3 Conversion (based on possession, not ownership)
3.4 Special action on the case (NOT based on possession)

Loss of possession can arise in one of 3 ways:


o Wrongful taking: (trespass);
o Wrongful detention: (detinue)
o Wrongful disposing (conversion)

3.1TRESPASS TO GOODS
3 a voluntary act which involves the direct and unauthorised interference with the
possessors actual possession of a chattel: Penfolds Wines Pty Ltd v Elliott where
Penfolds made and sold wine in bottles; retained ownership of bottles embossed with its
name; hotelkeeper sold bulk wine to customers who provided bottles in which to carry it
away; hotelkeeper filled bottles; Penfolds applied for injunction to restrain alleged
trespass to goods; held no trespass as Elliot was in possession of the bottles
o Title to sue: actual possession or an immediate right to possession, depending
on the circumstances
o Remedy: damages for the injury done to the chattel

3.2CONVERSION
4

intentional (deliberate) wrongful dealing with anothers goods in a manner which is


inconsistent with the immediate right of possession of the owner: Penfolds where
conversion did not occur because Elliot only did as he was instructed and did not
impute an intention to act repugnantly towards Penfolds rights
o Title to sue: immediate right to possession
o Remedy: damages to the value of the goods, usually calculated according to
market value

Elements of conversion:
o Defendants conduct inconsistent with rights of owner
o Intention: conduct was deliberate not accidental
o Conduct was so extensive an encroachment of the proprietary rights of the
owner as to exclude him/her from use and possession of the goods
Penfolds

3.3 DETINUE

a wrongful detention of goods, and


the tortfeasor refuses to deliver up the goods when demanded
Grant v YYH Holdings Pty Ltd where claim for 16 Awassi sheep; action barred by
Limitation Act; detinue accrues when demand is made and first demand was in
January 2004, but in relation to progeny and semen they had not been made until
2010 so those actions stood;
o Title to sue: immediate right to possession
o Remedy: order for return of the goods or damages being the value of the
goods

3.4 SPECIAL ACTION ON THE CASE


3

Special action on the case - action for an owner who is not in actual possession and has
no right to immediate possession: Penfolds Wines
3.1 Does not depend on the Ps immediate right to possession
3.2 Permanent damage to chattel must have occurred

BAILMENT

TOPICS

Definition of bailment

Differences between bailment and other relationships

Subsidiary bailments

Bailees rights against third parties

Duties of bailor

Duties of bailee

1.0 DEFINE BAILMENT


3

A bailment comes into existence upon a delivery of goods of one person, the bailor, into the
possession of another person, the bailee, upon a promise, express or implied, that they will be
re-delivered to the bailor or dealt with in a stipulated way. Hobbs v Petersham Transport
Co Pty Ltd
Bailment can occur only in relation to choses in possession (tangible chattels), not choses in
action or real property
One person (the bailee) takes possession of goods of another (the bailor) voluntarily and
knowingly
It is the separation of ownership and possession that is critical there can be no bailment
unless one person is in possession of goods which belong to another
Bailment can be created without the knowledge or consent of the bailor eg bailment by
finding
Most bailments occur with the knowledge and consent of the bailor pursuant to contract:
8.1

Lending a car, bike, book

8.2

Hiring a car, boat, bike

8.3

Using a supermarket trolley

8.4

Giving possession of a car to a mechanic to be serviced

8.5

Online purchases being shipped

Bailments involve some degree of delivery and possession (actual or constructive) being
transferred by bailor to bailee: no transfer of possession, no bailment

Possession includes constructive possession: control, in the absence of physical custody

Bailment for a term lasts for a definite period of time

Bailment at will lasts indefinitely; can be terminated at any time by bailor

1.1 INTERESTS IN GOODS BAILED

If bailment for a term, a bailors right to possession is suspended for the duration of
the bailment and bailee has possession (including right to possession)

If bailment at will, bailor has a right to immediate possession against bailee

A bailee has a possessory interest


Matthew Short & Assocs Pty Ltd v Riviera Marine (International) Pty Ltd where Riveria
manufactured and sold motor cruisers, exported through Port of Botany; Short, a forwarding
agent, would arrange space on a freighter; Short would arrange mobile crane operator to lift
cruiser on to low loader and driver of low loader (Campbell) to transport cruiser to wharf
and freighter; Campbell, the driver, negligently drove truck beneath archway and struck
large sign attached to archway; issue was whether Short was a bailee; held that Campbell
was bailee, not Short, as Shorts presence and supervision at the time of loading did not
establish possession

2.0 DIFFERENCE FROM OTHER RELATIONSHIPS


Agency: authority or capacity to create legal relationships between principal and third

parties

Licence: grant of permission to leave chattels on anothers premises

Sale: transfer of ownership rather than just a transfer of possession

2.1 BAILMENT AND AGENCY

Role of bailee:

Bailee does not represent bailor just exercises powers over bailors

property

Bailee cannot make contracts for bailor

Bailee cannot make bailor liable for bailees acts

Role of agent:

Agent represents principal


Agent has power to affect legal position of principal acquire rights and make
subject to liabilities
Principal can be liable for misconduct of agent

2.2 BAILMENT AND LICENSE


Bailment:

Transfer of possession and control to bailee

Voluntary acceptance of duty to take care

Bailee can exclude all others from possession of goods

Licence:

Possession and control over goods remain with owner

No responsibility for guarding chattels accepted

E.g. leaving a coat in a cloakroom

2.3 BAILMENT AND SALE

Sale: transfer of ownership rather than just a transfer of possession

Sales and bailments can coexist in relation to a particular chattel

when a seller of goods remains in possession after property has passed to the
buyer (seller is the bailee and the buyer is the bailor) or
when a seller delivers goods to the buyer but stipulates that the property shall
remain with the seller until payment (seller is the bailor and the buyer is the bailee) a
retention of title or Romalpa clause
Chapman Bros v Verco Bros where farmers delivered wheat to wheat merchants;
merchants stacked wheat with other wheat which not marked; impossible to identify and
restore to individual farmers exact bags; K held that on request by farmer, merchants
would pay for wheat or return equal quantity, but not required to return identical wheat;
held not to be a bailment, but a sale

3.0 BAILMNT OF MONEY?

No bailment of money where A lends money to B; relationship of banker and


customer is one of debtor and creditor: South Australian Insurance Co v Randell
However, a security company hired to carry money will be a bailee: Brambles
Security Services Ltd v Bi-Lo Pty Ltd

4.0 SUB-BAILMENT

A subsidiary bailment occurs when: a person who is not the owner of goods, but who
retains a present right to possession as bailee, transfers possession of those goods to a third
party, the sub-bailee
Bailor may bring an action against the sub-bailee and is not required to rely on any
contract between the bailee and the sub-bailee
Sub-bailee is answerable both to the head bailor and to the bailee for any breach of the
sub-bailees common law obligations: The Pioneer Container
Bailee remains liable to the bailor for any default of the sub-bailee
In an action by an owner against a sub-bailee for loss of the goods, the sub-bailee can
only rely on the terms of the contract between the bailee and the sub-bailee if the owner has
expressly or impliedly consented to the bailee making a subsidiary bailment on those terms,
but not otherwise: The Pioneer Container where carriage of goods by sea; consent to
subsidiary bailment on any terms was sufficient consent to the sub-bailees terms
See also Morris v CW Martin & Sons Ltd where P sent her mink stole to drycleaner
for cleaning; dry cleaner explained they did not provide that service, and with Ps consent
forwarded the mink stole to their furriers; furriers employee stole the mink stole; held that
sub-bailee, the employee, was liable to P irrespective of no K between them and P; D
breached their duty to take reasonable care and to not covert bailed goods; bailor was
bound by conditions (exemption clause) if they had expressly or impliedly consented to the
bailee making a subsidiary bailment containing those conditions, but not otherwise; while
P impliedly consented to terms usually in the current trade, exemption clause did not apply
because exempted loss occurred during processing, whereas what the furrier did was not
during, but before

5.0 EMPLOYEES AS BAILEES

An employee who, in the course of employment, acquires control of the employers or


anothers goods does not, by virtue of that control alone, become a bailee
At common law, an employees possession is generally deemed to be that of the
employer
Employees owe a duty of care towards their employers property notwithstanding the
absence of bailment
Employers who are bailees are liable for their employees negligence

6.0 BAILEE'S RIGHTS AGAINST THIRD PARTIES

Where a stranger commits a tort against bailed goods, the bailee can recover from the
tortfeasor the full value of the goods, or the full cost of their repair or diminution in value, as
if they were the bailees own property
In a bailment the common law equates possession and title

A bailee must make a proper division of the proceeds with the bailor after recovering
in full from the third party
Recovery by the bailee relieves the third party from liability to the bailor

The Winkfield where mail posted in South Africa and on route to Southampton in England on
a ship called the Mexican, which sank after a collision with the Winkfield; owners of
the Winkfield admitted liability; it was assumed for the purposes of the case that plaintiff
Postmaster-General was the bailee of the mail, constructive possession even though custody
resided in the owners of the ship on which it was being carried; plaintiff sued to recover a
proportion of the loss from the Winkfields owners; Court of Appeal held owners of the
negligent ship were liable in full for the value of the mail; in an action against a third party
for loss caused by the third partys negligence, the bailee in possession can recover the value
of the goods; possession constitutes title against a wrongdoer; wrongdoer cannot defend
himself by showing that there is title in some third person (bailor); bailee has a liability to
account to the bailor

Rule also applies to gratuitous bailees as well as to bailees for mutual advantage:
Millar v Candy

7.0 DUTIES OF A BAILOR FOR REWARD

Where the bailment is for a fixed term, bailor has a duty not interfere with bailees
possession until the expiry of the term

bailor may be liable in trespass, conversion or breach of contract

To inform the bailee of dangers in the goods: Pivovaroff v Chernabaeff where


warning given not to allow children near an onion-sorting machine, boys hand mutilated
Where bailment is hiring for reward, to ensure goods are merchantable and fit for
purpose

8.0 DUTIES OF A BAILEE


Duty of care

Traditionally:

Bailee of goods for the benefit of both parties standard of care: is


liable for ordinary negligence
Bailee of goods for the benefit of the bailor alone standard of care: is
liable for gross negligence
Bailee of goods for the benefit of the bailee alone standard of care: is
liable for even slight negligence

Modern English approach: one duty of care upon all categories of bailees: will
be liable for failure to exercise reasonable care
High Court is yet to consider the matter

Duty of care

A bailee for reward is not an insurer does not have to take every conceivable
precaution and is not liable for every loss
Has a duty to take reasonable care in the circumstances (modern English

approach)

Onus rests with the bailee to show he or she took reasonable care in the
circumstances

Normal onus of proof in law of tort (negligence): Pl must prove a breach of duty of
care that caused Ps loss
In relation to a bailees duty to take care of the bailed goods, in the event of loss or
damage to the bailed goods the onus of proof rests with the bailee (reversal of normal onus)
Rationale:

the bailee (being in possession) is in a better position to know what has


happened and is more likely to have been at fault if he or she cannot adequately explain

Duty to take reasonable care

Standard of care: that an ordinary reasonable person would exercise in the


circumstances

1. Bailment for reward or gratuitous?

2. For benefit of one party or both?

3. Whether bailee has professed skill?

Duty to retain possession

Duty to deliver (or return) the goods bailed

Duty to not misuse the goods (conversion)

See Pitt Son & Badgery Ltd v Proulefco SA where a wool broker retained in
a wooden shed, wool it had sold to another; the wool was destroyed by a
fire started by a young drifter, who put lit paper in a crack in the shed
wall; the shed was nearly 40 years old, in dry condition and surrounded by
an ineffective wooden fence, parts of which had been removed for
firewood; although adequately locked and equipped with 12 fire
extinguishers, the shed was unattended at night and there was no
floodlighting or overnight watch and the area was non-residential; the
lessees of the shed conceded that they were bailees for reward but
denied fault; held: the broker had failed to take reasonable care
Jackson v Cochrane where owner delivered caravan to bailee motor dealer for sale
on consignment (sale or return); bailee induced by fraudulent misrepresentation to deliver it
to three strangers who said they had the owners authority (misdelivery); held: bailee was
liable for the loss of the caravan failure to take reasonable care of bailed goods
Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd where bailor
delivered motor vehicle to bailee for repair; bailees employees left key in ignition; thieves
broke in through skylight in roof overnight and drove vehicle away; shortly after the break-in,
the defendants installed security bars, an alarm system and signs outside warning of alarms;
held: Defendants liable had failed to take reasonable care

GOODS WITHIN GOODS

Moukataff v BOAC where 20,000 in banknotes sent by registered


mail from London to Kuwait was stolen by a baggage handler; BOAC
denied liability arguing that it had been a bailee of the mailbags, but not
their contents; held: since BOAC knew the mailbags contained mail and in
particular that red labelled registered mailbags contained valuables, it
was a bailee of both; bailment will only extend to contents if the bailor
made specific mention of the contents at the time of delivery
Mendelssohn v Normand Ltd where Mendelssohn (M) was prevented from locking
his car by a car park attendant; M told the attendant that the car contained valuables and
asked him to ensure it was locked after being parked; when M returned, he found it unlocked
and the valuables gone; held: Normand was liable as it had been a bailee of both the car
and its contents because it had been put on notice that the car contained valuables

9.0 TERMINATION OF BAILMENT

Expiry of term

Bailors demand in a bailment at will

Wrongful act of bailee inconsistent with the bailment

Bailor transfers ownership of goods to bailee

Destruction of the goods

AGENCY

1.0 AGENCY DEFINITION

An agency relationship exists between two parties where one party (the agent) is
authorised by the other party (the principal) to do on behalf of the principal acts which affect
the principals rights and duties with respect to third persons
Fundamental to the concept of agency is authority

STEP ONE: Establish the existence, nature and extent of the agency:
1. Is there an agency relationship as a matter of law?
2. What is the scope of the agents authority?
In particular whether the agent was given authority by the principal to
enter into the particular K at issue or engage in the conduct at issue

2.0 ARE THEY AN AGENT?

The existence of an agency relationship is determined as a question of law which the


courts approach objectively was A acting as agent for P (had the requisite authority) in
relation to the particular act concerned?
Garnac Grain Company Inc v HMF Faure & Fairclough Ltd [
o
An agency relationship is manifested by the consent of the parties; however,
they will be held to have consented as a matter of law, even if the parties have
expressly disclaimed it

Effect of there being an agent


An agent can create legal relations between the principal and third parties
Significance consider contracts and torts
(i) Contracts able to be entered into on behalf of the
principal: International Harvester Co of Australia v Carrigans Hazeldene Pastoral
Co where International Harvester (IH) was the manufacturer of hay balers Hassan
and Kensell Pty Ltd were vendors of farm machinery and sold an IH hay baler to the
Ps; Baler was defective; Respondent sued IH for breach of K; Issue: Did HK sell as
agents for IH or as principals?; held: HK sold as principals; purchased hay baler for
on-sale. Did not contract on behalf of IH; therefore, respondent had no right in
contract against IH.
(ii) Liability in tort - the principal will be liable when the conduct
occurs when the agent is carrying out a task for the principal: Hollis v Vabu Pty Ltd
applying CML v Producers and Citizens Co-op Assurance Co of Aust Ltd

P may be liable for the careless conduct of an A causing damage to a Tp even


if the A is not an employee

P will be liable when the conduct occurs while A is carrying out a task for the
benefit of the P as his or her representative

2.1 AGENCY AND CAPACITY

Capacity of the Principal:


A person may appoint an agent to do any act which he or she has capacity to do
P must have the legal capacity to do the act which the agent performs on the
principals behalf: Christie v Permewan Wright & Co Limited
P must have the legal capacity to contract
If P a minor, capacity to appoint an agent to enter into contracts is limited to contracts
which P can validly make (eg contract of employment for the benefit of the minor)

(ii) The capacity of the agent


By contrast, an agent does not need to have capacity in order to bind the principal, but
must be capable of understanding the nature of what he or she is doing and consent to it
Agent not required to have
legal capacity: Watkins v Vince
Even though a minor would
not be liable to a TP on a particular contract if contract between minor and TP, minor can
enter into the same contract as agent for P, and contract between P and TP will be
binding

2.0 NATURE AND SCOPE OF AGENTS AUTHORITY

Determine whether A had Ps authority to do the particular act


5 commonly recognised sources of an agents authority:
1. Actual authority, which can be (i) express or (ii) implied
2. Ostensible authority (apparent authority)
3. Ratification
4. By operation of law (eg master of a ship has wide powers to sell cargo in
danger of perishing even though not expressly authorised, will bind owners, if urgent
necessity arising from accident and impossible for master to communicate with owner
5.By operation of statute

2.1 AGENCY 1: ACTUAL AUTHORITY?

The Nature and Scope of an As Authority Actual Authority


Actual authority can be:
Express (by writing or orally) to perform certain acts;

Examples of actual express authority: by deed or contract


such as power of attorney, letter conferring authority, or provision in a companys
constitution or board resolution
Implied (orally or conduct or course of dealing, custom etc )

2.1.1 ACTUAL EXPRESS AUTHORITY?


Whether act within agents actual express authority will depend on construction of
the terms of any instructions given by the P: Tobin v Broadbent
Consider Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd where Alphapharm (P) was
distributor in Aust flu vaccine; Richard Thomson Pty Ltd (A) authorised upon rates of freight,
terms of payment and other standard terms and conditions of a contract for storage and
transportation; RT, with Alphapharms consent, arranged for Finemores (TP) carriers to
distribute vaccine to customers; RTs employee signed a contract with F containing an
exclusion clause (Cl 6) which provided that in no circumstances would F be liable for loss or

damage occurring in the transportation of the goods; Vaccine damaged by F; issue whether
F liable for Ps loss; held: actual express authority existed; Alphapharm had authorised RT
to agree upon rates of freight, terms of payment and other standard terms and conditions of a
contract for storage and transportation; terms and conditions of the contract with F signed
by employee of RT were standard (including the exclusion clause) therefore RT via its
employee had acted within the scope of its actual express authority
2.1.2 ACTUAL IMPLIED AUTHORITY?

It can be sub-divided into four categories:

Incidental authority

Usual authority

Customary authority

Internal course of dealing (such as de facto appointment)


o

(i) incidental authority


Every A has implied authority to do everything necessary for,
and ordinarily incidental to carrying out his or her express authority according to
the usual way in which such authority is executed
Part of As actual authority which P has consented, by
implication, that A should have
BUT, actual implied authority in an agent to enter a particular
transaction cannot exist where there are express directions from the principal to
the agent to the contrary: Fray v Voules where a solicitor expressly told by his
client not to enter a compromise could not do so even when advised by Counsel to
do so;
Eg A express authority to find purchaser for house
A has actual implied incidental authority to make
representations describing it to a prospective purchaser, but not to sign a binding
contract with a purchaser
(ii) Usual authority
A is impliedly authorised to do what is usual in his trade,
profession or business for the purpose of carrying out his authority
Usual authority and directors of companies:

An ordinary director of a company (absent other


authority) does not have usual authority to bind the company: Northside
Developments Pty Ltd v Registrar-General

A managing director has usual authority to

employing people for the company

borrowing money and give security over the


companys property

authorising agents to enter into contracts on


behalf of the company

Hely-Hutchinson v Brayhead Ltd where Denning MR in


respect of the de facto appointment by a board of directors of one of their
number as MD: They thereby impliedly authorise him to do all such things
as fall within the usual scope of that office.
(iii) Customary authority

Where A is employed to act for his or her P in a certain place,


market or business, then A is impliedly authorised to act according to the usages
and customs of such place, market or business
The custom must be known to P, or be so notorious that P
cannot be heard to say he or she had no knowledge of it
(iv) Conduct of P in relation to previous transactions entered into

by A

Hely Hutchinson v Brayhead Ltd where P Brayhead and A


was Richards Chairman of Brayhead and R acted as de facto MD and Chief
Executive of Brayhead; Board of Brayhead acquiesced in this; third party was HH chairman and MD of Perdio; H-H lent money to Perdio; H-H and R agreed
that Brayhead would give H-H a guarantee & an indemnity in relation to moneys
lent; R purported to sign guarantee and indemnity on behalf of Brayhead but R
did not disclose this to other board members; issue arose whether R had
authority; held he did, implied from conduct of parties and circumstances of
case to enter into two Ks with H-H binding Brayhead; Board of Brayhead (P)
had acquiesced in Richards (A) acting as de facto MD and Chief Executive of
Brayhead and committing Brayhead to Ks without the necessary sanction of the
board

2.2 AGENCY 2: OSTENSIBLE AUTHORITY?

Ostensible authority is not actual or real authority at all; does no result from consent
on the part of P (whether express or implied) that A should have authority
As authority is the product of Ps conduct
the law regards A as possessing authority notwithstanding Ps lack of consent
The authority of an agent as it appears to others: Hely-Hutchinson
It is a legal relationship between the principal and contractor created by a
representation made by the principal to the contractor, intended to be and in fact acted upon
by the contractor, that the agent has authority to enter on behalf of the principal into a K of a
kind within the scope of the apparent authority, so as to render the principal liable to
perform any obligations imposed on him by such contract: Freeman & Lockyer v
Buckhurst Park Properties (Mangal) Ltd

Elements:
Representation by P (words or conduct) to Tp that A has Ps authority to do
this act
Reliance on representation by Tp
Alteration of Tps position (detriment) resulting from such reliance

2.2.1 REPRESENTATION?
Element 1: First element, a representation must come from P can

be express or implied

by words or conduct

intentional or negligent

Representation most commonly by conduct eg


From P appointing A to a particular position or entrusting A with some
responsibility

Course of dealing between Tp and P through A


Ps silence while someone deals with Tp apparently on behalf of P

(i) First issue, the manner in which the representation can be made
P may represent A as its agent by:
(a) Acquiescence: Freeman & Lockyer v Buckhurst Park Properties
(Mangal) Ltd where Buckhurst (B), (Principal), established to develop land; 4
directors; Kapoor (Agent) acted as MD (not appointed; acquiesced in K so acting); K
engaged FL firm of architects (Third party - Freeman & Lockyer); issue whether B
had FLs fees; Held: Yes. Silence as regards Ks lack of authority amounted to a
representation by P that A had authority

(b) Appointing A to particular position: eg Manager


Representation by P that manager (A) has the powers usually
possessed by a manager: British Bank of the Middle East v Sun Life Assurance
of Canada (UK) Ltd

(c) P describing A in a particular way eg our representative in


relation to land sales
(d) Course of dealings between the third party and P \

eg P appoints A as land spotter and authorises A to buy for future


development; on 10 occasions A signs contracts and binds Y. If P withdraws
As authority but continues to hold A out as land spotter. X subsequently
enters into contract. P bound
(e) P equipping A with a certain title, status and facilities: Pacific
Carriers Ltd v BNP Paribas (2004) 218 CLR 451 where Bank officer signed and
stamped indemnity; Bank officer had no actual authority; held bank was bound
because of ostensible authority; factors included: her position (equipped her to deal
with the indemnity), permitted to sign and stamp documents in an unqualified form;
nothing in Banks public documents which stated that Bank Officer did not have
power
(f) Business cards: Prospect Industries v Anscor Pty Ltd where A was
permitted to use business cards identifying him as an authorised representative of the
P; issue was whether this was out by P to Tp; held no it was not, as there was a note
accompanying words; A made it clear that he was not representing P

(ii) Second issue, who can make the representation?


Cannot be made by A; only the P or someone expressly authorised by the P:
Freeman Lockyer
However, there may be circumstances where Repn by A may be in truth by
P eg previous course of dealings, As position (putting A in a position or allowing A to
act in a position)

Self-authorising agent
Not Ps representation, but

Principals failure to interfere when such interference could reasonably


be expected; or

Where Principal failed to take proper safeguards against a


representation of authority by the Agent: Pacific Carriers Ltd v PNB Paribas

(iii) Third issues, where P is a company, who can make a representation on behalf

of co?

2.2.2 RELIANCE?
Second element, reliance

Need to establish a causal connection between the representation to the Tp and


the dealing between the Tp and the A

Tp cannot hold P liable where Tp:

not aware of the representation

did not believe it or

Tp knew or had the power to know that the A lacked authority


2.2.3 DETRIMENT?
Third element, detriment

Tp must have suffered a detriment in relying on the representation as to


authority

Sufficient to establish alteration of position or acting on the faith of the


representation eg entered into contract, engaging and instructing solicitor

A party with actual authority (eg the board) can confer ostensible authority on
an agent to bind the company
A party with only ostensible authority themselves (eg ordinary director) cannot
confer ostensible authority on an agent to bind the company
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty
Ltd

Consequences of a finding of ostensible authority are:


P will be bound to Tp
Tp can sue P (and P can sue Tp)
P can sue A for breach of duty

The extent of the ostensible authority will depend upon the nature of the
representation made
Outline

Ratification

Agency and third parties

2.3 AGENCY 3: RATIFICATION?


What does it do?

In effect, P retrospectively grants authority to A, where A at the time had no


authority or had limited authority which A exceeded

Effect of ratification: As act is as valid and effectual as if it had been done by a


properly authorised agent so it places the parties in the positions they would have been in if,
at the time of the act, A had been duly authorised

Firth v Staines: Where an act is done purportedly in the name or on behalf of


another by a person who has no authority to do that act, the person in whose name or on
whose behalf the act is done may, by ratifying the act, make it as valid and effectual, subject
to certain provisos, as if it had originally been done by his authority....

5 conditions to be satisfied for valid ratification

1. A whose act is sought to be ratified must have purported to act for P when
entering into the transaction
o

P must be known or capable of identification; not necessarily named,


but a description of the person intended to be bound as P

2. P must be in existence at the time the act was done and competent at the
time of the contract
3. P must be legally capable of doing the act in question himself (eg make the
contract) both at date of the contract and at the date of ratification
Infants may not be able to ratify acts purporting to be done on their

behalf

4. Ratification must be of the whole of the contract, or nothing; P cannot


adopt whatever is advantageous in As act and repudiate what is onerous
5. P must know all the material facts (unless P has indicated an intention to
ratify whatever the circumstances; blanket ratification)

Who can ratify? (authority to ratify)

Only person who can ratify As act is the person in whose name the act was
expressed to be done (P); however, P may ratify through an A
A must purport to act on behalf of an identified or identifiable person, and
under the authority of that person, before that person can ratify As act
A who ratifies only requires authority to ratify, not authority to have
performed the act ratified: Re Portuguese Consolidated Mines Ltd
o

An undisclosed P cannot ratify: Keighley Maxsted & Co v Durant


where P (KM) authorised A (Roberts) to buy wheat on a joint a/c for
P and A at a certain price; A unable to buy at that price and bought
at higher price, without Ps authority; A bought wheat in his own
name though he intended it to be for both; Next day, P ratified;
agreed with A to take the wheat on joint a/c; Subsequently both P
and A later refused to take delivery of the wheat; issue was whether
P was liable on the K; held P could not be made liable for breach of
K, as A had not professed to be acted for P; Ps purported
ratification was therefore ineffective

If a relationship of P and A is to exist and affect Tp, it must be


based upon knowledge on the part of all concerned, and their joint intention that
such a relationship should exist and affect rights and liabilities
However, an exception to this principle: doctrine of
undisclosed principal, considered below

Act of Ratification

Proof of acts and words showing an election to adopt as his own the act of
another and done by that other for Ps benefit or in Ps name

Can be express or implied

But, P can only ratify if he or she:


o

Is aware of all the material facts: Taylor v Smith; or


Can be shown to have adopted the agents acts whatever they were (a
blanket ratification): Bayley v Fitzmaurice

Proof of ratification

Ratification can be by express acts or implied

Need not be expressed in writing, not necessary for P to notify Tp of


ratification;
By implication but P must do some positive , unequivocal act which indicates

ratification

For implied ratification to exist, the words or conduct of the P must


be unequivocal: no other explanation for Ps act: Forman & Co Pty Ltd v Liddesdale
where extra repairs were done to a ship by order of the shipowners agent; repairs not
within the scope of As authority; after repairs completed P took back the ship and sold it;
P sued for repairs; held re-taking possession did not amount to ratification of As acts;
P had no choice but to retake the ship; upon which the unauthorised repairs had been
performed P re-taking own property

Other methods of proof of ratification:

P accepts benefits of contract

P receives purchase price of goods sold by A without authorisation,


amounts to ratification
but P must have complete knowledge of facts surrounding the sale
Australian Blue Metal Limited v Hughes

3.0 AGENCY AND THIRD PARTIES

In what circumstances can P sue and be sued by Tp?

In what circumstances can A sue and be sued by Tp?

3.1 WHERE A ACTS FOR A DISCLOSED P

Basic rule: Where A has made contract with Tp on behalf of disclosed P, who
actually exists and who has authorised A to make such a contract, P can sue and be sued by
Tp on such contract

Direct contractual relationship create between P and Tp

A not a party to that relationship; A has no liability in relation to that


contract: Universal Steam Navigation Co v James McKelvie & Co

3.2 WHERE A ACTS FOR UNDISCLOSED P

(one of whose existence the Tp is unaware, so Tp does not know that the person with
whom he is dealing is an A for anybody), and A has actual authority to contact on Ps behalf
If so, undisclosed P can sue and be sued in his or her own name on a contract duly
made on his behalf so long as agent acting within scope of his authority
Undisclosed P in same position as disclosed P

3.3 DOCRTRINE OF UNDISCLOSED P


contradicts doctrine of privity under law of contract

Contract between A and Tp (named parties), but

P acquires rights and liabilities under a contract to which P is not a party

General principles of doctrine of undisclosed principal : summarised by Lord


Lloyd in Siu Yin Kwan v Eastern Insurance Co Ltd

1. Undisclosed P may sue and be sued on a contract made by an agent on


his behalf, acting within the scope of his or her actual authority.
2. In entering the contract, A must intend to act on the Ps behalf
3. A of the undisclosed P may also sue and be sued on the contract (A does
not drop out of the picture as is the case with disclosed P)
4. Any defence which the Tp may have against the A is available against P
5. The terms of the contract, may, expressly or by implication, exclude Ps
right to sue, and his liability to be sued. The contract itself, or the circumstances
surrounding the contract may show that the A is the true and only principal.

What if A is acting beyond the scope of As actual authority? Can Tp sue


undisclosed P?

P not liable

Tp must sue A on the contract or sue A for breach of implied warranty of


authority

Summary of liability under doctrine of undisclosed P

If A acting within scope of actual authority, who can sue & be sued?

P can sue or be sued

A can sue or be sued

Agency and Third Parties undisclosed P

Rights of A are subject to the superior rights of P Maynegrain Pty Ltd v


Compafina Bank
If A sues on a contract, A must hold any damages for the Principal: Allen v F
OHearn & Co
As right to sue will be subsumed by the Ps right in the event the P decides to
intervene on the contract and bring an action in his/her own name
In relation to Tps:

Once Tp becomes aware of existence and identity of P, Tp may elect


to sue P instead of A

Breach of Warranty of Authority

General principle: Where A contracts as agent, A cannot be made personally


liable on the contract

But if A had no authority to contract, A can be made personally liable


to Tp for fraud (if deliberate; A knows he has know authority) ; or breach of implied
warranty of authority (if innocent)
Cause of action available to a third party against a person (the putative
agent) when that person professes to act as agent for another in their dealings with the
third party in circumstances where there was no authority: Yonge v Toynbee; Collen v
Wright

See Yonge v Toynbee where solicitors acting for a P in defending an action did not
know that their P had become insane. They continued with the litigation, thereby
involving the Tp in costs; when they discovered Ps insanity the solicitors
discontinued the proceedings; held: Since Ps insanity terminated the solicitors
authority they had impliedly warranted that they had authority by continuing the
proceedings when in fact they had no such authority; liable for Tps costs by way of
damages for breach of warranty; As liability does not depend on wrong or omission
by A

Elements

1. A representation, either express or implied, by the putative agent that he or


she has authority to enter into the transaction

2. Reliance by the third party on the representation

3.The representation is untrue

Remedy: damages (actual loss sustained by Tp)

MISLEADING
OR
DECEPTIVE
CONDUCT

THE s 18 PROHIBITION

s 18 ACL: A person must not, in trade or commerce, engage in conduct that is


misleading or deceptive or is likely to mislead or deceive
o a person
o in trade or commerce
o Conduct: misleading or likely to mislead

1.0 A PERSON?
1.1 ACL (Cth) - CORPORATIONS

A person under s 18 ACL can be considered a corporation in their conduct: s 131


CCA (Cth).
A corporation means a body corporate that is
o (a) a foreign corporation;
o (b) a trading corporation formed within the limits of Australia or is a financial
corporation so formed
o (c) incorporated in a territory
o (d) a holding company of (a), (b) or (c)
Apply current activities test: Hughes v Western Cricket Association (Inc) where
issue was whether WACA was a trading corporation; held to be one because it traded
by providing, for reward, goods or services
o Substantial means not merely peripheral, but not the sole or main
activities
o If a trading corporations, activities must substantially be the buying and
selling of goods
See E v Australian Red Cross where E infected by contaminated
blood in transfusion; issue was whether Prince Alfred Hospitals was a
trading corporation; the blood transfusion services were not trading
activities, but trading was a substantial part of the corporations
activities as a whole taking into account $14.5M in patients fees,
$3.7M from business activities and sale of goods other than blood
$2M
o If a financial corporation, activities must substantially be dealing with money
such as banking or insurance: State Superannuation Board v TPV

1.2 ACL (Q) NATURAL PERSONS

ACL (Q) allows individuals to be persons: Acts Interpretation Act 1901 (Cth) s 2C
(1); FTA s 19 (1)

1.3 IF CONDUCT IS DONE BY THE CROWN

CCA, 2A(1): this Act binds the Crown in right of the Commonwealth in so far
as the Crown in right of the Commonwealth carries on a business, either directly or by an
authority of the Commonwealth

Crown sometimes referred to as the government; separate legal person

Executive branch of government, represented by the Ministries and the


Departments and officers who attend to its business

Government departments not separate legal entities

s2A: Three step analysis


Step 1: is the relevant entity the Crown?
Step 2: if it is the Crown, does it carry on a business?
Step 3: if it is the Crown, and carries on a business, does one of the
exemptions apply?\

1.3.1 IS IT THE CROWN?

If it is a statutory corporation it is necessary to have regard to the particular


legislation under which it was constituted to determine whether it has the status of the
Crown

If the statute is silent, this suggests that the corporation is not the Crown.

As a matter of statutory construction, it seems that the courts will require


a clear indication that the corporation is the Crown

If the entity is not a statutory corporation and is incorporated


under Corporations Act (general corporation) unlikely to be a manifestation of the
Crown

1.3.2 CARRIES ON A BUSINESS?

Section 2C(1)(b) provides if Crown bodies which merely grant licences in


relation to the supply of goods or services they are not carrying on business

licence in s2C(3) requires that it allows the licensee to supply goods or


services

Granting licence to operate taxis: allows licensee to supply service: exempt

Granting licences to operate private hospitals (supply a service): exempt

Crown in right of States and Territories


CCA, s2B: Crown in right of State and Territories not bound ACL (Com) BUT
S24: ACL (Qld) binds Qld Crown and other State and Territory Crowns so far
as they carry on a business
S25: Qld Crown bound by ACLs of other States and Territories in so far as it
carries on a business
S27: All Crowns not liable for pecuniary penalty or prosecution

1.3.3 EXEMPTIONS APPLY?

Exemption
2C(1) For the purposes of sections 2A and 2B, the following do not amount to
carrying on a business:
(a) imposing or collecting:
(i) taxes; or
(ii) levies; or
(iii) fees for licences;
(b) granting, refusing to grant, revoking, suspending or varying licences (whether or
not they are subject to conditions

2.0 IN TRADE OR COMMERCE?

in trade or commerce are terms of common knowledge of the widest import:


Concrete Constructions (NSW) v Nelson
Includes any business or professional activity: ACL (Cth) s 2.
If concerning sale of building/land, distinguish between one of personal nature
and one actually done in trade or commerce
o One which is done for the profit of a company will be in trade or commerce:
Bevanere v Lubidineuse
o One which is done in a personal setting, where it is just an individual buying a
house for themselves will not be in trade or commerce: OBrien v
Smolonogov where misleading representation not in trade or commerce since
land used for private purposes
See also Argy v Blunts where sale of private residence; agent and
lawyers liable, but not vendor as not even business-like steps by
agents converted sale into trade or commerce
Concrete Constructions v Nelson where Misleading statement
by one employee to another in the course of construction
work on building site; held: not in trade or

commerce; purely internal communication; driving a


truck with a competitors name on it to mislead a
customer is in trade or commerce; giving a misleading
hand signal by the driver is not

See also
o Dataflow Computer Services v Goodman where misleading representations
by email not in trade or commerce; former employee sought to harm
Dataflows relationship with Harvey Norman and former employee asserted
this was not part of a business

IF EMPLOYEE: Can be liable if employer is engaged in trade or commerce and


conduct occurred in the course of employers trade or commerce employee need not
be engaged in trade or commerce themselves: Houghton v Arms where Arms

contracted with WSA Online Ltd for design of Australian Cellar Door Website
employee, Houghton, made misleading statements; WSA in liquidation; Arms sued
Houghton

3.0

MISLEADING OR
DECPTIVE CONDUCT?

3.1 IDENTIFY THE CONDUCT

Engaging in conduct is doing or refusing to do any act: ACL s 2 (2) (a)


Therefore, this includes
o Oral or written representations
o Silence
o Conduct by an intermediary

3.2 CHECK WHETHER CONDUCT CAN BE ON BEHALF OF


ANOTHER PARTY

DIRECT LIABILITY (BODIES CORPORATE): Conduct engaged in


on behalf of a body corporate by director, employee, agent is
engaged in by body corporate: CCA s 139B (2) (a)
DIRECT LIABILITY (EMPLOYEES): Conduct engaged in on behalf
of a person other than a body corporate by an employee or agent:
CCA s 139C (2) (a)
o But note the natural person must be in trade or commerce

3.3 DETERMINE WHETHER MISLEADING OR DECEPTIVE

Primary question: whether the conduct viewed in its entirely would


have a tendency to lead a person into error: Campbell v
Backoffice Investments
o Assess target audience:
If to the one person, assess whether a reasonable
person in their position, taking into account their
knowledge, would have been misled by representors
behaviour: Butcher v Lachlan Elder
Commercial negotiations involving identified
persons, consider
o Character of particular conduct by
respondent towards aggrieved party

o Nature of dealings between parties and what


matters of fact each knew about the other
as a result of dealings; in particular, what
discussions took place, at what times, and
what documents were exchanged
o Relative commercial experience of
aggrieved party
o Length of time over which negotiations took
place
o Any professional advice that aggrieved party
sought or received in deciding to enter
transaction
Butcher v Lachlan Elder

If to general public, isolate by some criterion a


representative member of that class (e.g for a
specialised tool, only people who work with it):
Campomar v Nike where Nike manufacturer of
sporting goods; Campomar made sporting fragrance
and used Nike on it; Nike argued misleading; held
reasonable member of target audience would be
lead into error and think particular Nike fragrance
emanated from producers of Nike sporting goods
Consider the knowledge base of the reasonable
member and what effect the conduct would have
on them
o i.e the more sophisticated the audience is,
the more difficult to prove the conduct
o See also ACCC v TPG Internet where
ordinary reasonable member of target
audience would have assumed ADSL2+
broadband internet services were bundled
with home telephone; advertising
stratagems misleading even with assumed
higher level of knowledge

Conduct might be simply saying or doing an act either expressly or


impliedly
o Expressly: the floor area of this warehouse is 1, 000 sq
meters when in fact it is 890
o Impliedly: the tenant in this warehouse is a strong tenant
when in fact they are nearing insolvency and will not be able
to continue paying rent

3.3.1 SILENCE

If silence determine whether conduct as a whole had a


tendency to lead the person into error: Campbell v
Backoffice Investments
o Silence in isolation: Need deliberate proof of subjective
intention to mislead: Costa Vraca v Berrigan Weed & Pest
Control where respondent conducted business of aerial
spraying of pesticide and applicant Vraca was tomato grower;
prior to getting respondent doing spraying for applicant,
applicant approached manager of respondent and asked
whether tanks in plane have been used for spraying 24D or
Roundup; respondent forgot he had been using 24D and
roundup and sprayed seedlings, causing damage; applicant
brought allegation of misleading conduct; held not
deliberate and di not fall in s 2 (2)
o Silence including others acts or commissions: determine
whether the additional act combined with the silence gave
rise to a positive misrepresentation: Noor al Houda v
Bankstown Airport Ltd where applicant wanted to conduct
flying school from airport; site had been contaminated and
BAL knew this; pointed out a number of defects, unsuitability
and lack of services, but not the contamination; held
misleading because of failure to disclose site
contamination; negative statements without disclosing
contamination inferred there were no other negative
aspects

Need reasonable expectation of disclosure a reasonable


person in the position of the P would have a reasonable expectation
that such information would be disclosed as they would not have
proceeded with the sale had they been made aware of it:
Demagogue v Ramensky where Ramensky asked agent Will
there be any problem with access? and agent said Of course there
will be access. The developer will build a driveway up to the road;
misleading
o Henjo Investments v Collins Marrickville where there was
a reasonable expectation that a vendor selling a restaurant
business would disclose that it was operating illegally because
it went beyond its lawful seating capacity, regulated by
licensing authorities and local council; misleading conduct
o Hardy v Your Tabs where reasonable expectation that
vendor, in the course of negotiating sale of pizza franchise,
should have disclosed their true reasons for selling was the
upcoming competing business which had been given planned
approval; misleading

o Miller & Associates v BMW Australia where Consolidated


Timber Holdings engaged insurance broker, Miller, to assist in
application for loan with financier BMW; Miller supplied MW
with HIH certificate of insurance and insurance policy; BMW
lent Consolidated $3.975M, $1.26M repaid; BMW claimed
Millers conduct (that there was a cancellable property police
providing a form of security for a lender because in the event
of a default by the borrower, the lender can cancelled the
policy and recover the unused premium) was misleading;
held policy contained no cancellation clause, BMW
provided copy of policy and no reasonable expectation
of disclosure

Failure to disclose subsequent changes will be misleading:


Peterson v Merck Shape & Dohme (Aust) where misleading for
MSDA not to qualify its brochure for Vioxx once it was aware of
results of the subsequent VIGOR trial which demonstrated that
Vioxx increased risk of heart attack

3.3.2 FUTURE STATEMENTS?

Representations with respect to any future matter will be misleading


if maker does not have reasonable grounds: ACL s 4 (1)
Evidentiary onus: Statement taken to be misleading unless
evidence is adduced to the contrary: ACL s 4 (2
o Once representor adduces evidence to the contrary, deeming
provision ceases to operate: ACL s 4 (3)

3.3.3 PREDICTIONS?

Predictions are not misleading merely because matters did not eventuate as the
respondent represented
Something must have been misleading at the time the statement was made e.g.,
Speaker did not believe that what was predicted would eventuate
Prediction may contain an implied representation that Speaker
had reasonable grounds or prediction based on research or knowledge

3.3.3 EXPRESSIONS OF OPINION?

Expressions of opinion will not be misleading merely because they turn out to be
incorrect; however, they may be misleading if they contain an implied representation that
the speaker holds that opinion, and that there is a reasonable basis for it: Thompson v Ice
Creameries where liable as he held himself out as a leader in the industry (implied

representation: a leader would conduct proper research); and representation that site
would support an ice cream franchise an opinion :implied representation: based
on reasonable grounds but no proper research conducted

3.3.4 PUFFERY NO CONDUCT

Statements which reasonable member of target audience would not


expect to be taken seriously i.e The best car in its class on the
market today: Lymquartz v 2 Elizabeth Bay Road where glassy
brochure apartments advertised itself as having interiors with a
sense of space and would be comfortable and easy and very
liveable; not misleading, but puffery because of high level of
generality and subjectivity

3.3.5 PASSING ON INFO SUPPLIED BY ANOTHER?

A corporation cannot be liable for passing on info supplied by another, if it is not the
source of the information and expressly or impliedly disclaims any belief in its truth or
falsity, merely passing it on for what is worth: Yorke v Lucas

This is the conduit defence


See also Saints Gallery v Plummer where Kehoe left four paintings with Saints
Gallery for sale on commission; Plummer (a professional art valuer and dealer) asked
Flannery (the gallery director) about the provenance of the paintings. Flannery passed
on Kehoes information. They turned out to be forgeries; held: Flannery stated that he
believed the information but disclaimed personal responsibility; Flanner was simply a
conduit, who did not know any more than Plummer about the true nature of the
paintings - in those circumstances Flannery was not liable
Butcher v Lachlan Elder Realty Pty Ltd where purchase of expensive
investment property which had a swimming pool, close to edge of the
harbor - there was a plan handed over by the agent Lachlan Elder to a
prospective purchaser - the plan was inaccurate, showing incorrect
boundaries - when the agent handed over the plan, it included this
disclaimer We are not the source of the information. We cannot
guarantee its accuracy. Interested persons should make their own
inquiries; taking into account property was very expensive, material
distributed by agent showed position of boundary line and those who
can afford these properties are expected to hire own surveyors to
ensure accuracy of boundaries; held agent did not engage in
misleading conduct

3.3.6 ADOPTING OR ENDORSING INFO SUPPLIED BY ANOTHER?

Downey v Carlson Hotels Asia Pacific where Carlson Hotels, previously known as
Raddision Hotels, in the business of running hotels and apartments of high quality;
Raddison Suites, being developed by Valco Developments Pty Ltd; brochure prepared
by Valco to promote the development; name Raddison appeared on the brochure 31

times; brochure contained an Investment Analysis which guaranteed a net 7% per


annum for five years. On the last page of the investment analysis was the following
disclaimer: "Whilst the information inside this publication is believed to be true and
correct, the figures and advice supplied are given as a guide only and no responsibility
will be taken for any errors and omissions.; held that reasonable purchased would
have believed appellant was endorsing info prepared by Valco; represented that units
would be good investment and that potential investors could reply on opinion as to
quality of investment
John G Glass v Karawi Constructions where Karawi purchased a building based on
a brochure prepared by the vendors agent which included information about the
buildings net lettable area when it was constructed; brochure included a disclaimer as to
completeness and accuracy of information; lettable areas less than represented; agent
held itself out as consultant to institutional investors and to developers of major
projects; held that agent adopted the info and purchaser could not independently verify
because building not constructed at time brochure published

3.4 INDIRECTLY LIABLE AS PERSON INVOLVED IN


CONTRAVENTION?

Note that the aggrieved person can recover damages against any
person involved in the contravention: s 236 ACL (Cth)
One can liable as a person involved in the contravention (so once
youve established theres misleading or deceptive conduct already)
if they have
o (a) has aided, abetted, counselled or procured the
contravention
o (b) has induced, whether by threats or promises or otherwise,
the contravention; or
o (c) has been in any way, directly or indirectly, knowingly
concerned in, or part to, the contravention; or
o (d) has conspired with others to effect the contravention
S 4 ACL (Cth)

If established, proceed to remedies

4.0 REMEDIES?

Damages: A person (the claimant) who suffers loss or damage


because of the conduct of another person in contravention of s 18
may recover the amount of the loss or damage by action against
that other person, or against any person involved in the
contravention: ACL s 236 (1)
o Suffering loss or damage
o Contravention of s 18
o Causation: Causal link between the contravention and the
suffering of the loss or damage

4.1 CAUSATION?

Contravention need be a cause (a material contribution to the loss),


but not the sole cause of loss or damage: I & L Securities v HTW
Valuers
Distinguish between passive and not passive sufferer
o Passive suffer if loss is caused by another consumer being
misled by another to buy less of their product: Colgate-Palm
Olive v Rexona where competing manufacturer of
toothpaste claimed its product contained sitraden which
reduced growth of plark between brushing (no scientific
basis); Colgate passive sufferer as a result from consumers
switching to other toothpaste company
o Not passive sufferer if misleading conduct induced the actual
transaction
Apply causation test: But for the respondents
misleading representation, they would not have entered
into the K and accordingly suffered x loss: Tabet v
Gett
Interrupting event might break the chain of
causation: Sellars v Adelaide Petroleum NL
Entire agreement clauses will not break the chain
of causation as they go against the policy of the
ACL, permitting fraud: Collins Marrickville v
Henjo
A declaration of non-reliance will not have any
effect in breaking the chain of causation unless it
is clear enough in it terms that the party who
signs it cannot have still relied on any
representations in entering into the contract:
Campbell v Backoffice Investments

4.2 LIMITATION PERIOD?

Action must be commenced within 6 years after the day on which


the cause action accrued (when the first loss or damage is suffered
as a consequence): ACL s 236 (2)

4.3 ACTUAL LOSS OR DAMAGE?

Loss or damage must be actual loss or damage, not merely potential


or contingent: Wardley v State of Western Australia

4.4 MEASURE OF DAMAGES?

Damages will be awarded by a tortious measure, placing the P back


in the position they would have been in had the tort not been
committed.
Expectation loss is very difficult to recover it must be shown that
the P would have entered into a different contract that would have
resulted in profit had they not been lead into entering into the initial
contract: Gates v City Mutual Life

4.5 COMPENSATION ORDER AVAILABLE?

Court can make compensation orders in favour of injured person


who has suffered loss or damage because of the conduct of another
person: ACL s 237 (1).

5.0 CONTRIBUTORY NEGLIGENCE (Cth)?


CCA s137B If:

(a) person (the claimant) makes a claim under subs236(1) of the ACL (Com) and

(b) conduct contravened s18 ACL and

(c) claimant suffered the loss or damage as result:


o
(i)partly of the claimant's failure to take reasonable care; and
o
(ii) partly of the conduct of the other person; and

(d) other person did not intend to cause the loss or damage and did not
fraudulently cause the loss or damage;
the amount of the loss or damage that the claimant may recover under s236(1) of the ACL is
to be reduced to the extent to which a court thinks just and equitable
**If you are bringing a claim in the Cth, you are at a disadvantage because the D can
mount a defence of contributory negligence - there is no equivalent provision in the
States

SALE OF
GOODS:
IMPLIED
TERMS

1.0 SALES OF GOODS CONTRACT

The rules of the common law, including the law merchant and in
particular the rules relating to the law of principal and agent and the effect
of fraud, misrepresentation, duress or coercion, mistake or other
invalidating cause, save in so far as they are inconsistent with the express
provisions of the Sale of Goods Act, continue to apply to contracts for the
sale of goods. (s 61(2))
In unison with the ACL except where the ACL expresses the contrary
Elements to identify
o Contract of sale
o Goods
o Price
Application
Law of Queensland
Applies to a contracts of sale of goods, defined in s 4(1):

1.1 ELEMENT 1: CONTRACT OF SALE?

s 4 (1): a contract of sale of goods is a contract whereby the seller


transfers or agrees to transfer the property in goods to the buyer
for a money consideration called the price.
o agreement + intention + consideration = valid contract
o Contract - in s 3 to include an agreement to sell as well as a sale

If goods not ascertained (determined) then must be an agreement to


sell as opposed to a sale: s 4(3); Jansz v GMB Imports

1.2

ELEMENT 2: GOODS
Property mean the general property in goods: s 3
o All chattels personal other than things in action and
money, and also emblements(wheat etc crops) or
industrial crops and things attached to or forming part of the land
which are agreed to be severed before sale or under the contract of
sale: Mills v Stokman ; Amco Enterprises Pty Ltd v Wade
o Symes v Laurie where goods were a whole house being moved

The distinction is relevant to the rules regarding the passing of


risk and property

1.2.1 SPECIFIC GOODS

Goods identified and agreed upon at the time a contract of sale is made:
s3

1.2.2 UNASCERTAINED GOODS

Not defined in Sale of Goods Act


At common law unascertained goods are not identified or agreed upon
at the time a contract of sale is made
Re Wait where 1000 tonnes of wheat on board; seller sold half while
wheat still on board; at no time was any amount segregated or
distinguished from the whole amount on board

No remedy of specific performance available


1.2.3 ASCERTAINED GOODS

Not defined in SGA


Goods identified after contract is made: Re Wait

1.2.4 FUTURE GOODS

goods to be manufactured or acquired by the seller after the making of


the contract of sale: s 3
s4(3); = when the transfer of property in the goods is to take place at a
future time, it is called an agreement to sell.
s8(1): Future goods can form the subject of a contract of sale
s 8(2): may be a K for the sale of goods, the acquisition of which by the
seller depends upon a contingency which may or may not happen.

MAKE DISTINCTION BETWEEN GOODS OR SERVICES

Sale of Goods Act only applies to contracts for the sale of goods.
Apply substance test: Robinson v Graves where commissioned goods
to paint a portrait were not goods, but services: If the substance of the
contract is the production of something to be sold and the exercise of
skill, though high, is primarily for the purpose of producing the
goods, then the contract is one for the sale of goods.
o Re Amlink Technologies Pty Ltd where sale of Software on a CD
Rom Due to its form was goods

Gammasonics Institute for Medical Research P/L v Comrad


Medical Systems P/L where software downloaded directly from
internet (eg, no physical thing) was not goods

Apply Alternative test: Lee v Griffin where created a set of dentures


which were goods
o Where the end result is the sale of a chattel, then no matter
how great the skill involved, it is a sale of goods
o Deta Nominees Pty Ltd v Plastic Products Pty Ltd where dyes
made for furniture were goods

MAKE DISTININCTION FROM CONTRACTS TO SUPPLY AND INSTALL

Special test: Brooks Robinson Pty Ltd v Rothfield where creation of


a cocktail cabinet was a fixture in the house; K for work done, rather than
sale of goods
o A contract to supply products and install them is a contract for work
done and materials supplied, rather than a K for sale of goods

Exception: where property passes at the time the contract is made and
the goods are later installed: Aristoc Industries Pty Ltd v RA Wenham
(Builders) Pty Ltd

1.3 ELEMENT 3: PRICE

Transfer of goods must be for money consideration, or the price: s 4


(1).
Methods for determining the price (s 11):
o fixed by the contract
o price fixing formula in the contract
o course of dealing between the parties
o otherwise payment of a reasonable price can be inferred
o Wenning v Robinson where sale of stock of business at valuation
was sufficiently fixed by the contract, therefore didnt need to go to
reasonable price.

CONCLUDE: DOES THE SALE OF GOODS ACT APPLY?


IF SO CONSIDER IMPLIED TERMS

2.0 IMPLIED TERMS

2.1 S 15?
Section 15 SGA
a) In a contract of sale, unless the circumstances of the contract are such as
to show a different intention, there is:
b) an implied condition ... that in the case of a sale the seller has the
right to sell the goods, and that in the case of an agreement to sell the
seller will have a right to sell the goods at the time when the property is to
pass
c) An implied warranty that the buyer shall have and enjoy quiet
possession of the goods; and
d) An implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party, not declared or known to the
buyer before or at the time when the contract is made

2.1.1 RIGHT TO SELL?

Seller must have title: Rowland v Divall where breach of Title; sold car
where they had no title, and sued for breach of the condition of title to
sell he had no title so he had breached the implied condition; entitled to
full Refund
Effect of perfecting title: If the title comes about after the sale then it
is passed over and there is no breach: Patten v Thomas Motors Pty
Ltd; Sirius Shipping Corporation v Ship Sunrise
no right to sell even though they have title (eg, trademarks): Niblett
v Confectioners Materials Co where seller had title, and K was for
condensed milk and they subsequently notified seller that sales were

breaches of trademarks; seller had no right to sell them despite having


title

2.1.2 QUIET POSESSION?

Freedom from physical interference with the goods: Healing (Sales) Pty
ltd v Inglis Electric Pty Ltd
o Cannot claim the goods
o Also Niblett case where K for sale of condensed milk; buyers had
to strip off the labels off the cans before they could assume
possession of goods

2.1.3 FREE FROM ENCUMBRANCES

Requirement is that the encumbrance is not declared or known to the


buyer at time contract is made: Steinke v Edwards where goods seized
because of non-payment of tax (encumbrance); car was sold and buyer
was successful in claiming those goods had been sold without being
declared according to s 15
Amounts to an indemnity against failure to transfer title.

2.2 CORRESPONDENCE WITH DESCRIPTION?

Section 16 SGA:
o When there is a contract for the sale of goods by description
there is an implied condition that the goods shall correspond
with the description; and if the sale is by sample, as well as by
description>>, it is not sufficient that the bulk of the goods
corresponds with the sample if the goods do not also correspond
with the description

Preconditions to implying the term:


1. Has there been a sale of goods by description?
2. Has there been reliance on the description? (implied)

If yes, consider also what is the specific description in each case.


Applies to private Sales also

2.2.1 SALE BY DESCRIPTION?

Christopher Hill v Ashington Piggeries where sale of herring meal;


poisonous; didnt meet description; relating to identity of the goods
Typically means that the buyer did not see and relied on description alone:
Varley v Whipp
o Though may be by description where hidden defects could not be
uncovered: Aqua Marine Marketing v Pacific Reef Fisheries;
David Jones v Willis
Test: kind, class and species of goods: Taylor v Combined Buyers
Ltd
Elder Smith Goldsbrough Mort Ltd v McBride where sterile bull not a
breeding bull
Generally statements of quality do not form part of the description:
Christopher Hill v Ashington Piggeries
Exception: Quality of goods so important mentioned at sale
o Where a particular quality of the goods sold is so important to the
parties at the time of sale it actually becomes part of the way the
parties identify the goods: Beale v Taylor where the 1961
description was an important part of the goods.
Specific goods
o A sale of specific goods can be a sale by description: Australian
Knitting Mills v Grant

2.2.2 RELIANCE ON THE DESCRIPTION?

Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art


Ltd where painting not by famous artist; held: No sale by description
because no reliance, because they did not rely on the description

2.2.3 THEN DETERMINE WHETHER GOODS CORRESPOND WITH


DESCRIPTION

Question of fact: Ashington Piggeries Ltd v Christopher Hill Ltd


where description was herring meal; poisonous; No breach of implied
term as to correspondence with description the fact it was poisonous goes
to the quality of it.

2.3 FITNESS FOR PURPOSE?

Section 17(a)(b) SGA:


o Subject to the provisions of this Act ..., 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 follows:
(a) when the buyer, expressly or by implication, makes
known to the seller the particular purpose for which the
goods are required, so as to show that th buyer relied on
the sellers skill or judgement, and the goods are of a

description which it is in the course of the sellers


business to supply ... there is an implied condition that
the goods shall be reasonably fit for such purpose;
(b) however, in the case of a contract for the sale of a
specific article under its patent or other trade name,
there is no implied condition as to its fitness for any
particular purpose

Four pre-conditions to implication of term:


1. Disclosure of purpose: Buyer must make known, expressly or by
implication, at or before the contract is made, the particular
purpose for which he/she wants the goods
2. Reliance: The particular purpose must be disclosed in such a way
that it is clear that the buyer is relying on the sellers skill and
judgment and the buyer does in fact rely on it
3. Seller in the business: The seller is in the business of supplying
goods of that description
4. Not under patent or tradename: The goods, if specific, must not
be bought under their patent or other trade name

2.3.1 BUYER MADE KNOWN PURPOSE?

Ashford Shire Council v Dependable Motors where employee of


council advised the purpose and asked if tractor will do the job
May be self-evident if only one normal purpose: Priest v Last
Can be disclosed by implication: Grant v Australian Knitting Mills
where purchase of woollen underwear
Assumes a narrow or general purpose: Regal Pearl Pty Ltd v
Stewart where there were Off prawn; purpose was the cooking rather
than the eating; too narrow interpretation and concluded more
broadly that they were for human consumption; virus in the prawns
made that not true

2.3.2 RELIANCE ON SELLER?

Must be actual reliance by buyer on sellers skill and judgment:


Downdell v Knispel Fruit Juices Pty Ltd; Ashford Shire Council v
Dependable Motors
No presumption: evidence of reliance can arise by implication from the
circumstances, though can be inferred.
Aqua Marine Marketing v Pacific Reef Fisheries where large Bulk
Frozen goods; no practical choice but to rely on the sellers expertise Need only be partial reliance: Ashington Piggeries
Inferred in retail via consumer relationship: Grant v Australian Knitting
Mills

2.3.3 COURSE OF SELLERS BUSINESS TO SUPPLY?

Aim: distinguish business sales from private sales

Seller needs to carry on a business selling goods of that kind


Did they agree to supply the goods when ordered? Ashington
Piggeries

2.3.4 NOT SOLD UNDER A TRADE NAME?

Exception: Baldry v Marshall: if one has a trade name this is not enough;
must rely on the trade name for purchase not sellers skill and judgement
o Mere fact article sold is described by trade name does not
necessarily make it a sale under a trade name
o When no reliance at all on seller, buyer says she wants article of
particular trade name as she has been told it is suitable for her
purpose then proviso does apply

Trade name Sale = Example: Tre Cavalli Pty Ltd v Berry Rural Co
Operative Society Ltd;

2.3.5 HAS THE CONDITION BEEN BREACHED?

Underwear causing skin rash: Grant v Australian Knitting Mills


Goods must be reasonably fit for specified purpose: Griffiths v Peter
Conway
Assess fitness at time of sale
Problem arising after sale: goods must be reasonably fit for a
reasonable time after the sale: Crowther v Shannon where car
broke down after 1 week; showed it wasnt fit at the time

2.4 MERCHANTABLE QUALITY?


Section 17(c) (d) SGA
o Subject to the provisions of this Act and ..., 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
follows
c) When goods are bought by description from a seller who
deals in goods of that description ... there is an implied
condition that the goods shall be of merchantable quality;
d) However, if the buyer has examined the goods, there is no
implied condition as regards defects which such examination
ought to have revealed

Three
1.
2.
3.

pre-conditions
Goods must be bought by description
From a seller who deals in goods of that description
Buyer has not examined the goods or, if the buyer has examined
the goods, the defects are ones that would not have been revealed
by such examination

2.4.1 GOODS BOUGHT BY DESCRIPTION?

Christopher Hill v Ashington Piggeries where sale of herring meal;


poisonous; didnt meet description; relating to identity of the goods
Typically means did not see b relied on description alone: Varley v
Whipp
o Though may be by description where hidden defects could not be
uncovered: Aqua Marine Marketing v Pacific Reef Fisheries;
David Jones v Willis
Test: kind, class and species of goods: Taylor v Combined Buyers
Ltd
Elder Smith Goldsbrough Mort Ltd v McBride where sterile bull not a
breeding bull
Generally statements of quality do not form part of the description:
Christopher Hill v Ashington Piggeries
Exception: Quality of goods so important mentioned at sale
o Where a particular quality of the goods sold is so important to the
parties at the time of sale it actually becomes part of the way the
parties identify the goods
o Beale v Taylor where the 1961 description was an important part
of the goods.
Specific goods
o A sale of specific goods can be a sale by description: Australian
Knitting Mills v Grant

2.4.2 FROM A SELLER DEALING IN GOODS OF THAT DESCRIPTION?

Aim: distinguish business sales from private sales


Seller needs to carry on a business selling goods of that kind
Did they agree to supply the goods when ordered? Ashington
Piggeries
Does not matter if dealing with these goods for the first time

2.4.3 EXAMINATION PROVISO?

The actual examination undertaken by the buyer taken into account:


Frank v Grosvenor Motor Auctions Pty Ltd
- Looking at the actual examination the buyer undertook and whether
defects would have been uncovered by it

2.4.4 ARE THE GOODS OF MERCHANTABLE QUALITY?

Means: fit for the purpose of which those goods are usually sold with
regards to price and other circumstances: Henry Kendall & Sons v
William Lillico & Sons
- A buyer full acquainted with the goods and defects would have
purchased them for the price: Australian Knitting Mills v Grant

No definition in the legislation


- Idea of commercially saleable (in Hardwick Game Farm)
- Requires an examination of:

Contractual description
Purpose/s for which goods of that description are
commonly purchased
In certain circumstances, price at which goods of that
description are commonly purchased

If they are suitable for a number of purposes, then they are


merchantable if suitable for one of those purposes: Brown & Son v
Craiks where cloth could be used for another purpose ; price difference
not substantial so they could not argue that it was relevant to the
merchantability
Not merchantable: Dowdell v Knispel Fruit Juices where oranges
affected by salmonella - Not merchantable even though juice could be
pasteurised; purchaser would have expected a big reduction in price

2.5 SALE BY SAMPLE?


Section 18 SGA
1. a contract of sale is a contract for sale by sample when there is a
term in the contract, express or implied, to that effect.
2. In the case of a sale by sample
a) there is an implied condition that the bulk shall
correspond with the sample in quality;
b) there is an implied condition that the buyer shall have a
reasonable opportunity of comparing the bulk with the
sample;
c) there is an implied condition that the goods shall be free
from any defect, rendering them un merchantable,
which would not be apparent on reasonable examination
of the sample.

2.5.1 IS IT A SALE BY SAMPLE?

Contract can have an express term to that effect: s 18(1)


If no express term, identify terms of K: LG Thorne Ltd v Thomas
Borthwick & Son where application of the parol evidence rule; cant
contradict or vary contract in writing; not a sale by sample
Victorian Alps Wine Co v All Saints Estate where all implied
conditions and warranties except title; was sufficient; reasonable
opportunity
Free from defects making the un-merchantable which is not apparent from
a reasonable examination: Drummond v Van Ingren & Co

SALE OF
GOODS:
TRANSFER OF
PERSONAL
PROPERTY

OVERVIEW
Transfer of personal property under a contract of sale
Property, title, ownership and risk
Classification of goods (reminder)
When does property pass
Reservation of property rights
When does risk pass

1.0 PROPERTY AND TITLE

Property: as between seller and buyer ownership rights


Transfer of property: ss 19- 23
Section 4(1) SGA: a contract by which the seller transfers or agrees to transfer
the property in goods to the buyer for a money consideration called the price.
Transfer of property = transfer of ownership

Title: in some circumstances the SGA confers title (meaning property rights) on an
innocent 3rd party buyer

Transfer of title: ss 24-28.

2.0 SIGNIFICANCE OF OWNERSHIP AND RISK

Knowing when ownership and risk are transferred is important:


Who bears loss if goods destroyed
Who owns goods if one party becomes insolvent
Seller entitled to sue for price if property has passed: s 50 SGA (cf sue for
damages)
Buyer has contractual rights but no interest in the goods until property passes
Buyer who has property in the goods can pass good title to a third party

3.0 CLASSIFY THE GOODS: SECTION 8

Goods can be:


Existing owned or possessed by seller at time of contract
Contract of sale
Future to be manufactured or acquired by seller after making contract: s

3(1)
o

But both existing and future are included in the definition of 'contract of
sale' for the purposes of the SGA (s 3 (1) SGA)

Agreement to sell: s8(3)

Specific: s 3
Identified and agreed on at time of contract
Unascertained
not yet identified or agreed on eg specific quantity of bulk supply of wheat
owned by seller
after date of contract when identified or agreed on become ascertained.
Existing goods can be specific or unascertained at time of making the contract

Future goods can be specific or unascertained at time of making the contract

4.0 RULES FOR PASSING OF PROPERTY

Paramount rule (s20 SGA) - first look at the party's intention


Specific or ascertained goods: s 20(1) paramount rule
Where there is a contract for the sale of specific or ascertained goods
the property in them is transferred to the buyer at such time as the parties to the
contract intend it to be transferred

intention look at the terms of contract, conduct of parties,


circumstances of cases: 20(2)
Rules for determining intention in s 21 operate where no contrary intention is

found

Rules for ascertaining intention (s21 SGA)


Unless a different intention appears, the following are rules for ascertaining
the intention of the parties as to the time at which the property in the goods passes to the
buyer
o
Rule 1: Specific goods in a deliverable state
o
Rule 2: Specific goods, but not in a deliverable state
o
Rule 3: Specific goods in a deliverable state, but price not determined
o
Rule 4: Goods delivered on approval or sale or return
o
Rule 5: Unascertained goods

4.1 s 21 RULE 1: SPECIFIC AND DELIVERABLE?

Where there is an unconditional contract for the sale of specific goods in a


deliverable state:

Property passes when the contract is made

Immaterial whether time of payment or time of delivery is postponed (s21, rule 1)

Deliverable state, according to s 3 (4), means they are in such a state that the
buyer under the K would be bound to take them

e.g the seller needed to do certain work before the buyer is bound to take
them, they would not be in a deliverable state

4.2 s 21 RULE 2: SPECIFIC BUT NOT DELIVERABLE?

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 in a deliverable state:

property does not pass until the thing is done and the buyer has notice of the thing
being done (s21, rule 2).

e.g a seller might be required to do some repairs under the K and only when they are
done and the notification has been given to the buyer that property passes

4.3 s 21 RULE 3: SPECIFIC AND DELIVERABLE BUT PRICE


NOT DETERMINED?

4.4

Where there is a contract for the sale of specific goods in a deliverable state
but seller is bound to weigh, measure, test, or do some other act or thing with goods for
the purpose of ascertaining the price:

Property passes when the act or thing is done and buyer has notice of that. (s21, rule
3)

e.g buyer has agreed to buy the books on a book shelf at the price of $2 each, the
seller needs to count the books to do something with respect to the goods for the
purpose of ascertaining the price of the K

s 21 RULE 4: DELIVERED ON APPROVAL OR ON


SALE/RETURN?

When goods are delivered to buyer on approval or on sale or return:


property passes when buyer \

1. signifies approval/acceptance; or

2. does any other act adopting transaction; or

3. retains goods after time fixed for return or if no fixed time, after reasonable
time

What is a reasonable time is a question of fact (s21, rule 4)


Contract for sale on consignment between wholesaler and dealer/retailer
An example where there is a contract for sale on
consignment between wholesaler and dealer/retailer

Two scenarios

1. May be agency arrangement with dealer/retailer having right to return


but no right to buy

property will pass from wholesaler to customer


through the agency of the dealer but not to dealer.

OR

2. May be contract for sale or return with right to return or right to


buy

Then property can pass to dealer when dealer pays wholesaler settled for
or charged or under Rule 4.

Rule 4: Buyers actions


If rule 4 applies the timing of property passing focuses on the buyers
actions

Has the buyer indicated approval or acceptance to the seller?

Has the buyer done any act adopting the transaction?

Any act that is consistent only with their being the purchaser or
by which they put it out of their power to return the goods: Kirkham v
Attenborough; Genn v Winkel
Has buyer retained goods beyond time expressed or beyond reasonable

time?

4.5 s 21 RULE 5: UNASCERTAINED GOODS?

o
o

S 21 Rule 5: unascertained goods


s 19 property cannot pass unless and until goods ascertained
Once goods ascertained, to determine when property passes, use
parties intention but if not expressed: s21 Rule 5.

(1) 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 by either party with assent of other:
then property passes to buyer

(1A) Assent for unconditional approval can be express or implied, and


before or after the appropriation

There must be an unconditional appropriation to the contract


Contract has been irrevocably attached to the goods in question
More than just setting aside, where seller not committed to the
selection: Carlos Federspiel & Co SA v Charles Twigg & Co Ltd
Examples:

Setting aside items followed by branding or marking them and


advising buyer

If ordered by post, posting the goods

Selection of goods by seller and notification to buyer, who


arranges to collect them

Rule 5(2) If seller delivers goods to buyer, carrier or other bailee for transport
to buyer and does not reserve right of disposal then seller deemed to have
unconditionally appropriated goods to the contract

Goods must be ascertained

Must be assent

Wardars (Import & Export) Co Ltd v W Norwood & Sons Ltd where
sale of 600 cartons of frozen ox kidneys; buyers carrier arrived at cold store to
collect at 8AM; goods outside cold store; loading completed at 12PM, but
refrigeration in truck not effective until 1PM; kidneys unfit for human

consumption; court held that property passed at the time of carrier handing over
the delivery note at the cold store; P had property and was liable for price of
goods
o

o
o

Main points for Rule 5:


Operates subject to s 19, irrespective of parties intention
Apart from that, subject to parties intention
Consensual appropriation ordinarily required but not the only way
Appropriation not unconditional unless goods are of description + in
deliverable state
Delivery to carrier effective if the carrier is the buyers agent

Reservation of right of disposal: s22


In contract for sale of specific goods or when goods are subsequently
appropriated to contract
Seller may reserve right of disposal until certain conditions are fulfilled
Then despite delivery to buyer or carrier for buyer, property does not pass
until conditions fulfilled.

5.0 RESERVATION OF PROPERTY RIGHTS

s.4(1) SGA: a contract by which the seller agrees to transfer the property in goods to
the buyer for a money consideration called the price
s4(3): when the transfer of the property in the goods is to take place at a future
time or subject to some condition thereafter to be fulfilled the contract is called an agreement
to sell
s4(4) An agreement to sell becomes a sale when the time has elapsed or the conditions
have been fulfilled subject to which the property in the goods is to be transferred
o
Reservation of right of disposal in contract:

the contract is an agreement to sell rather than sale a conditional sale

5.1 RESERVATION OF TITLE CLAUSES

Basic form
Buyer may take possession of goods sold
Buyer has until to pay price.
Property in the goods will not pass to buyer until price paid
Risk of loss passes to buyer on delivery.
Further provisions
Goods to be kept separate from buyers other stock so as to be readily
identifiable
Buyer must deposit proceeds of any resale in separate bank a/c
Buyer holds goods and proceeds of any resale on behalf of seller.

Romalpa clauses: These are reservation of title clauses which arise to protect the
seller in the event the buyer becomes insolvent, particularly where property has passed
enables the seller to recover the goods (or proceeds of sale where resold by the buyer) in the
event of the buyers insolvency, thereby preventing the good from becoming part of the
buyers property or assets available for distribution amongst the buyers creditors:
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd where sellers sold aluminium

foil to buyer; buyer went in liquidation - owed sellers 122,000; receiver was foil with value
of 50,000 and bank a/c with 35,000 being proceeds of on-sale of sellers product kept
separate from other money; sellers claimed charge on this a/c; issue was whether they could
trace and recover the 35,000 proceeds of sale?; court held that romalpa clause was
effective; buyer sold as agent for seller and was accountable for proceeds received; seller did
not have prove that part of that debt in insolvency proceedings

Romalpa clause (cl 13)


o
Ownership of material will only be transferred to buyer when they
have met all payments owing
o
Until date of payment, store the material in a way that is clearly
property of seller
o
If goods mixed with other material by buyer to create new
objects ownership of new objects transferred to seller as surety for full payment,
buyer is fiduciary owner of new objects until full payment
o
Buyers could sell mixed goods, but had to assign to sellers any benefit
of claim against subpurchasers

See also Associated Alloys v Metropolitan Engineering and Fabrications where AA


delivered steel to MEF (buyer); 3 invoices; MEF used AAs steel to manufacture
industrial equipment + sold to 3rd party buyer; MEF received payments from 3rd party
buyer from these and other steel products; but not possible to identify any payments
received from 3rd party as being related to the steel supplied under any particular
invoice; issue was whether sellers interest was a trust or charge, over book debts or
receipts; held that seller had trust over payments made by 3rd party buyer but needed
to prove link with sellers product (unable to prove)

Associated Alloys clause


o
Ownership of the goods not to pass to buyer until payment of price.
o
If buyer used goods in some manufacturing process, then buyer to hold
proceeds of such manufacturing process in trust for seller
Stock in trade/inventory financing

Another example:
o
Supplier or financier provides goods for dealer under a conditional sale
agreement under which dealer agrees to buy goods when can resell to
retail customer
o
There can be a conditional sale/ retention of title

Property will pass:

in accordance with parties agreement that property


does not pass until dealer pays supplier/ financier.

6.0 PASSING OF RISK: s 23

Risk prima facie passes with property (s23 SGA)


1.
Unless otherwise agreed, goods remain at sellers risk until
property transferred to buyer
2.
But if delivery delayed through the fault of buyer or seller goods at risk of the party at fault, so far as any loss which might not
have occurred but for such fault
3.
Duties of seller or buyer as bailee of goods of other not
affected

Allied Mills v Gwydir Valley Oilseeds where sale of 130 tonnes of linseed meal in
store at the sellers place of business 4/2/1975; agreed delivery during February; breach seller failed to deliver 100 tonnes; 21 March fire in shed where stored and goods were
destroyed; buyer had resold; had to buy at higher price to fulfil 2nd sale somewhere else
because they could not originally buy the goods from the shed; issue whether property passed
and risk where seller delayed delivery; held that loss was caused by sellers delay; prima
facie rule that risk passes with property did not apply; property passed but risk did not as
loss would not have occurred but for sellers delay

1.
2.
3.

4.
5.

Passing of property main points


Property cannot pass until goods ascertained
Subject to that construction of contract
Rules 1-5 operate subject to contrary intention so for contract of sale/return,
seller can retain property rights until payment
Reservation of property rights s22 shows parties intention
Risk and property rights do not always coincide.

SALE OF
GOODS:
TRANSFER OF
TITLE BY NONOWNER

BASIC SCENARIO

A is owner of goods
B has possession of As goods
B fraudulently sells to C - innocent 3rd party
The legal problem: which of two innocent persons (A and C)
must incur loss caused by fraudulent acts of B?

1.0 APPLY THE NEMO DAT RULE

Nemo dat quod non abet - you cannot transfer what you do not
have
o
Fundamental rule of personal property law - No one can
transfer to another a better title than he/she has
Caveat emptor for buyer
But note the exceptions

1.
2.
3.
4.

S24(1) Subject to Act, when goods are sold by a person:


who is not the owner; and
does not sell goods with the authority or consent of the owner
the buyer acquires no better title than the seller had
unless the owner is by his/her conduct precluded from denying the
sellers authority to sell

s24(2) This Act does not affect:


the provisions of the Factors Act ,
The validity of any contract of sale under special common law
or statutory power of sale, or court order

EXCEPTIONS TO RULE

Sale with owners authority/consent (s24(1) SGA)


owner precluded by his/her conduct (s24(1) SGA)
Sale by mercantile agents (s24(2) SGA) (Factors Act 1892)
Subject to Act
Voidable title (s25 SGA)
Seller in possession (s27(1) SGA)
Buyer in possession (s27(2) SGA)

1.1 EXCEPTION 1: SALE WITH AUTHORITY/CONSENT OF


OWNER

If sale is made with authority or consent of the owner


s24(1) does not apply
Owner loses property rights and 3rd party buyer obtains title

1.2 EXCEPTION 2: ESTOPPEL

s24(1): the buyer is not prohibited from obtaining good title if the
owner is by the owners conduct precluded from denying the
sellers authority to sell
Can be estoppel by representation

Where owner represents that seller is owner or is agent with


authority to sell on these terms

Can be estoppel by conduct


Where owners act or omission enables seller to represent that
the seller is the owner
What amounts to estoppel?
Not enough just to entrust another person with
possession this is not a representation that the seller owns the goods:
Central Newbury Car Auctions Ltd v Unity Finance Ltd
Delivery of goods of documents of title does not convey a
representation that holder of the documents has authority to dispose of
the goods
Carelessness in relation to goods is not conduct raising an
estoppel
Where an owner has mortgaged/charged goods
and mortgagee/chargee leaves goods in debtors possession

Examples where estoppel has been raised:


1. Eastern Distributors Ltd v Goldring where owner who wanted to
raise money on his van, and armed the car dealer with a signed hirepurchase agreement (in blank) and a delivery note in respect of the
van
2. Big Rock P/L v Esanda Finance Corp Ltd where financier/owner by
mistake gave debtor a letter stating that the loan on the mortgaged
vehicle was repaid, when in fact only 2/48 payments had been made;
debtor used this letter to sell the car to a motor dealer

Court said that in that case the letter was conduct that amounted
to estoppel - the dealer did get good title in those circumstances

1.3 GOOD FAITH AND WITHOUT NOTICE - EXCEPTIONS 3,


4, 5 and 6

Good faith and without notice


Concept of buyer acting in good faith and without notice
relevant for other exceptions:
o
mercantile agent
o
seller in possession
o
buyer in possession
o
voidable title
Good faith and without notice
Good faith = honesty

For SGA: good faith it is in fact done honestly, whether


it is done negligently or not (s3(2) SGA)
No specific definition in Factors Act (for mercantile
agents)
Can act in good faith even if negligent
but not if suspicious and refuse to make inquiry,
eg Associated Midland Corporation v Sanderson Motors
P/L [1983] 3 NSWLR 395
Notice = actual notice or wilfully closing ones eyes
does not extend to constructive notice

1.3.1 EXCEPTION 3: SALE BY MERCANTILE AGENT

o
o
o
o
o

s 3(1) Factors Act 1892


When a mercantile agent is in possession of the goods
With the consent of the owner
Any sale or other disposition of goods
In ordinary course of business of a mercantile agent
Will be as valid as if expressly authorised by owner
But only if buyer acting in good faith without
notice of lack of authority

Mercantile agent
a mercantile agent having in the customary course of
business as such agent authority to buy or sell goods, or to consign
goods for the purposes of sale, or raise money on security of goods
(s2(1) Factors Act)
Examples: motor vehicle dealer, auctioneer

Ordinary course of business


Proper business methods as if transaction had been authorised
Eg, within business hours, at proper business premises, on usual
terms
In contrast, if it happened in somebody's backyard or outside
business hours, the exception probably will not apply because it is
not in the ordinary course of business
Pacific Motor Auctions P/L v Motor Credits (Hire Finance) Ltd
where finance coy (owner) of motor vehicles had given possession
to dealer but authority to sell withdrawn; dealer in debt to 3rd party
(another dealer) and dealers cheques dishonoured; 3rd party went
to dealers premises after hours and bought 29 cars at specific
prices to make up 16510; agreed to sell back if
dealers cheques honoured within 7 days; held transaction not in
ordinary course of business because it was of very special
character; it was a forced sale of a substantial part of the
stock which secured a limited right of redemption to the

dealer; entered into purely for purposes of providing


security or ultimately discharging debt to third party; Court
said if authority had not been revoked it would not have to
extend to authorise this particular transaction

In possession with consent of owner:


Must be given possession in capacity of mercantile agent
Example: owner delivers vehicle to dealer for purpose of
display in showroom and obtaining offers to buy
Presumption this is satisfied: s 3(4) Factors Act 1892 (Qld)

1.3.2 EXCEPTION 4: SALE UNDER VOIDABLE TITLE

S 25 SGA
When the seller of goods has a voidable title to the goods
but the sellers title has not been avoided at the time of the
sale
the buyer acquires a good title if the buyer buys them in good
faith and without notice of the sellers defect in title
Example:
Owner of goods sells to buyer but sale induced by buyers
fraud, misrepresentation, unconscionable conduct, undue influence
Buyer on-sells to innocent 3rd party
Then owner rescinds voidable sale too late!

Situation where recission would be available to the previous


owner but the contract is not yet avoided - if the seller sells
before recission the third party gets good title

Seller obtained the goods from previous owner by means of


fraud, unconscionable conduct, undue influence or other wrongdoing

Rescission available to previous owner but contract not yet


avoided, so seller has title but liable to be avoided

Seller sells before previous owner rescinds


Car & Universal Finance Co v Caldwell where Caldwell owned
Jaguar; sold to thief (N) whose cheque dishonoured on Jan 13; C notified
police and Automobile Assocn ; Jan 23 N sold to M (knew of fraud); Jan 15,
M sold to G & C in good faith; there was recission by taking steps to
regain vehicle on Jan 13 without communicating to thief; sufficient
because seller took all reasonable and practical steps to regain goods;
unnecessary that intention to rescind K is communicated to other
fraudulent party to K

1.3.3 EXCEPTION 5: SELLER IN POSSESSION AFTER SALE

s27(1) SGA
Where a person having sold goods
continues or is in possession of the goods

the delivery or transfer by the seller of the goods under


any sale or other disposition
to a 3rd party in good faith and without notice of the
previous sale
as valid as if seller was authorised by owner

The bona fide purchaser of goods from a seller who has continued in
possession of goods after their sale to the original purchaser will acquire
good title of the goods against the original purchaser: Pacific Motor
Auctions P/L v Motor Credits (Hire Finance) Ltd where motor vehicle
dealer sold cars to finance company (owner) for 90% of price (a
mortgage); after sale, continued to hold them as bailee with authority to
sell them for owner; issue was whether dealer continued in possession
within s 27 (1) so that later sale by dealer to 3rd party passed good title;
held that only continuous physical possession is required;

1.3.4 EXCEPTION 6: BUYER IN POSSESSION AFTER SALE

S 27(2) SGA
Where a person, having (bought or) agreed to buy goods
obtains possession of goods with consent of owner
the delivery or transfer by the buyer of the goods under any
sale or other disposition
to a 3rd party in good faith and without notice of the rights of
the owner
as valid as if buyer was a mercantile agent in possession of
goods with consent of owner
Example
Buyer agrees to buy goods from owner
Buyer has not paid or obtained property rights but is given
possession
Buyer wrongfully on-sells to 3rd party and delivers goods or
documents of title
Buyer does not have to sell in ordinary course of business of
mercantile agent or in any special way

Applies to conditional sales / reservation of title


The sale the buyer in possession makes to a 3rd party is regarded
as a sale, even if part of a security transaction focus was on form of
transaction
The exception does not apply to contracts for sale or return or
leases
Gamers Motor Centre P/L v Natwest Wholesale
Australia where E agreed to buy motor vehicles from Gamer+ to pay 7
days after delivery; Gamer delivered possession to E but retained

property rights; E sold vehicles to finance coy Natwest for 90% value; E
retained possession of vehicles as bailee but sent Natwest delivery receipt
giving details of vehicles; E then tried to sell vehicles to customers; held
that there was a voluntary transfer of possession to the financiers\

SALE OF
GOODS:
PERFORMANC
E OF THE
CONTRACT

1.0 PERFORMANCE OF CONTRACT

General duties of parties (s29)


o

Seller duty to deliver the goods

Buyer duty to accept and pay for the goods

**Payment and delivery are concurrent conditions (unless


otherwise agreed), s30

1.1 DUTY OF SELLER: DELIVERY

Delivery is voluntary transfer of possession: s 3 (1)

Types of delivery include


o

Physical transfer

Delivery of means of control

Attornment as bailee of the purchaser

e.g where the goods are held by a third party, and the
third party acknowledges to the buyer that they hold the
goods on their behalf

Delivery of documents of title

e.g Delivering the key to the location where the goods


are stored

RULES OF DELIVERY

Section 31 rules
o

Buyer to take possession or seller to send?

Place of delivery

Timing of delivery

Goods in possession of a third party

Costs of putting goods into deliverable state

SPECIFIC ISSUES ON DELIVERY

Wrong quantity or mixed delivery?


o

Buyer has choice about how to respond, but if they accept


the goods delivered they must pay the K rate: s 32

e.g jane buys 120 widgets at $5 each. If 110 are


delivered, and Jane decides to accept them all she must
pay the price of 110 widgets at $5 each.

Problems with instalment deliveries


o

It is a question in each case whether the breach of the


contract is a repudiation of the whole contract or whether it is
a severable breach : s 33

Applying this, consider:

1. The ratio quantitatively the breach bears to the


whole

2. The degree of probability or improbability that


breach will be repeated
Maple Flock Co v Universal Furniture Products
(Wembley) Ltd where sale of rag flock was for 20
instalments; 15 went by without hitch and on 16th buyer
took sample and discovered contamination by chlorine;
remaining 4 fine; Court considered above two points;
ratio low (1 out of 20) and breach was
extraordinary and unlikely to be repeated; no
repudiation
Another example: Hammer & Barrow v Coca Cola where
order for 200, 000 yo-yos, 1st delivery 85, 000 but 65, 000
defective; significant ratio and high probability of
repeated breaches in light of sellers poor responses

1.2 DUTY OF BUYER: ACCEPTANCE OF GOODS

Issues to consider when considering acceptance


o
When does buyer accept goods (s37)
o
Buyers right to examine (s36)
o
Relationship between s36 and s37
o
Why is timing of acceptance important?

See s14(3)

1.2.1 WHEN DOES BUYER ACCEPT GOODS?

Section 37
o
When Buyer intimates to Seller that the Buyer has
accepted them
o
When the goods have been delivered to Buyer and the
Buyer does any act in relation to them which is inconsistent
with the ownership of the Seller
o
When after a reasonable time, the Buyer retains the goods
without intimating to the Seller that the Buyer has rejected
them
1.2.2 BUYER'S RIGHT TO EXAMINE

Section 36
o
Where goods have been delivered to the Buyer which he has
not previously examined, he is not deemed to have accepted
them unless and until he has had a reasonable opportunity of
examining them for the purpose of ascertaining whether they
are in conformity with the contract.
o
Issue: what if the buyer does something that amounts to
acceptance under s 37 before they've had a chance to
examine the goods?
o
See below
1.2.3 RELATIONSHIP BETWEEN s 36 and s 37

s37 is not to be read subject to s36: Hardy v Hillerns & Fowler


o
It is quite immaterial for the purposes of that section [the
equivalent to our s37] that the reasonable time for examining
the goods had not expired when the act was done.

act inconsistent with the ownership of the seller means, an act


inconsistent with the right of the seller, in the event of rejection, to
have the goods returned to the seller at the place of examination of
the goods as contemplated by the contract: Kwei Tek Chao v
British Traders and Shippers Ltd; Hammer & Barrow v CocoCola
o
Therefore, if the buyer has onsold the goods before rejection,
but the seller can still have them returned to the place of
examination the parties contemplated, act will not be
inconsistent with ownership of seller
See also Hammer & Barrow v Coca Cola where seller carried on
business in Christchurch; def ordered 200 000 yo-yos; before
deliveries commenced, def resold 85 000 to Northern Bottlers (subbuyer) in Auckland 65 000 of this was defective; agents delivered
them to sub-buyers premises in Auckland; examined there 1/3
sent on to various retailers for resale; 2/3 retained at sub-buyers
premises; issue was whether it was too late to reject goods which
already delivered (depended on whether goods already accepted);
held that Coca Cola constituted acceptance of delivered

goods (ordered them to be resold to someone else);


examination would take place at sub-buyers premises in
Auckland (contemplated by parties); therefore no act
inconsistent with right of the seller

2.0 REMEDIES FOR THE BUYER


2.1 REMEDY FOR BREACH OF IMPLIED TERMS

Is the term a condition or a warranty?


Recall contract law principles
o
What is the remedy for a breach of a condition?
o
What is the remedy for a breach of warranty?

2.2 REMEDY FOR BREACH OF CONDITION

If the buyer rejects the goods when they are delivered to them, they
have no obligation to return them: s38
s14(3) buyer can lose the right to reject by accepting the goods
where:
o
contract of sale is not severable and the B has accepted
the goods or part thereof, or
o
where the contract is one for specific goods the property in
which has passed to the B,
the breach of any condition to be fulfilled by the S can only be
treated as a breach of warranty
**Hence why when the goods have been accepted is
important
Losing the right to reject by accepting goods
o
Recall s 37
o
Even if they don't have a chance to examine the goods
before accepting them: Hardy v Hillerns & Fowler
Losing the right to reject in the case of specific goods and 14(3)
o
Under s21 rule 1 where contract for specific goods property
passes on completion of the contract
o
Outcome may be seen to be unjust where buyer has had no
opportunity to inspect the goods
o
Courts have applied acceptance test even to specific
goods: Taylor v Combined Buyers

Acceptance test will be applied even though it is a case


of specific goods

2.3 OTHER REMEDIES FOR BUYER

Remedy for breach of warranty: s54

Either where the term is a warranty, or the buyer elects to


treat the term as a warranty or is compelled to treat a
breach of condition as a breach of warranty
In those circumstances, the buyer is not entitled to reject
the goods but they can set up against the seller in
diminution or extinguishment of the price or they can
maintain an action against the seller in an action of
damages against the seller

Equitable remedies: s53


o
Specific performance; courts will often be reluctant to
award this if damages are an appropriate remedy
Damages for non-delivery: s52
o
If the seller wrongfully delivers or refuses to, the buyer can
maintain an action of damages and the estimated loss
directly or naturally resulting from the breach of K
o
If there is an available market of the goods, then the
measure of damages prima facie will be the difference
between the K price and the market price: s 52 (3).

3.0 REMEDIES FOR THE SELLER


3.1 SELLER'S REAL REMEDIES

Unpaid seller
o
Defined in s40(1)

When the whole of the price has not been paid or


tendered

When a bill of exchange or other negotiable


instrument has been received as a conditional
payment, and the condition on which it was
received has not been fulfilled by reason of the
dishonour of the instrument or otherwise
Insolvent
o
Defined in s 3(3)

Ceased to pay debts in the ordinary course of


business; or

Cannot pay debts as they become due

3.1.2 SELLER'S LIEN

A lien in the context of a sale of goods is a right to retain possession


of goods until they have been paid for.
o
Seller must have actual possession to be able to exercise
this right

Could be in possession as agent or a bailee or


could still have title
o
Can exercise lien where goods have either:

(a) been sold with no credit period


(b) where credit period has expired
(c) when buyer becomes insolvent: s42(1).
3.1.2 STOPPAGE IN TRANSIT

Where property in goods has passed to buyer then unpaid seller


entitled to stop the goods in transit and retain them until payment
where:
o
Buyer is insolvent
o
Unpaid seller parted with possession; and
o
Goods are in transit: s45.

Transit period: s 46

(1) in the process of being delivered to a


carrier by land or water, or other bailee,
for the purpose of transmission to the
buyer, until the buyer, or the buyer's
agent in that behalf, takes delivery of
them from such carrier or other bailee
3.1.3 RESALE

Unpaid seller can re-sell the goods where:


o
Goods are perishable
o
S has given notice to B of Ss intention to resell and B does
not within a reasonable time pay or tender the price
o
Where S expressly reserves a right of resale in case of
default by the B and the B makes default: s49
3.1.4 WITHHOLDING DELIVERY

Provided property in the goods has not passed to the buyer, the
unpaid seller may withhold delivery of the goods: s41(2)
o
Akin to the right of stoppage in transit when property has
passed

3.2 SELLER'S PERSONAL REMEDIES


1. The Price
o If the property in the goods has passed to the buyer and
buyer wrongfully neglects or refuses to pay for the goods
the seller may sue the buyer for the price: s50
o Where property has not passed to the buyer, if the
price is payable irrespective of certain delivery and buyer
wrongfully neglects or refuses to pay for the goods the
seller may still sue for the price
2. Damages for non-acceptance
o If the buyer wrongfully neglects or refuses to accept and
pay for the goods, the seller may claim damages against
the buyer for non-acceptance: s51

Measure of damages: Under s 51 (2), the


measure of damages is the estimated loss directly
and naturally resulting, in the ordinary course of
events, from the buyer's breach of contract

If there is an available market value for


the goods, the damages is the difference
between the K price and the market or
current price at the time or at the time
the goods ought to have been accepted
or refusal of acceptance

KEY POINTS

Duties of parties
o
Seller (delivery), Buyer (acceptance & payment)
Specific rules around delivery & acceptance
For the buyer, note the different remedies for breach of condition vs
breach of warranty
Circumstances where the buyer has to treat breach of condition as
breach of warranty
Unpaid seller has rights against the goods, and rights against the
buyer

CONSUMER
GUARANTEE
S: GOODS

STEPS TO A QUESTION

Identify a relevant guarantee on the facts


Apply pre-requisites to a guarantee, that is
o Consumer
o In trade or commerce
o Being supplied goods

Advise on remedies
Determine whether non-compliance with guarantee is a major failure
o Ensure that consumer has rejected the goods (within the rejection period)
in order for refund and has/is going to return them
o Also mention consequential loss if relevant

If it is not a major failure


o Consumer cannot return goods and is only entitled to compensation
o Also mention consequential loss if relevant

If relevant, seek remedies against manufacturer provided error is not the fault of
the supplier
o Recover damages and consequential damages
o Mention suppliers right of indemnity against manufacturer if relevant

1.0 CONSUMER?

Definition of consumer - Objective test: s 3(1)


(a) a person shall be taken to have acquired particular goods as a consumer if,
and only if the price of the goods did not exceed the prescribed amount ($40,000);
or
(b) where the price exceeded the prescribed amount--the goods were of a
kind ordinarily acquired for personal, domestic or household use or
consumption;

OBJECTIVE TEST
or
(c) the goods consisted of a vehicle or trailer for use principally in the
transport of goods on public roads

1.1 PRICE NOT EXCEEDING $40, 000?

S 3 (1) (a).

1.2 PRICE EXCEEDS $40K?

Consumer - Objective test s 3 (1) (b):


ordinarily acquired got personal, domestic or household use or
consumption; not the particular use by the acquirer: Carpet Call v Chan
where carpet put to a commercial use (night club in Fortitude Valley); became worn
after a short time and owner claimed it wasn't of an appropriate standard; purchase
price $69K, but ordinarily acquired for household or domestic use; consumer goods
even though used in commercial context
The test is what the goods are normally acquired for, rather than what they are
actually being used: Bunnings v Laminex where Bunnings acquired insulation
products from Laminex for use in construction of its warehouses; advertised as
suitable for industrial or commercial buildings; held that irrelevant they were being
used for commercial purposes; insulation products ordinarily (commonly or
regularly) used for household or domestic use
ACL, s 3(10): rebuttable presumption that person was a consumer

1.3 GOODS CONSISTING OF VEHICLE OR TRAILER ?

S 3 (1) (c) the goods consisted of a vehicle or trailer for use principally in the
transport of goods on public roads

1.4 CONSUMER - REBUTTABLE PRESUMPTION

Exclusion: subjective test


ACL, s3(2): a person will not be a consumer if that person acquired goods
or services

for the purpose of re- supply or

for the purpose of using them up or transforming them


1.
in the course of a process of production or manufacture or
2.
in the course of repairing or treating other goods or fixtures
on land
**If you buy goods for the purpose of reselling them or for conducting repairs
YOU WILL NOT BE A CONSUMER

1.5 BUSINESSES AS CONSUMERS?

o
o

Businesses will be consumers


ACL, s3(2) purposes (re-supply, using them up or transforming them; or
repair) are only commercial purposes excluded
Businesses will be consumers in other circumstances
e.g. sofa acquired by BHP for use in reception area; BHP is consumer

2.0 GOODS?
o

ACL, s 2 - state it is an inclusive definition; items are likely to be goods


Includes:
ships, aircraft and other vehicles; and
animals, including fish; and
minerals, trees and crops, whether on, under or attached to land or not;
and
gas and electricity; and
computer software; and

second-hand goods; and


any component part of, or accessory to, goods

COMPUTER SOFTWARE: Goldiwood Pty Ltd v ADL (Aust) Pty Ltd where ACL,s
2 computer software expressly included in goods; new releases of software were supply
of goods; fixing software problems were supply of services; different guarantees applied

GOODS IN LAND
ACL, s 8 expressly provides:
o goods are taken to be supplied to a consumer even if they are affixed to land
or premises at the time of supply
o Statute overrides common law
o residential dwelling not goods but where sale includes chattels, such as airconditioners, dishwashers and hot water systems, vendor cannot avoid liability
under ACL consumer guarantees by arguing that the chattels are fixtures and
thus part of the land
o But, must be in trade or commerce; not private sale

3.0 TRADE OR COMMERCE?

in trade or commerce are terms of common knowledge of the widest import:


Concrete Constructions (NSW) v Nelson
Includes any business or professional activity: ACL (Cth) s 2.

4.0 GUARANTEE OF ACCEPTABLE QUALITY?

ACL, s54(1):
If a person supplies, in trade or commerce, (otherwise than by way of sale by
auction) goods to a consumer, there is a guarantee that the goods supplied are
of acceptable quality

4.1 ACCEPTABLE QUALITY?

Definition of acceptable quality - reasonable consumer/objective test


ACL, s 54(2): Goods are of acceptable quality if they are:

fit for all the purposes for which the goods of that kind are commonly
supplied; and

acceptable in appearance and finish; and

free from defects;

safe; and

durable
as a reasonable consumer fully acquainted with the state and condition of
the goods, (including any hidden defects of the goods), would regard as
acceptable, having regard to the matters in subsection(3).

ACL, s54(3): relevant matters for the purposes of sub(2) are:


nature of the goods; and
price of the goods (if relevant); and
any statements made about the goods on any packaging or label on
the goods; and

o
o
o
o

any representation made about the goods by the supplier or


manufacturer of the goods; and
any other relevant circumstances relating to the supply of the goods

Definition of acceptable quality may be analysed under 4 parts:


Part 1: attributes or quality elements: ACL,s 54(2)
Part 2: objective test: reasonable consumer standard ACL, s54(2)
Part 3: specific matters to be considered: ACL, s 54(3)
Part 4: exceptions or defences: ACL, s 54(4), (5), (6), and (7)

4.2 ATTRIBUTES
Discuss one or more of the relevant attributes

First attribute: fit for all of the purposes for which goods of that kind are
commonly acquired, repeats the wording of the definition of merchantable quality in
s 66(2) of the TPA.
o
All relevant purposes must first be identified; if goods are not fit for one of
those purposes not of acceptable quality
o
Madsen v Agrison Pty Ltd where second-hand tractor plus slasher for
$24,699; intended use on farm to maintain paddocks; slasher only fit to mow
domestic lawn
Second attribute : acceptable in appearance and finish merchantable quality
component in s 66(2) in Rasell v Cavalier Marketing (Australia) Pty Ltd
o
ACL, s 54(2) makes explicit what was implied in the s 66(2) definition
o
Zhang v United Auctions where kitchen installation granite bench top raised
joint line did not match bench top; jagged as if hand-cut; held not be of acceptable
quality

Third attribute : freedom from defects - examined at the time of supply


Medtel Pty Ltd v Courtney s 74D of the TPA

onus is on consumer to prove that there existed an inherent defect in


the goods that was present at the time of supply

However, where a supplier contends that a defect arose after it was


supplied (e.g., from misuse or lack of maintenance by the applicant), the
respondent bears the onus of proving that fact

Present at the time of supply but latent

Defects may be: Design, Manufacturing, Instructional


Fourth attribute: safety
Goods do not have to be absolutely safe - reasonable consumer does not
accept perfection, but the higher the price the better the perfection expected
Will be assessed objectively taking into consideration: nature of goods; price;
operational instructions; warnings
Madsen v Agrison Pty Ltd where mis-labelled operational
instructions render the tractor unsafe; defective door handle hinders
operator exiting tractor in an emergency; minor flaws that could be
easily remedied irrelevant

Fifth attribute: durability - a lot will depend on the price paid for the goods and
the representations made
o
Consumer may choose to buy second hand goods; less durable than new
o
Baratta v TPA Pty Ltd where second-hand Nissan Navara suitable
for towing a horse float and use on farm; $ 27,000; one week after
purchase, over-heating due to cracked cylinder head; held not
durable - even though second-hand vehicle a reasonable
consumer would expect it to last longer than a week after
purchase

4.3 APPLY OBJECTIVE TEST

Objective test: expectations of a hypothetical reasonable consumer who is fully


acquainted with the state and condition of the goods including any hidden defects: s
54(2).
o
The question is: would a reasonable consumer knowing all these defects
about the goods at the time of supply regard them as acceptable?

4.4 SPECIFIC MATTERS TO BE CONSIDERED

s 54(3) sets out specific matters that must be considered in considering each of the
attributes listed in s 54(2).
First: nature of the goods e.g., in relation to the quality of durability it is self-evident
that some types of goods are more durable than others
o
reasonable consumer would expect a major appliance such as a refrigerator to
last longer than a toaster

Second: price of the goods


reasonable consumer would not expect a cheap toaster to last as long as a topof-the-range one
Third: any statements made about the goods on the packaging or label
These can play an important role in expanding or
contracting durability expected by a reasonable consumer e.g., Highest quality
built to last for 20 yrs
Very important: the supplier might say it isn't built to last, or it will last a
lifetime, expanding or contracting the representation about the quality of the goods
Fourth: any representations made about the goods by the supplier
Brandt v Flower Power and Stone Masonry where paving tiles for
landscaping around swimming pool; first respondent supplier;
second respondent manufacturer; manufacturer advised
applicant that tiles needed to be laid in compacted sand and
concrete base; tiles uneven when laid; no evidence led that tiles
laid in compacted sand and concrete base
Boyd v Agrison where Agrison: Chinese imported tractor; occupied the
budget end of the tractor market; Agrisons motto: Best quality and Value without
compromise; steering compromised; rendered the tractor unsafe; not of acceptable
quality

Burton v Chad One Pty Ltd - court looked at purchase price and durability;
where second-hand 1998 Nissan Patrol purchased 2012 (14 yrs);
purchase price $16,990; 3 months after purchase having driven
3,249 kms broke down; cost of repairs $12,000; held: not
acceptable quality - a major, rather than a minor breakdown - if it
had only cost $1000 to repair it probably would have been
acceptable quality

1.5 EXCEPTIONS

o
o

Guarantee of acceptable quality doesnt apply in relation to:


ACL, 54(4): defects specifically drawn to the consumer's attention before the
consumer agreed to the supply;
ACL, s 54(6): they are damaged by abnormal use
ACL, s54(7): consumer examines goods; and the examination actually
conducted ought reasonably to have revealed that the goods were not of acceptable
quality

Carrol v Pollock Wholesale where second-hand 12 year old vehicle; odometer


reading 12,108 kms; carrol inspected examined and took for test drive but did not detect
faults; brake pads and discs; timing belt need replacing; not apparent from inspection
and test drive conducted by Carrol; held: qualification of s 54(7) applied; examination
actually conducted would not have revealed the defects - didnt apply because the defects
were hidden

5.0 GUARANTEE OF FITNESS FOR PARTICULAR


PURPOSE
ACL s 55(1):

If:
o
o
o

a person (the supplier) supplies, in trade or commerce, goods to a consumer; and


the supply does not occur by way of auction;
there is a guarantee that the goods are reasonably fit for any disclosed purpose, and
for any purpose for which the supplier represents that they are reasonably fit

ACL, s 55(2): A disclosed purpose is a particular purpose (whether or not that


purpose is a purpose for which the goods are commonly supplied) for which the goods
are being acquired by the consumer and that:
o
the consumer makes known, expressly or by implication:
o
to the supplier; or
o
to a person by whom any prior negotiations or arrangements in relation to the
acquisition of the goods were conducted or made

Exception:
ACL, s 55(3)except where the circumstances show that the consumer does
not rely, or that it is unreasonable for the consumer to rely, on the skill or
judgment of the supplier
Example
Motor vehicle:

Acceptable quality: general suitability for all of the purposes for


which motor vehicles are normally acquired: reliable means of transportation;
comfort; aesthetic qualities etc
Fitness for purpose: specific purpose: purchaser informs supplier
must be capable of towing a one tonne motor boat; or must be suitable for offroad use

6.0 GUARANTEE'S MANUFACTURER'S EXPRESS


WARRANTY

ACL, s59: guarantee that any express warranty provided by manufacturer will be
complied with
o
ACL,s 2: express warranty means an undertaking, assertion
or representation that relates to:

the quality, state, condition, performance or characteristics of the


goods; or

the provision of services that are or may at any time be required for
the goods; or

the supply of parts that are or may at any time be required for the
goods

o
o

Rationale
Extends to all representations made by manufacturer in promotional literature
Effect of ACL, s 59: elevates pre-contractual representations by
manufacturer to status of guarantees
Action for misrepresentation at common law transformed into statutory cause
of action
ACL, s 271(5): consumer may by action against manufacturer recover
damages from manufacturer

6.1 WARRANTY AGAINST DEFECTS

ACL, s 102(3) definition


Warranty against defects: a subset of express warranties

Warranty against defects applies where a person has promised:

to repair or replace goods; or

to provide again or rectify services; or

to provide other compensation to consumer


**Generally when you purchase something from a retailer it comes into a box
and inside it has a manufacturer's warranty - manufacturer providing warranty
separate from statutory guarantees
Mandatory text
ACL, s102(2): a person must not, in connection with the supply, in trade or
commerce, of goods or services to a consumer:

give to the consumer a document that evidences a warranty against


defects that does not comply with the requirements prescribed for the
purposes of ACL, s102(1)

The regulations prescribe requirements relating to the from and content


of warranties against defects

Regulation90(2) provides mandatory text:


Our goods come with guarantees that cannot be excluded under the
Australian Consumer Law. You are entitled to a replacement or refund for a major
failure and for compensation for any other reasonably foreseeable loss or damage.
You are also entitled to have the goods repaired or replaced if the goods fail to be of
acceptable quality and the failure does not amount to a major failure.

The point of this is to go beyond the scope of what the


manufacturer guarantees - e.g might go beyond what the manufacturer says
"refund if broken down before 3 years" - so even though you might be
outside 3 years, you will still have a remedy depending on whether it was a
minor or major failure to comply
Document: Extends to packaging
ACL, s 2 : Document includes

(a) a book, plan, paper, parchment or other material on which there


is writing or printing, or on which there are marks, symbols or perforations
having a meaning for persons qualified to interpret them
ACCC Guideline, Warranties against defects states:
In circumstances where a products packaging may be considered to be a
document evidencing a warranty against defects, provided the information required
by the ACL and the mandatory text are included with warranty documents inside or
otherwise attached to the product, and are not inconsistent with the statement on
the packaging, the ACL Regulators will consider that this meets the warranty against
defects requirements. However, the mandatory information must be available with the
product itselfit is not sufficient to refer consumers to information on a website or
in-store.

Remedies for failure to comply with consumer guarantees in relation to goods

against supplier:

Not major: supplier decides on remedy: repair, replace, refund


Major: consumer decides on remedy: reject and obtain refund; keep
goods and obtain compensation
against manufacturer: damages

**Terminology - when you look at the sections, you'll see they're drafted in a way that states
there is a guarantee that the goods will be of acceptable quality - but they're not
prohibitions - so you wouldn't say "a breach of s 54"

7.0 MAJOR FAILURE?

ACL, s259(3) provides that if the failure is major or cannot be remedied, the
consumer (not the supplier) has a choice
Consumer may:

keep the goods but ask for compensation to make up the difference in
value caused by the failure.

ACL s260 Major failure if:

(a) Goods would not have been acquired by a reasonable consumer fully
acquainted with the nature and extent of the failure;
(b) Goods are significantly different from their description, sample, or
demonstration model;
(c) Goods are substantially unfit for a purpose for which goods of same kind
are commonly supplied;
(d) Goods are not of acceptable quality because they are unsafe

reject the goods ; or

Safety is a relative concept; simply question of whether it is safe or


not: Carrol v Pollock Wholesale where second-hand 12 year old vehicle; odometer
reading 12,108 kms; Carrol inspected examined and took for test drive but did not
detect faults; brake pads and discs; timing belt need replacing; held: major
failure because vehicle stalled and was undriveable, therefore unsafe; also satisfied
(a) as they would not have bought it if they knew the extent of the failure

Also see Boyd v Agrison where Agrison: Chinese imported tractor; occupied the
budget end of the tractor market; Agrisons motto: Best quality and Value without
compromise; steering compromised; rendered the tractor unsafe; corrosion; held: not of
acceptable quality; held major failure as tractor significantly departed from demonstration
model shown at Agrisons premises

8.0 NOT MAJOR FAILURE


Consumer must first provide the supplier with the opportunity to repair the goods

ACL,s259(2) (a) provides consumer may require the supplier to remedy the
failure within a reasonable time
o

What is reasonable will depend in part on the nature of the goods not settled in law
Thus, a reasonable time to remedy a problem with essential
goods such as hot water systems would be much shorter than discretionary
goods such as a games console

If consumer under s 259(2)(a) requires a supplier of goods to remedy a failure to


comply ACL, s261 provides that the supplier may choose between:

repairing the goods; or

replacing the goods with goods of an identical type; or

refunding any money paid by the consumer for the goods

** IT IS NOT at the consumer's discretion to make the choice above

Marwood v Agrison where M purchased new Agrison tractor for $26,000 for use in
vineyard; needed tight turning circle so tractor could go from one row to next at end of row;
mower steering defective; did not allow tractor to turn more than 20 degrees; held: not

major insufficient evidence; may have be possible to rectify by removing air from hydraulic
fluid circuit

Goldiwood Pty Ltd t/a Margaret Franklin & Associates v ADL (Aust) Pty Ltd where
23 May 2013:MFA computer software acquired financial planning; Advisor Logic software
for 12 months $10,000; 9 July 2013: MFA terminated licence and asked for refund; 3 defects
in software supplied: failure to provide email noting system compatible with MFAs system;
failure of software to merge templates; error checking failure; held: at [70] reasonable
consumer would regard it as inevitable that software will have some problems when it
needs to be compatible with software supplied by third parties; no failure to comply with
ACL, s54
TPS Developments v Chefs Hat Australia where TPS operated a restaurant;
purchased commercial dishwasher from Chefs Hat (retail supplier); new but used a display
model; not operated; purchase price $4,900; 5 service calls in 15 months; repairs carried
out by manufacturer at no cost to TPS; held: not major failure; not substantially unfit for
purpose; easily remedied; supplier was entitled to repair and elected to do that by arranging
manufacturer to do so

9.0 REJECTION?

9.1 VALID REJECTION?


ACL, s 259(3): consumer must:

notify the supplier that consumer rejects the goods and advise the supplier
of grounds for rejection : ACL, s263(1); and
return the goods: ACL, s263(2)

unless the goods cannot be returned, removed or transported without


significant cost to the consumer, in which case the supplier must collect the goods at
their own expense and within a reasonable time

ACL, s262(1) provides right to reject goods conferred by s259(3) is lost if:

rejection period for the goods has ended; or

goods have been lost, destroyed or disposed of by the consumer; or

goods were damaged after being delivered to the consumer for reasons not
related to their state or condition at the time of supply; or
goods have been attached to, or incorporated in, any real or personal property
and they cannot be detached or isolated without damaging them

After the consumer has returned the goods, supplier must act in accordance with election
by consumers
ACL, s263(4) provides that the consumer may choose between:

Refund any money paid by the consumer; or


replace the rejected goods with goods of the same type, and of similar value,
if such goods are reasonably available to the supplier
Consumer entitled to a full refund of the purchase price

9.2 WITHIN REJECTION PERIOD?

ACL, s 262(1): consumer not entitled to reject if the rejection period has ended

ACL, s 262(2): rejection period is period from the time of supply to the consumer
within which it would be reasonable to expect the relevant failure to comply with a guarantee
to become apparent having regard to:

Type of goods

Use to which they are likely to be put

Length of time for which it is reasonable for them to be used

Amount of use to which it is reasonable for them to be put before such a


failure becomes apparent

**e.g a motor-vehicle with a latent defect might not be discovered by the reasonable
person until after about 12 months or in relation to less complex goods which normally
have a short lifespan a defect would emerge might more quickly

Carrol v Pollock Wholesale where s 262 and 263 applied according to motor car
with worn disc brakes; major failure; applicant rejected vehicle within rejection period

9.3 RETURN?
ACL, s 263:

Consumer must return the goods to the supplier unless the goods cannot be
returned without significant cost to the consumer, in which case supplier must collect the
goods within a reasonable time
o

What amounts to a "significant cost" to the consumer?

Carrol v Pollock Wholesale where ss 262 and 263 applied according to motor cat
with worn disc brakes; major failure; applicant failed to return vehicle to respondents
required by s 263

10.0 CONSEQUENTIAL DAMAGES: MAJOR AND


NON-MAJOR
ACL, 259(4) provides:

The consumer may, by action against the supplier, recover damages for any
loss or damage suffered by the consumer because of the failure to comply with the
guarantee, if it was reasonably foreseeable that the consumer would suffer such loss or
damage as a result of such a failure
Example: defect in motor vehicle; returned to dealer for repair; consumer
entitled to cost of hiring an alternative vehicle while repairs carried out
Alex Pordage v Chrystal where skope 3 door fridge freezer; $3,000 for
contaminated food

11.0 REMEDIES AGAINST MANUFACTURER


4 separate causes of action for damages against manufacturer

1.

ACL, s 271(1)(a): non-compliance with s 54 acceptable


quality guarantee, the affected person may recover damages
from the manufacturer
BUT, ACL, s 271(2) not if:
a.

(a) failure to comply is result of act, default or omission of, or any


representation made by any person other than the manufacturer

b.

(b) a cause independent of human control after goods left control of


manufacturer

c.

2.

(c) Price charge by supplier higher than manufacturers RRP

ACL, s 271(3) non-compliance with description applied by


manufacturer or with consent;
guarantee under s 56 applies and is not complied with, affected person
may recover damages against manufacturer
BUT, ACL, s 271(4) not if:

3.

(a) failure to comply is result of act, default or omission of, or any


representation made by any person other than the manufacturer

(b) a cause independent of human control after goods left control of


manufacturer

ACL, s 271(5): non-compliance with ACL, s 59 guarantee of


compliance with spare parts guarantee as to express warranty
by manufacturer
affected person may recover damages against manufacturer

4.

ACL, s 271(5): non-compliance with ACL, s 58 guarantee to make


repair facilities and spare parts reasonably available for
reasonable period
affected person may recover damages against manufacturer

11.1 MEASURE OF DAMAGE

ACL,s272(1)(a) provides that damages recoverable against a


manufacturer of goods is the reduction in value caused to the goods
below whichever of the following prices is the lower:

price paid or payable by the consumer of the goods; or

average retail price of the goods at the time of supply

Example:

Price paid for goods: $30

average retail price at the time: $28

goods are worth only $10 due to the failure to comply with a
consumer guarantee
manufacturer must pay the consumer $18

11.2 CONSEQUENTIAL DAMAGES

Section272(1)(b) provides that the damages payable by a


manufacturer to a consumer include losses that were reasonably
foreseeable as a result of the failure.

11.3 SUPPLIER'S RIGHT OF INDEMNITY AGAINST


MANUFACTURER

It is the manufacturer who puts into circulation the unsuitable or


defective goods and it is the manufacturer who is responsible for
packaging and labelling and applied the description to the goods
In such circumstances, where the consumer elects to seek redress
from the supplier, supplier should be indemnified by the
manufacturer pursuant to s274
ACL, 274(1): supplier to be indemnified for any reasonably
foreseeable consequential loss paid to consumer
ACL, 274(2): supplier to be indemnified for costs incurred by supplier
as a result of:
(a) failure of goods to comply with guarantee of acceptable quality; or
(b) failure to comply with guarantee of fitness for purpose in relation to a
disclosed purpose that the consumer made known to the manufacturer
either directly of through the supplier; or
(c) failure to comply with guarantee of correspondence with description
that was applied to goods by manufacturer

12.0 CONTRACTING OUT

ACL, s 64(1) provides: a term of a contract is void to the extent that


the term purports to exclude, restrict or modify, or has the effect
of excluding, restricting or modifying:

the application of all or any of the [consumer guarantee]


provisions; or
the exercise of a right conferred by such a provision; or

any liability of a person for a failure to comply with a


guarantee that applies to a supply goods or services.

Examples of terms that will be prohibited by s64 of the ACL are:

seller has no liability for defects or

all care but no responsibility or

no liability for negligence

ACL, s64 will also render void terms which purport to restrict
the remedies available to consumers following a breach of a consumer
guarantee.
Not possible to exclude liability for:

claims made after a certain period; or

claims in excess of a certain amount; or

claims for consequential damages.

effect of ACL, s64A is to create a form of exception to s64 where


the goods or services involved are of a kind not ordinarily acquired for
personal, domestic or household use or consumption, but cost does not
exceed $40,000

trader can limit liability under the consumer guarantees


to replacement, repair or the payment of the cost of replacement
or repair

13.0 CHOICE OF LAW OR VENUE CLAUSES

ACL, s 67: If the proper law of a contract for the supply of goods or
services to a consumer would be the law of any part of Australia but
for a term of the contract that provides otherwise... the provisions of this
Division apply in relation to the supply under the contract despite that
term

14.0 CIVIL AND CRIMINAL LIABILITY


Specific protections relating to consumer guarantees:

ACL, s 29(1)(m): prohibits false or misleading representations


in trade or commerce concerning the existence, exclusion or effect
of any guarantee, right or remedy
ACL, s 29(1)(n): prohibits false or misleading representations
in trade or commerce concerning a requirement to pay for a
contractual right that is wholly or partly equivalent to any consumer
guarantee, right or remedy

15.0 COMPLEXITIES AND UNCERTAINTIES


Acceptable quality

Consumer faces difficult evidentiary challenges if the defect in


the goods appears weeks or years after purchase
Defect might be one that existed at time of purchase but did
not cause problems until much later, in which case the goods would not
be durable and would not meet the standard of acceptable quality
Defect attributable to normal wear and tear

Not major failure: what is a reasonable period for allowing the


supplier to remedy the defect?
Who determines whether there is a major failure and cannot be
remedied?
If a major failure, ascertaining rejection period complex

CONSUMER
GUARANTEE
S: SERVICES

STEPS TO A QUESTION

Identify a relevant guarantee on the facts


Apply pre-requisites to a guarantee, that is
o Consumer
o In trade or commerce
o Being supplied services

Advise on remedies
Determine whether non-compliance with guarantee is a major failure
o Consumer can terminate contract and obtain refund or keep contract and
recover compensation

If it is not a major failure


o Consumer must require supplier to remedy failure within reasonable time

If relevant, also discuss consequential loss

1.0 CONSUMER?
acquisition of services as a consumer is defined in s3(3) of the ACL:

(a) amount paid for the services did not exceed $40,000, services are
deemed to be consumer services
(b) If amount paid exceeded $40,000, services will be consumer
services only if they are services of a kind ordinarily acquired for personal, domestic
or household use or consumption

2.0 SERVICES?
ACL provisions

s2 of the ACL to include any rights (including rights in relation to, and
interests in, real or personal property), benefits, privileges or facilities that are, or are to
be, provided, granted or conferred in trade or commerce
Contract for construction of fixtures, or contract for building something into
pre-existing fixture will be contract for supply of services
Agency services supplied to a consumer

Bailment services supplied to a consumer

ACL: financial services

CCA, s 131 Sch 2 applies as a law of the Commonwealth to the conduct of


corporations
CCA, s131A provides that despite s 131, the ACL as a law of the
Commonwealth does not apply to the supply or possible supply of financial services

ACL: architect or engineer services

ACL, s61(4): guarantee as to fitness for a particular purpose does not apply
to the supply of professional services by a qualified architect or engineer
However, other guarantees as to due care and skill, and reasonable time for
supply, apply equally to the supply of professional services by a qualified architect or
engineer

ACL: transportation or storage services

ACL, s 63: all guarantees relating to services do not apply to:

(a) a contract for or in relation to transportation or storage of goods for


the purpose of a business, trade or occupation carried on by the person for whom
the goods are transported or stored; or
(b) a contract of insurance

Wallis v Downard-Pickford where Wallis carried on the occupation of a


police officer, the actual transportation itself did not answer the description of being for
the purposes of purposes of a business, trade or occupation; purpose of the
transportation was for transport of private property of police officer, not transport
of police property; damaged due to failure to exercise due care and skill; Wallis entitled
to remedy

ACL: insurance services

ACL, s 63: excludes services that are, or are to be supplied under a contract of

insurance
Section15(1) Insurance Contracts Act 1984 (Cth):

A contract of insurance is not capable of being made the subject of

relief under:
Any other Commonwealth Act;
A State Act; or
An Act or Ordinance of a Territory

Mixed goods and services

ACL, s11(c): reference to supply or acquisition of goods includes reference to


supply or acquisition of goods together with other property or services or both
ACL, s 11(d): reference to supply or acquisition of services includes reference
to supply or acquisition of services together with other property or services or both
Contract for supply of goods not precluded from being contract for supply of
goods because it includes supply of services
Contract for supply of services not precluded from being contract for supply of
services because it includes supply of goods

3.0 TRADE OR COMMERCE?

in trade or commerce are terms of common knowledge of the widest import:


Concrete Constructions (NSW) v Nelson
Includes any business or professional activity: ACL (Cth) s 2.

4.0 GUARANTEE: DUE CARE AND SKILL

ACL, s 60 provides:

If a person supplies, in trade or commerce, services to a consumer, there is a


guarantee that services will be rendered with due care and skill
No definition of due care and skill in the ACL

Elements

first, the provider of the service must have an acceptable level of skill in the
area of activity covered by the service; and
secondly, the provider must exercise due care in supplying the service

Note term due care rather than reasonable care the common law
standard in cases of negligence

4.1 ACCEPTABLE LEVEL OF SKILL?

Example

use an acceptable level of skill or technical knowledge when providing the

services
A consumer hires a painter to paint her house.

Skill: Before starting the job, the painter does not remove all of the
old, flaking paint. Six months later, the new paint starts to flake. Painter has not
exercised the required level of skill

Cheryl Foster v Mahamudur Rahman (t/a Smarty web Solutions) where interactive
e-commerce site to be developed within 42 days; provision for PayPal; 225 days; image
format problems; held: ACL s 60 failure to comply; respondent did not have requisite skill to
develop the site for which he quoted; held major failure, but kept K and obtained refund for
reduction in value (s 267 (3)); applicant reimbursed 50% reduction in value

4.2 EXERCISING DUE CARE?


Due care: to avoid loss or damage when providing the services

While painting the consumer's house, the painter knocks over a can of
paint, which spills over her newly paved driveway. The painter has not met the
guarantee of due care and must fix the damage

Dillon v Baltic Shipping Co where contract for the carriage of a passenger's


personal luggage on a crew ship - because of negligence the passenger's luggage was
lost; respondent's conduct was so serious that the court readily concluded that it fell
short of the standard of due care; second Explanatory Memorandum: Whilst the cases
cited here were heard under the comparable implied warranty provision of the TPA, the
intention is that the guarantee applies to such services in a similar way"

5.0 GUARANTEE: FITNESS FOR A PARTICULAR


PURPOSE

5.1 MAKES KNOWN THE PARTICULAR PURPOSE


ACL,s 61(1) provides:

If a person (the supplier) supplies, in trade or commerce, services to a


consumer; and
The consumer, expressly or by implication, makes known to the supplier
any particular purpose for which the services are being acquired by the consumer
There is a guarantee that the services, and any product resulting from the
services, will be reasonably fit for that purpose

TLK Transport v Thornthwaite (T/as Yass Valley Mobile Mechanic where first
breakdown occurred from failure of turbo which sent fins travelling through proximate parts
of engine; scope of work was to get the truck in working order; business struggling without
it; undertook limited repairs; did not inspect or replace camshaft which needed to be

repaired; further repairs necessary within 3 weeks; held failure to comply with s 60 and 61
(1)

Gharibian v Popix where appellant injured using toboggan run operated by


respondent (Propix); no braking system in wet conditions - applicant injured; held damages
for breach of implied warranty that toboggan would be fit for purpose when supplied
Mayne Nickless Ltd v Crawford where intruder alarm system for respondents shop;
specific purpose made known that wanted sound siren on premises and automatically
telephone police and applicants control room; respondent asked what would happen if
telephone line cut; sales rep replied battery backup alarm will still sound and will still
activate control room which was false; held breach of implied warranty fitness for purpose
under TPA s 74 (2)

5.2 MAKES KNOWN THE DESIRED RESULT


ACL, 61(2) provides:

If a person (the supplier) supplies, in trade or commerce, services to a


consumer; and
the consumer makes known, expressly or by implication, to the supplier the
result that the consumer wishes the services to achieve;
there is a guarantee that the services, and any product resulting from the
services, will be of such a nature, and quality, state or condition, that they might
reasonably be expected to achieve that result.

Example

Consumer asks a handyman to fix double gates at the entrance to his

driveway
Gates are poorly aligned and make a loud metal scraping noise when

opened

Consumer tells the handyman that he wants to stop the noise

Handyman realigns the gates but in less than two days the problem
returns

Handyman will have to fix the problem free of charge, as the service
did not achieve the desired result

5.3

EXCEPTIONS TO ABOVE

ACL s61(3) provides that the guarantees in s61(1) and (2) do not apply
if the circumstances show that the consumer did not rely on, or that it was
unreasonable for the consumer to rely on the skill or judgment of the supplier.
ACL, s61(4) provides that the guarantee as to fitness for a particular purpose
does not apply to the supply of professional services by a qualified architect or engineer

6.0 GUARANTEE: SUPPLIED WITHIN REASONABLE


TIME
ACL, s62 provides

is not fixed by the contract for the supply of the services; or

is not to be determined in a manner agreed to by the consumer and supplier;

there is a guarantee that the services will be supplied within a reasonable time

Reasonable time depends on facts

If a person (the supplier) supplies, in trade or commerce, services to a consumer; and


the time within which the services are to be supplied:

time period that is reasonable will vary significantly depending on the nature
of the services to be provided
reasonable time to repair a hot water system (essential service) will be shorter
than repairing a television set (non-essential service)
not possible to set out in the ACL what is reasonable and the courts and
tribunals will need to consider all the circumstances that apply to a particular case to
determine the time period that is reasonable

Remedies for failure to comply

Basic question is: does the consumer have to pay the price if the work of the
service provider is unsatisfactory?
ACL classifies failures into those that are major and those that are not major

7.0 MAJOR FAILURE

ACL, s268: A failure to comply with a guarantee that applies to a supply of services is
a major failure if:

(a) the services would not have been acquired by a reasonable


consumer fully acquainted with the nature and extent of the failure (due care and skill);
or
(b) the services are substantially unfit for a purpose for which services of the
same kind are commonly supplied and they cannot, easily and within a reasonable
time, be remedied to make them fit for such a purpose (due care and skill);

Remedies available

ACL, s 268 (c) :

are unfit for a particular purpose for which the services were
acquired by the consumer that was made known to the supplier of the services; and
the services, and any of those products, cannot, easily and within a
reasonable time, be remedied to make them fit for such a purpose (fitness for
purpose);

E.g., a consumer tells a pay TV company they want to watch football final.
Consumer signs contract but football final over before the company installs
the service

ACL, s 268 (d): the services, and any product resulting from the
services, are not of such a nature, or quality, state or condition, that they might
reasonably be expected to achieve a result desired by the consumer that was made
known to the supplier; and
the services, and any of those products, cannot, easily and within a
reasonable time, be remedied to achieve such a result

ACL, s 268(e) the supply of the services creates an unsafe situation

E.g, an electrician incorrectly wires wall sockets in a consumer's new kitchen,


which makes the electrical outlets unsafe

DINSTINCTION BETWEEN (c) and (d)

ACL, s 268 (c), unlike ACL, s 268(b), it is not necessary to prove that the services
are substantially unfit for the special purpose made know to the supplier.
If the particular needs of the consumer are made known to the supplier, there is a
major failure if the services supplied are not fit to meet those needs without the requirement
that they must be substantially unfit to meet those needs

7.1 STATE THE REMEDIES

ACL, s 267(3) provides that if the failure is major or cannot be remedied, the
consumer (not the supplier) has a choice. The consumer may:

terminate the contract for the supply of services; and obtain a refund; or
keep the contract and recover compensation from the supplier to make up
any reduction in value of the services caused by the failure

Yan Tun Wu v Great Wall Travel Service where failure to visit scheduled travel sites
in New York including Museum of Modern Art, United Nations, Rockefeller Centre and Times
Square; held: Failure to comply with ACL, s 60 ACL, s 236 remedy in damages

Decision is wrong: s 236 provides cause of action in damages for


a contravention of Ch 2 or Ch 3
ACL, s 60 in Ch 3 but s 60 does not prohibit conduct; cant contravene; rather
s 60 imposes a statutory duty

Proper remedy: ACL, s 267: compensation for reduction in value

8.0 NOT MAJOR FAILURE

Consumer must give the supplier who provided the service the opportunity to fix the
problem at no cost to the consumer
ACL, s267(2) provides if the failure to comply with a guarantee can be remedied and
is not a major failure,: (a) the consumer may require the supplier to remedy the failure
within a reasonable time
Right provided for in s 267(2)(b)(i) to have the failure remedied by a third party
predicated on the consumer first giving the supplier the opportunity to fix the problem

Gives the supplier the opportunity to determine whether the failure due to abnormal
use by the consumer

ACL, s267(2)(b) provides if the supplier refuses, or fails to remedy the failure within
a reasonable time, the consumer has two choices:

have the failure remedied by a third party and recover the costs from the
first supplier; or
terminate the contract for the supply of services and refuse to pay for the
services supplied

9.0 REMEDIES: CONSEQUENTIAL LOSS

ACL, s 267(4) provides that the consumer may bring an action against the supplier
to recover damages for any loss or damage suffered by the consumer because of the failure
to comply with the guarantee, including losses that were reasonably foreseeable as a result
of the failure
Weir v Geelong Grammar School w h e r e i m pli e d t er m s u n d er of d u e c are
a n d s kill a n d fit n e s s for p ur p o s e u n d er t h e for m er Fair Tra din g
Ac t 1 9 9 9( Vic); a c tio n for bre a c h of c o n trac t b y s u p pl yin g ina d e q u a t e

s er vic e s ; By s u p pl yin g s er vic e s n o t fit for p ur p o s e , I did n o t g e t int o Law


a t S y d n e y Univ er sit y; c lai m for $ 4 5 0, 0 0 0 p o t e n tial los s of e ar nin g s fro m
a b u sin e s s v e n t ure rej e c t e d u n d er Hadley v Baxendale; w o uld n o t h a v e
b e e n re a s o n a bl y fore s e e a bl e u n d er ACL, s 2 6 7( 4)

SECURITY
INTERESTS

1.0 IS THERE A SECURITY INTEREST?

A s e c urity int er e s t m e a n s a n int er e s t in p e r s o n al pro p e r t y provid e d


for b y a tr a n s a c tio n t h a t, in s u b s t a n c e , s e c ur e s p a y m e n t or
p e rfor m a n c e of a n o blig a tio n (wit h o u t r e g ar d t o t h e for m of t h e
tr a n s a c tio n or t h e id e n tit y of t h e p e r s o n w h o h a s titl e t o t h e
Inclu d e s a n y of t h e followin g tr a n s a c tio n s (if t h e y, in s u b s t a n c e ,
s e c ur e p a y m e n t or p e rfor m a n c e for a n o blig a tio n): s 1 2 (2)
o ( a) fixe d c h a rg e
o (b) flo a tin g c h a rg e
o (c) c h a t t el m o r t g a g e
o (d) A c o n dition al s al e a gr e e m e n t (inclu din g a n a g r e e m e n t t o
s ell wit h r e t e n tio n of titl e)
o ( e) A hir e-p urc h a s e a gr e e m e n t
o (f) A pl e d g e
o (g) A tr u s t r e c ei p t
o (h) A consignment (whether or not a commercial
consignment)
o (i) A le a s e of g o o d s (w h e t h e r or n o t a PPS le a s e)
o (j) An a s sig n m e n t; or
o (k) A tr a n sf er of titl e
o (l) a flawed asset arrangement
e . g a c a s h d e p o sit b y c u s t o m e r wit h b a n k t h a t is o nly
r e p a y a bl e b y b a n k if c u s t o m e r s h a s firs t b e e n r e p ai d; s o
it a p p e a r s t o b e a n a s s e t of c u s t o m e r s b u t t h e a s s e t is
flaw e d in t h a t t h e b a n ks o blig a tio n t o p a y it is
D e e m e d t o b e s e c urity int er e s t s: s 1 2 (3)
o ( a) Tran sf er of a n a c c o u n t
o (b) Int er e s t of a c o n sig n or w h o d eliv er s g o o d s t o a c o n sig n e e
u n d e r a c o m m e r ci al c o n sig n m e n t
Definition s 10: Wh er e c o n sig n e r r e t ai n s a n int er e s t in
g o o d s (Ro m alp a cl a u s e), d eliv er s t h e g o o d s t o t h e
c o n sig n e e for p ur p o s e of s al e, le a s e or o t h e r dis p o s al
a n d t h e c o n sig n or a n d t h e c o n sig n e e b o t h d e al s in
g o o d s of t h a t kin d in the ordinary course of
But d o e s n o t inclu d e a n a g r e e m e n t u n d e r w hic h g o o d s
a r e d eliv er e d t o a n a u c tio n e e r for t h e p u r p o s e of s al e or
a c o n sig n e e for s al e, le a s e or o t h e r dis p o s al if t h e
c o n sig n e e is g e n e r ally k n ow n t o t h e cr e dit or s of t h e
o (c) t h e int er e s t of a le s s or or b ailor of g o o d s u n d e r a PPS le a s e
Le a s e or b ail m e n t of g o o d s for a t er m of m o r e t h a n o n e

**IDENTIFY WHO IS THE SECURED PARTY AND WHO IS THE


GRANTOR

2.0 ATTACHMENT ENFORCEABLE AGAINST


GRANTOR?

S 19
o (1) A s e c u rity int er e s t will b e e nforc e a bl e a g ai n s t a g r a n t or in
r e s p e c t of a p a r tic ul ar c olla t e r al o nly if
o (2) A s e c u rity int er e s t is a t t a c h e d t o t h e c olla t e r al w h e n:
(a) the grantor has rights in the collateral, or the
power to transfer rights in the collateral to the
secured party; and
(b) either
(i) value is given for the security interest; or
(ii) grantor does an act by which the security
interest arises

3.0 ENFORCEABLE AGAINST THIRD PARTIES?

S 20
o (1) S e c urity int er e s t e nforc e a bl e a g ai n s t Tp in r e s p e c t of
p a r tic ul ar c olla t e r al o nly if
( a) s e c u rity int er e s t a t t a c h e d t o c olla t e r al ( fulfilled
O n e of t h e followin g a p pli e s
(i) s e c ur e d p a r t y p o s s e s s e s c olla t e r al
(ii) s e c ur e d p a r t y h a s p e rf e c t e d s e c urity int er e s t
(iii) a s e c u rity a g r e e m e n t t h a t pr ovid e s for t h e
s e c urity int er e s t c ov e r s t h e c olla t e r al in
o Gr a n t or h a s sig n e d or int e n tio n ally a d o p t e d
a writt e n s e c u rity a gr e e m e n t wit h a d e q u a t e
d e s crip tio n of c olla t e r al

4.0 PERFECTION?

S 21
o (1) S e c urity int er e s t in p a r tic ul ar c olla t e r al p e rf e c t e d if
(b)
S e c urity int er e s t is a t t a c h e d t o c olla t e r al (fulfilled
S e c urity int er e s t is e nforc e a bl e a g ai n s t Tp
(fulfilled above)
(2)

o Registered in PPS register: ( a)


r e gis tr a tio n is e ffec tiv e wit h r e s p e c t t o t h e
o Has possession: (b) s e c ur e d p a r t y h a s
p o s s e s sio n of c olla t e r al (ot h e r t h a n
p o s s e s sio n a s a r e s ult of s eiz ur e or
o Has control: (c) c o n trol of followin g kin d s
of c olla t e r al
(i) ADI a c c o u n t
(ii) int er m e di a t e d s e c urity
(iii) inv e s t m e n t ins tr u m e n t
(iv) n e g o ti a bl e ins tr u m e n t n o t
e vid e n c e d b y c e r ti fica t e
(v) a rig h t e vid e n c e d b y a let t e r of
cr e dit t h a t s t a t e s t h a t t h e let t e r of
cr e dit m u s t b e pr e s e n t e d o n cl ai min g
p a y m e n t or r e q uirin g t h e p e rfor m a n c e
(vi) s a t ellit e s a n d o t h e r s p a c e o bj e c t s

Conclude whether there is a valid enforceable security


interest (is it perfected or not)

5.0 APPLY THE TAKING FREE RULES

D e t er mi n e w h e t h e r a n o t h e r p a r t y c a n t ak e t h e pr o p e r t y fr e e of t h e
s e c urity int er e s t: s s 4 3 4 6

5.1 MAY TAKE WHERE UNPERFECTED

S 43
o (1) Buy e r or le s s e e of p e r s o n al pro p e r t y, for v alu e , t ak e s
p e r s o n al pro p e r t y fre e of a n u n p e rf e c t e d s e c u rity int er e s t in
Exception: (2) Th e a b o v e d o e s n o t a p ply if u n p e rf e c t e d
s e c urity int er e s t w a s cr e a t e d or provid e d for b y a
tr a n s a c tio n t o w hic h t h e b u y e r or le s s e e is a p a r t y,
u nl e s s t h e p e r s o n al pro p e r t y c o n c er n e d is of a kin d
i.e Where there is no registered security interest the
person who bought it takes the goods free, and the
creditor can still trace the proceeds of the sale; if they
are bankrupt s 267 of the Bankruptcy Act means that
the money is lost.

5.2 MAY TAKE IF SERIAL NUMBER INCORRECT OR


MISSING

S 44
o (1) Buy e r or le s s e e of p e r s o n al pro p e r t y t ak e s t h e p e r s o n al
pro p e r t y fre e of a s e c urity int er e s t in t h e pr o p e r t y if
( a) r e g ul a tio n s pr ovid e t h a t p e r s o n al pr o p e r t y of t h a t
kin d m a y, or m u s t, b e d e s crib e d b y s e ri al n u m b e r in a
(b) s e a r c hin g t h e r e gis t e r, im m e di a t ely b efor e t h e ti m e
of t h e s al e or le a s e , b y r ef er e n c e o nly t o t h e s e ri al
n u m b e r of t h e pr o p e r t y, w o uld n o t dis clos e a
i.e where a search on serial number does not find
the goods, unless the buyer takes the goods as
inventory for a business where ABN has been
allocated

5.3 MAY TAKE MOTOR VEHICLES FREE OF SECURITY


INTEREST

S 45
o (1) Buy e r of le s s e e , for v alu e , of a m o t o r v e hicl e of a kin d
pr e s crib e d b y t h e r e g ul a tio n s for p u r p o s e of t his s e c tio n, t ak e s
t h e m o t or v e hicl e fre e of a s e c u rity int er e s t in t h e m o t or
( a) t h e r e g ul a tio n s pr ovid e t h a t m o t or v e hicl e s of t h a t
kin d m a y, or m u s t, b e d e s crib e d b y s e ri al n u m b e r; a n d
(b) t h er e is a ti m e d u rin g t h e p e rio d b e t w e e n t h e s t a r t of
t h e pr e g vio u s d a y a n d ti m e of t h e s al e or le a s e b y
r ef er e n c e t o w hic h a s e a r c h of t h e r e gis t e r (b e r ef er e n c e
o t h e r wis e o nly t o t h e s e ri al n u m b e r of t h e m o t or
v e hicl e) w o uld n o t dis clos e a r e gis tr a tio n t h a t p e rf e c tr e d
(c) t h e s ell er or le s s or is:
(i) t h e p e r s o n w h o gr a n t e d t h e s e c urity int er e s t; or
(ii) if t h e p e r s o n w h o g r a n t e d it h a s los t t h e rig h t
t o p o s s e s s t h e m o t or v e hicl e, or is e s t o p p e d fro m
a s s e r tin g a n int er e s t in it a n o t h e r p e r s o n w h o is

(1) (2) Subsection (1) does not apply if:


(a) the secured party is in possession of the motor vehicle immediately

before the time of the sale or lease; or


(b) the motor vehicle is bought at a sale held by or on behalf of an execution
creditor; or
(c) the buyer or lessee holds the motor vehicle:
(i) as inventory; or

(ii) on behalf of a person who would hold the motor vehicle as


inventory; or
(d) the buyer or lessee buys or leases the motor vehicle with actual or
constructive knowledge of the security interest.

i.e seller must be motor vehicle dealer; can take where


they dont have knowledge of a security interest, and
not for inventory and for new value

5.4 MAY TAKE WHERE SC IN ORDINARY COURSE OF (THE


PERSON SELLINGS) BUSINESS

S 46
o

(1) A buyer or lessee of personal property takes the personal property free of a
security interest given by the seller or lessor, or that arises under section 32 (proceeds
attachment), if the personal property was sold or leased in the ordinary course of
the sellers or lessors business of selling or leasing personal property of that kind.
(2) Subsection (1) does not apply if:
(a) in a case in which personal property of that kind may, or must, be
described by serial numberthe buyer or lessee holds the personal property:
(i) as inventory or;
(ii) on behalf of a person who would hold the collateral as
inventory; or
(b) in any casethe buyer or lessee buys or leases the personal property
with actual knowledge that the sale or lease constitutes a breach of the
security agreement that provides for the security interest.

i.e May take free where security interest in ordinary


course of (the person sellings) business as long as
they dont have knowledge of the security interest

5.5 MAY TAKE WHERE DOMESTIC OR HOUSEHOLD USE

S 47
o

(1) A buyer or lessee of personal property, for new value, that the buyer or lessee
intends (at the time of purchase or lease) to use predominantly for personal,
domestic or household purposes takes the personal property free of a security
interest in the property if the market value (worked out at the time each part of the
total new value is given) of the total new value given for the personal property is not
more than:
(a) $5,000; or

(b) if a greater amount has been prescribed by regulations for the purposes of
this subsectionthat amount.

(2) Subsection (1) does not apply if:


(a) the personal property is of a kind that the regulations provide may, or
must, be described by serial number in a registration; or
(b) the buyer or lessee buys or leases the personal property with actual or
constructive knowledge that the sale or lease constitutes a breach of the
security agreement that provides for the security interest; or
(c) at the time the contract or agreement providing for the sale or lease is
entered into, the buyer or lessee believes, and it is actually the case, that the
market value of the personal property is more than:
(i) $5,000; or
(ii) if a greater amount has been prescribed by regulations for the
purposes of this paragraphthat amount.

i.e May take free where domestic or household use is


less than $5000, but this does not apply to goods that
may be registered by serial no, or if they have actual or
constructive knowledge that the sale or lease
constitutes a breach of the security agreement
providing for a security interest

5.6 MAY TAKE IF INVESTMENTS BOUGHT ON FINANCIAL


MARKET

S 4 9: A p e r s o n w h o b u y s a n inv e s t m e n t ins tr u m e n t or a n
int er m e di a t e d s e c u rity in t h e or din a r y c o ur s e of tr a din g o n a
pr e s crib e d fin a n ci al m a rk e t (wit hin t h e m e a ni n g of t h e Corporatio n s
Ac t 2 0 0 1 ) t ak e s t h e ins tr u m e n t or int er m e di a t e d s e c urity fre e of a

CONCLUDE WHETHER THEY CAN TAKE FREE

6.0 FINAL CONSIDERATIONS

If a lender takes free of a security interest, they are entitled to the


proceeds of the sale: s 32
If not, go through the rules of priority in s 55
o First unperfected security interest over later s 55(2)
o Perfected Secured Interest has priority over un perfected s 55(3)
o First Secured Party has Priority s 55(4),(5) except
Has control (doesnt need to be registered as control is
perfection) s 57(1)
PMSI (includes, leases bailments commercial consignments
sold on retention of title) s 62

]
Grantor Remedies can
o Seize s 123
o Claim any unpaid purchase price s 53
o Resell s 128
Note Authorised dealer cl 21