THE NATURE OF AGENCY RELATIONSHIP

The need to appoint another person to perform one act or another

on one’s behalf assumes greater proportion daily. This is so because

of the rapid economic developments that have taken place in the

recent years. A party may want to do many things but because of

lack of time or expertise, he is compelled to appoint another person

to act on his behalf and whatever that other person does will be

binding on him. The question is: ‘Who is an agent?’

An agent is one who acts on behalf of another called the principal.

The agent has power to affect the principal’s legal position vis-à-vis

a third party e.g. by entering into a contract or disposing of the

property of the principal.

Agency has been defined in different ways by different scholars.

According to Fridman in his book ‘Law of Agency,’

‘Agency is the relationship that exists between two persons when

one called the agent is considered in law to represent the other

called the principal in such a way as to be able to affect the

principal’s legal position in respect of strangers to the

relationship by the making of contracts or the disposition of

property.’

Bowstead has defined agency as:

 ‘The relationship that exists between two persons one of whom

expressly or impliedly consents that the other should represent

him or act on his behalf and the other of whom similarly

consents to represent the former or so to act.’

Prof. Powell defined an agent as:

‘A person who is authorized to act for a principal and who has

agreed so to act and who has the power to affect the legal

relationship of his principal vis-à-vis a third party.’

The American restatement of the law of agency defines agency as:

‘The relationship which results from the manifestation of

consent by one person to another that the other shall act on his

behalf and subject to his control and consent.’

In the case of Ikemefuna C. Amadiume & Anor v. Mrs Agnes Solomon

Ibok (2006) All FWLR pt 321 pg. 1247, the Court of Appeal defined an

agent as:

‘Any person who acts for another in the capacity of deputy,

steward, rent collector or any other agent or trustee on oath.’

Also, in E.A. Okoyode v. FCDA (2006) All FWLR pt 298 pg 1200 at

1405, the Court of Appeal also defined an agent as

‘One who is authorized to act for or in place of another.’

Here, the Court of Appeal was actually quoting the Black’s Law

Dictionary 7th edition.

Seavey defined agency as:

‘A consensual relationship.’

This Seavey’s definition has received judicial approval in Garnac

Grain Company Ltd v. HMF Faure & Fair Clough Ltd. (1967) 2 All ER

pg 353. In that case, Lord Pearson said,

‘The relationship of principal and agent can only be

established by consent of the principal and the agent. They

would be held to have consented if they had agreed to what

amounts in law to such a relationship even if they do not

recognize it themselves and even if they have professed to

disclaim it.’

Note that this statement has been criticized by Fridman. This is

because this idea of consent as the basis of agency relationship is

contestable because there are circumstances in which the agency

relationship exists without the consent of the parties or even against

the wishes of either one of them or even both of them.

See for example Phibbs v. Boardman (1965) 1 All ER pg 849. In that

case, the defendant who was not appointed as an agent but acted as

one and made secret profits was compelled by the court to yield over

the secret profits to the beneficiaries. This shows that some of the

obligations of an agent are imposed by the law regardless of the

agreement of the parties. There are other instances in which agency

relationship is not by consent but by operation of law. Examples are

agency of necessity and a deserted wife’s right to pledge the

husband’s credit.

AGENTS DISTINGUISHED FROM PERSONS IN

SIMILAR CIRCUMSTANCES

 Agent and Trustee

An agent and a trustee occupy similar position. Both the agent and

the trustee deal with the property for and on behalf of another

person. Whereas an agent deals with the principal’s property, a

trustee does so on behalf of the beneficiary. As a result, both of them

can affect the legal position of the person on whose behalf they are

acting. An agent can sell and transfer the principal’s property to a

third party. A trustee can also transfer the trust property to a third

party. Just as a principal can trace, in agency, his property in the

hand of a third party, a beneficiary can also trace his trust property

in the hands of a third party in trust relationships. A trustee is a

fiduciary and an agent is also a fiduciary. They both occupy a

fiduciary position. Therefore, an agent must not make secret profits

just as a trustee. An agent and a trustee must not act in a way that

will conflict with their duties.

The following are however the major areas of distinction between the

agent and the trustee.

Whereas a trustee is the legal owner of a trust property, an agent is

not a legal owner of the principal’s property.

Secondly, an agent can always represent the principal within the

scope of his authority. On the other hand, a trustee does not

represent the beneficiary in the same way as the agent represents the

principal.

Thirdly, agency relationship to some extent is based on consent. A

trustee and beneficiary relationship is not necessarily based on

consent between the trustee and the settlor.

Again, the relationship of principal and agent arises largely as a

result of the manifestation of consent. Therefore, an agent normally

creates a contractual relationship between the principal and a

third party.

 Agents, Servants & Independent Contractors

All these people are engaged to act on behalf of another person. A

master has a right of control on how a servant should carry out his

duties. This right does not exist in the case of an independent

contractor or possibly in the case of an agent. Note however that this

control test in relation to servant, agent and independent

contractor has been criticized to distinguish between the position of

an agent and that of a servant. The essential distinction between

an agent, servant and independent contractor is one of function.

An agent is engaged to make contracts and to dispose the property

of the principal. Truly, the duties can overlap in a single situation.

This is because a single person can act both as a servant and an

agent while being an independent contractor. A single person may

perform the duties of these 3 categories.

 AGENT AND BAILEE

A bailee is a person who has possession of goods from or for the owner

of the goods for a specific purpose. The concept of bailment overlaps

with that of agency especially where the agent receives possession as

a factor or a mercantile agent.

CREATION OF AGENCY

 Formalities

There are no formalities required for the appointment of an agent

and this has been adequately or succinctly put by Lord Cranworth in

Pole v. Leask

‘No one can become the agent of another except by the will of

that other person. His will may be manifested in writing or

orally simply by placing another in a situation which

according to ordinary usage of mankind that other is

understood to represent and act for the person who has so

placed him.’

An appointment for example could be sending goods to an

auctioneer or broker.
  Capacities

The general rule is that both the principal and the agent must be

capable of acting as principal and agent. This is governed by the

general rule of contract. However, see what Lord Denning said in

the case of Shepherd v. Cartwright (1953) 2 All ER page 608

particularly page 618-619 where he said

‘The appointment by an infant of an agent has always been

void.’

Incidentally, the same Lord Denning retracted in a later case of G v.

G (1970) 3 All ER pg 546 at 549. It was held that:

‘An infant could appoint an agent to pay maintenance for the

support of his illegitimate child, since that was a lawful act for

him to do and one which he could be compelled to do.’

Where the principal suffers from mental disorder, the general rule is

that the contract is nevertheless binding on him unless he can prove

that he was so insane as not to know what he was doing and that

this was known to the other party. See the case of Imperial Loan

Company v. Stone (1892) 1 QB pg 599. Note however that in the case

of Young v. Toynbee (1910) 1 KB pg 215, the insanity of the principal

was held to terminate his agent’s authority automatically,

although the agent was not aware of the insanity.

OBLIGATIONS OF AN AGENCY RELATIONSHIP

 a. Duties of an agent

An agent having accepted to be an agent, has certain duties to

perform. Such duties may arise from:

i. The agreement he has entered into with the principal

ii. From the fiduciary nature of the agency relationship

By and large, the following are the duties of an agent.

 Performance

Where the agency is a contractual one, an agent must perform what

he has undertaken to perform under the contract. This means that

the agent is duty bound to carry out the contract that he has made

to the principal. This is governed by the rule of contract. See Turpin

v. Bilton (1843) 5 M & G at pg 455. In that case, an agent was

appointed by conduct to insure the principal’s ship. He failed to do

so and the ship was lost at sea. It was held that the agent was guilty

of a breach of contract and therefore, he was liable.

It must be noted however that an agent is not bound to perform an

illegal undertaking or a transaction which is null and void either

at common law or under statute. See Cohen v. Kittel (1889)2 QB d at

pg 680. In that case, an agent was asked to take a bet for the

principal. He failed to do so. The principal sued him for non-

performance. It was held that betting was illegal and so the agent

was not liable for breach of contract.

Where the agency relationship is non-contractual, that is to say,

where it is gratuitous, an agent is not obliged to perform the

undertaking at all. It has been argued that in such an instance,

the agent will not be liable for non-performance or failure to carry

out his duty towards the principal. See Ibadan City Council v.

Odukale (1972) 8 SC 128. The question has always been whether the

agent of a gratuitous relationship is obliged to inform his principal

of his intention not to perform. Prof. Powell for example in his book

‘Law of Agency’ concludes that there is a duty on the agent to

inform the principal within a reasonable time and failure to do so

will give rise to a liability in negligence.

Note also that where an agent is instructed to buy specific goods, it

is his duty to ensure that the goods supplied are in accordance with

the specification. See Oto Hamman v. Senbanjo (1962) 2 All NLR pg

139.

 Obedience

The agent must act in accordance with the authority which has

been given to him by the principal. Such authority may either be

express, implied or usual/customary authority. Within the usual or

customary authority are duties that are general in such situations

or the custom of a particular trade. These are called business

customs, usages or instructions. The paramount consideration where

there are no express instructions, usage or business custom to guide

the agent is that the agent will have some discretion as long as he

acts for the benefit of the principal. See Bonsor v. Musicians Union

(1955) 3 All ER pg 518.

An agent must keep within his authority and he must not disregard

the instructions of the principal, even if this will benefit the

principal. See Bertran Armstrong v. Godfrey (1830) 1 KNAP pg 301.

In that case, an agent was instructed to sell stock at a certain price

(85 pounds or more). He waited until the price came up to 85

pounds which was the price he was instructed to sell but he decided

to wail further for a higher price. The price came down. He was held

liable for not selling at the price he was instructed to sell.

Note however that where the principal’s instructions are ambiguous,

the agent may not be liable if he did what he considered to be

reasonable and what he thought will benefit and interest the

principal even though the principal never intended the act.

 Care and Skill

An agent must perform his undertaking with due care and skill. All

agents owe this duty to their principal whether the agency is

contractual or gratuitous. Nevertheless, a distinction is usually

drawn between the standard of care to be observed in each case. A

gratuitous agent is only bound to display or show such skill as he in

fact possesses. See Giblin v. McMullen (1868) LR pg 317. In that case,

an agent who was acting gratuitously made a mistake when acting

for his principal as a result of which the principal’s property was

liable to forfeiture and was seized. It was held that the agent was

not liable to the principal since he had exercised the same care and

skill in respect of his property. On the other hand, a contractual

agent must display or show the degree of skill which an agent in his

position will usually display. Again, this distinction has been

criticized by Prof. Powell in his book ‘Law of Agency’ at pg 304. The

question is whether it is fair to hold a gratuitous agent liable for

any lack of reasonable care not amounting to gross negligence. See

Omotayo v. Ojikutu (1961) All NLR pg 901.

 Non – Delegation (personal Performance)

The general rule is that an agent must perform his undertaking

personally. The relationship of principal and agent is a confidential

one. The rule is expressed in the Latin maxim ‘delegatus non potest

delegare.’ Therefore, the employment of a sub-agent by his agent is a

breach of his duty to the principal unless he has been permitted

either by law or by the agreement of the two parties. See Allan v.

Europa Postal Services Ltd. (1968) 2 All ER pg 575.

It must be noted however that there are certain exceptions to the

general principle of delegatus non potest delegare. These include:

 The agent can delegate where the act is purely ministerial and

not involving confidence or where it involves the exercise of

discretion.
  Where the principal has expressly authorized the agent to

delegate his power.

 Where the power to delegate can be implied from the

circumstances of the case. See De Bussche v. Alt (1878) 8 Ch Div

pg 286

 An authority to delegate may and should be implied where the

usage of the transaction permits it.

 Where the authority to delegate is derived from a statute or

legislation.

 Respect of Principal’s Title or Estoppel

An agent cannot deny the title of his principal to goods, money or

land in his possession on behalf of his principal. The possession of the

agent is the possession of the principal for all purposes including the

acquisition of title under the statute of limitation.

Note however that there are circumstances in which an agent may

be able to refuse to assent to a claim by his principal to the

principal’s title to property which are in his possession. E.g. if a third

party is entitled to the property in question, the agent may set up the

title of such third party i.e. jus tertii, provided that the agent is

defending on behalf and by the authority of the third party or if he

has handed the property to him i.e. if he has already settled with the

actual owner.
Note however that an agent must not have knowledge of the adverse

claim (the third party’s claim) at the time of taking possession. If he

knows, then, he cannot setup the adverse claimant’s title against the

principal.

 Duty to account

An agent must pay over to his principal all the sums received by him

on behalf of his principal. See Blaustein v. Maltz Mitchell (1937) 2

KB pg 142. This means that an agent must always keep his

principal’s property distinct from his own and keep proper account of

such property. See Ogbonnaya N. Godwin v. The Christ Apostolic

Church (1998) 12 SCNJ pg 213 at 215.

In that case, the appellant was a pastor in the respondent church.

He supervised all the branches of the church in 2 eastern states and

lived in a property which belonged to the Church in Enugu as his

personage. He was dismissed in Nov. 1979 after serving the church

for about 17 years. He refused to vacate the residential premises and

was ejected by a court order after the determination of a suit for his

ejection. In that action between the parties, the High Court made

findings of fact to the effect that the appellant was an employee of

the church. In this later action, the church as the plaintiff claimed

against the appellant to render an account and hand over to the

church several items of property which were alleged to be in his

possession by virtue of his appointment and an account of all monies

standing to the credit of the church in 2 named banks and in the

personal custody of the defendant and/or his treasurer as at the 29th

Nov. 1979 and payment over to the plaintiff of the balance so found.

The church also claimed against the defendant an injunction. The

defendant denied being an employee of the church and being in

possession of any of the properties of the church. It was also his

contention that he was not an accounting party. The High Court

held that the appellant was an accounting party who ought to

account to his employer i.e. the church, but however, held that the

issue of whether the appellant was an employee of the church from

1962 to 1979 was res judicata.

The church appealed to the Court of Appeal against the judgment

and the appeal succeeded to the extent that the defendant was

ordered to render account to the church in respect of the two bank

accounts. The Court of Appeal affirmed the findings of the High

Court that the appellant was an employee of the church and that he

had a duty to account to the church for all the properties and

money in his possession in respect of his stewardship.

The appellant’s appeal to the Supreme Court was dismissed. The

Supreme Court held inter alia that:

‘It is the duty of every agent to keep the money and property of

his principal separate from his own and that of any person. The

right of a principal to have such an account rests upon the

fiduciary relationship existing between him and the agent

which term includes any person who acts for another in the
 capacity of deputy, steward, rent collector or any other agent

or trustee. It is the first duty of an accounting party to be

constantly ready with his account. The defendant/appellant in

this case had not shown any willingness to do so. He neglected

to do so.’

 Fiduciary Duties (Fidelity or Good Faith)

An agent stands in a fiduciary relation to his principal and as such

he must act in good faith and must not allow his interest to conflict

with his duty. E.g. he must not make secret profits. The position of an

agent who makes secret profit was considered at length by Lord

Denning in Phibbs v. Boardman (supra). In that case, the

defendant (solicitors) were treated as having acted as agents of a

trust even though they were not appointed and it was held that some

profits made by them when dealing with the trust property should be

yielded over to the beneficiaries even though they had not acted

dishonestly. Lord Denning said:

‘it is quite clear that if an agent uses property with which he

has been entrusted by his principal so as to make profits for

himself out of it without his principal’s consent, then, he is

accountable for it to his principal.’

The same rule applies when an agent makes use of a position of

authority or when he uses information or knowledge so as to gain

money for himself. The courts had held that such position of
authority, information or knowledge is part of the property of the

principal.

It must be noted that even when the agent is not paid, he must not

make secret profits from his position. See Turnbull v. Garden (1869)

20 LT pg. 218. In that case, an agent who was employed without

commission to purchase an outfit for his principal’s son obtained a

discount on the purchase but he charged the principal with the full

price. It was held that the principal could not be compelled to re-

imburse the agent more than the agent actually spent. The court

further held that the agent could not make secret profits from the

transaction. See also A.G. v. Goddard (1929) 98 LJKB 743. In that

case, a police sergeant took bribe to conceal criminal offences. The

court held that the money he took was an illegal profit. Similarly, in

Reading v. A.G. (1951) 1 All ER 617, a soldier used his uniform to get

drugs illegally through a police barrier. For this trouble he was

bribed by a large amount of money. It was held that as he was

acting illegally, he was bound to hand over his profit to the crown.

Note however that if the principal knows about the agent’s secret

profits and consents or does not object, then the agent is entitled to

keep the profit.

Duties of the Principal

 Remuneration
Under a contractual relationship, the principal is bound to pay

remuneration he has promised to pay the agent by agreement.

Where the remuneration is expressly stated, the principal is bound to

pay such remuneration once the agent has discharged his

obligations under the contract. In case there is no express

remuneration under the contract agreement, such remuneration

may be implied into the contract agreement. The court will consider

the language of the contract or any usage or custom of the business

in determining whether such an implied term can be read into the

contract agreement.

It could also be shown that the agent was acting gratuitously such

that the principal is not bound to pay him remuneration. See Taylor

v. Brewer (1813) 1 M & S 290. In that case, the agent agreed to

accept such remuneration as should be deemed fit. The court held

that the agent was not entitled to any remuneration under the

agreement. This decision has been criticized by Powell in his book:

Law of Agency. See also Bryant v. Flight (1839) 5 M& W 14. In that

case, the agent agreed to work for the principal in these terms: ‘The

amount of payment I am to receive, I leave entirely to you.’ The

agent worked for 6 months and it was held that it was implied in

the agreement that the agent was to get something for his work.

Thus, he was able to recover a quantum meruit.

Liability for remuneration arises only when it is earned i.e. it is only

when the agent has been the direct or the efficient and effective

cause of the event upon which occurrence the principal has agreed
to pay the agreed remuneration that liability to pay it arises.

Therefore, if the agent has not been either direct or effective cause of

that occurrence, then, the liability to pay the remuneration does not

arise and the principal is not liable. In other words, the agent must

have brought about the event leading to the payment of

remuneration. The agent must show not only that he has achieved

what he was employed to do, but also that his acts were essential to

the bringing about of that result and not merely incidental to it

irrespective of any express or implied agreement to pay

remuneration. See the dictum of Eales CJ in Green v. Bartlett (1863)

14 CBNS 681:

‘If the relation of buyer and seller is really brought about by

the act of the agent, he is entitled to commission although the

actual sale has not been effected by him.’

In that case, the agent was employed to sell a house at an auction

but he failed to get a purchaser at the auction. A person X who was

present at the auction asked the agent for the owner of the house

and the agent told him. X then proceeded to enter into a contract

or agreement directly with the principal. It was held that the agent

was entitled to his remuneration. Note also that in order to find a

legal claim for commission, there must not only be a causal

relationship but also a contractual relationship between the

introduction and ultimate transaction of sale. On this, see Toulman

v. Millar (1887)58 LT 96. In this case, an agent was employed to find

a tenant for a house. He actually found one but the tenant went
ahead and bought the house. The agent asked the principal for

remuneration but it was held that he was not entitled to any.

Note that there may be no liability to pay remuneration even if

there is an agreement to that effect and even if the agent has

obtained what the principal wanted if any of the following occurs:

 If the transaction is illegal

 If the agent acts in breach of his duties e.g. where he has

made secret profits.

 If the agent is guilty of negligence in the performance of his

duty.

 If the agent is guilty of a misconduct.

 Indemnity

This duty may be express or implied and the extent of liability for

indemnity depends on the nature of the agreement between the

principal and the agent and also on the ground of the business, the

agent in order to make his principal liable in indemnity must have

acted within the express, implies or usual authority. There is also no

duty to indemnify an agent who acted unlawfully or who is in

breach of his duty or who has acted negligently.

THE SCOPE OF THE AGENT’S AUTHORITY

Ostensible authority

On the principle of apparent or ostensible authority i.e. authority by

estoppel, see Mabel Ayankoya & 8 Ors v. Aina Olukoya & Anr (1996)

2 SCNJ 292. The appellants were the 1st respondent’s customers while

the second respondent was the 1st respondent’s clerk. Consequent

upon the introduction of the second respondent to the appellant by

the 1st respondent, the second respondent got money from the

appellant but failed to supply beer to the appellant. The appellant

sued the 1st and second respondent to recover their money.

The Supreme Court held that if a person represents or permits it to be

represented that another person has authority to act on his behalf,

he will be bound in the same way as he would be if that other had in

fact authority to act. This is based on the legal principles of estoppel

and holding out. The court further held that the law always allows

one man to authorize another to contract for him and bind him by

an authorized contract. The legal effect is that he who does an act

through another is deemed in law to do it himself.

CONCEPT OF DISCLOSED AND UNDISCLOSED

PRINCIPAL

Disclosed Principal
A disclosed principal is the one whose existence has been revealed to

the third party by the agent but whose exact identity remains

unknown. The third party knows that the agent is acting for

someone but is unaware of the name of the principal. Whereas, a

named principal is the one whose name has been revealed by the

agent to the third party and the third party is aware that the agent

is contracting as an agent and also knows the name of the person

who he is acting for.

An undisclosed principal on the other hand is the one whose

identity and existence is unknown to the third party. The third party

does not know the identity of that principal; neither does he know

that the agent was acting on behalf of another person. In the case of

a named principal, the third party knows he is contracting with

someone through the agent and not the agent personally, whereas,

in the case of an undisclosed principal, the fact that the agent is

acting for someone is not revealed to the third party until after the

contract has been made and it is only at this time that the third

party discovers, if he ever will, that an agency relationship capable

of affecting his position is in existence.

EFFECT OF AGENT ACTING FOR UNDISCLOSED

PRINCIPAL

 Contractual liability
The general rule is that where the agent has entered into a contract

with a third party on behalf of a disclosed principal who actually

exists and who had authorized such agent to make such a contract,

the principal can sue and be sued by the third party on such

contracts. In this type of cases, there is a direct contractual

relationship between the principal and the third party by the act of

the agent. At the completion of the contract, the agent drops out of

the picture and is not himself a party to the contract. The contract is

between the principal and a third party.

The position has the following implications in the law of agency.

 The third party can sue the principal and vice versa but note

that in this instance, the agent must have acted within the

scope of his authority. An agent will be taken to be acting

within the scope of his authority if he has express, implied/real

authority, apparent authority or presumed authority (where

agency is created by necessity) or if his unauthorized acts were

validly ratified.

If the agent was acting beyond the scope of his authority, the

principal cannot sue nor be sued on such a contract. This is because

a principal is not bound by an unauthorized act of an agent.

Where the agent appears to have authority because the principal

holds him out as having authority, the third party will not be able

to sue the principal if he has notice that the agent has no authority

or was exceeding the scope or limit of his authority or he has notice

that the agent had been forbidden by the principal to act as his

agent. Such notice may however be actual or constructive. Actual is

where the third party has knowledge that the agent lacks authority

while constructive is where the third party has an opportunity of

discovering the agent’s lack of authority and should have availed

himself of such opportunity but failed to do so. The question is: when

does the third party have the requisite constructive notice? It has

been argued that the fact that the person or agent is acting in his

own interest does not mean that the third party has constructive

notice of the lack of authority but there may be instances where an

agent was acting in his own interest, raises a suspicion which

should have been enquired into by the third party.

In Lyons Bank v. Chartered Bank of India (1929) 1 QB, a clerk of a

bank made out certain cheques and lodged them in his account in

another bank. This he did by forgery. That bank sued the other for

conversion and it was held that they were entitled to recover the

cheque and the money. The depositing of that large sum by the clerk

of that status should have put the third party on notice of the

agent’s lack of authority.

There may also be a statutory duty to enquire into the agent’s

authority. See Section 25 of the Bills of Exchange Act 1882:

‘A signature by procuration operates as notice that the agent

has but a limited authority to sign and the principal is only

bound by such signature if the agent was acting within the

actual limits of his authority.

Where the agent’s authority has been put into writing e.g. a power of

attorney, the third party must discover the scope of that authority by

reading the document.

In Jacobs v. Morris, the agent borrowed money from the third party

and he offered to show a power of attorney to the third party who

did not bother to look. It was held that the principal was not bound

by the bills of exchange signed by the agent on the principal’s behalf

and given as securities for the loan.

Where there is a trade usage or custom known to the third party or

one that should be known to him (notorious) under which the

authority of the agent was restricted and that agent has no

authority to make the contract in question, the principal will not be

bound by such contract unless there is an express authorization by

him nullifying that trade usage.

In Great v. Norway, the master of a ship signed the bills of lading in

respect of goods which had not yet been shipped in order to take a

loan from X who advanced it on the strength of the bills. The master

in fact had no authority to do this and there was a well known

custom denying the master such authority. It was held that under

the circumstance, X had notice of the master’s lack of authority to

bind the owner of the goods who was therefore not liable to X.

Where the agent contracts by deed, the principal cannot sue or be

sued on such contracts unless he is described in the deed as a party

to it and the deed was executed in his name.

In Schack v. Anthony, the master of a ship executed in his name and

by deed, a charterparty expressing himself as acting as agent for the

owners. Notwithstanding this description, the owners could not sue

for the freight since they were not party to the deed. Note however

that particular rule excluding a principal from participating in a

contract entered into by a deed had been supplanted by equitable

and statutory intervention. In equity, if the agent entered into the

contract which is by deed in his own name but as trustee for the

principal, the principal may still be able to enforce his right under

the deed by an action in which the agent is joined as a party either

as plaintiff or defendant.

Under a power of attorney, an authority given to the donee of the

instrument confers upon him power to execute a deed in his own

name and his own signature and under his own seal and the result

is that such an instrument exercised by him will be effectual in law

to all intents and purposes as if it had been exercised or done by the

donor of the power in the name and signature or seal of the donor.

Effect of contract between Principal and Third Party

Once the contract is concluded by the agent, he ceases to play any

role in the relationship created i.e. he cannot sue or be sued for such

a contract which he was not a party for he was just a link between

the principal and the third party.

Settlement with agent

Payment to the agent is irrelevant to the deal between the principal

and the third party. If the third party pays to the agent, then he

must pay to the principal again. However, there are circumstances

in which the party paying to the agent will be able to get a

discharge if the principal is undisclosed.

Payment of the agent by the principal

Where the third party had so conducted himself in such a way as to

make the principal believe that the agent had discharged the

principal’s liability to the third party whereupon the principal pays

the agent, the third party cannot enforce payment again from the

principal even if the principal’s liability has not been discharged to

him.

Payment of agent by third party

The general rule is that payment to an agent will never discharge

the third party from the obligation but there are exceptions.

 If the agent has the authority to receive payment on behalf of

the principal. In this instance, payment to the agent will be

deemed as payment to the principal because the agent is

acting within the scope of his authority. Such authority may be

express, implied, apparent or usual. An agent who is

authorized to receive cash payment must not receive in any

 other form unless there is a custom or trade usage to that

effect.

 If the agent has received payment, though unauthorized to do

so, and has paid the money over to the principal, the third

party will be discharged.

 If the agent is entitled to a lien on the goods accruing to the

principal and in pursuance of his authority, he sells the goods

to the third party who pays the agent, then the third party will

be held to have discharged his liability to the principal to the

extent of the value of the agent’s lien.

 The third party will be discharged by payment or settlement

with the agent if the principal by his conduct has led the third

party to believe that the agent is contracting as the principal.

Effect on Principal of the relationship between agent and third party

For the principal to be discharged, it is essential that the agent

should have contracted with the third party in such a manner as to

be personally liable on the contract. This is only possible where the

agent is made a party to the contract and can be charged with

liability under it. The third party in such a case can bring an

action against the agent to enforce the contract and this will estop

him from proceeding against the principal. The position of the law is

that if the third party has elected to sue the agent, then he is barred

from suing the principal even if the judgment against the agent is

unsatisfactory.
Note also that where the agent owes the third party money and the

third party wished to set off such debt against his liability to the

principal, he can do this if the agent has authority to receive

payment and to deduct his debt from the amount the third party

owes the principal. Such authority may be express, implied or

apparent.

Misconduct or fraud of the agent

Where there is a non-disclosure or misrepresentation whereby the

third party is induced to make or enter into the contract, the

general principle is that the third party could set up such a

misconduct against the principal but he could only do so if the

principal himself had been guilty of misconduct. Where the agent

was the guilty party, even if the principal did not know what the

agent was doing, as long as the agent was acting within the scope of

his authority, the third party can set up such misconduct against

the principal. In Refuge Assurance Co v. Kettle Welt, a case holder of

an insurance policy was induced by the insurance company’s agent

to continue to pay premium by false representation that after a time

she would receive a free policy. It was held that though the

statement was made without the knowledge of the company, the

company was liable to refund the premium.

Note further that the agent, though may not be acting for the

benefit of the principal, the principal will still be bound by the

agent’s fraud or misconduct. Another possible remedy is the refusal

of specific performance of the contract to the principal in such a

circumstance.

Effect as between agent and third party

 Contract under seal

An agent who contracts by deed is personally liable if he made

himself a party to the deed or executed the deed in his own name. If

the contract was in writing, and it is clear that the agent intends to

contract personally, he will be personally liable on the contract even

though he intends to contract as agent for a disclosed principal. The

liability does not depend on whether the principal is named or

known to the third party and it does not matter whether the

principal is also liable unless the third party has given exclusive

credit to the principal.

Note that liability of the agent for such written contracts will

depend on

i. Whether he has made himself personally liable under the

contract

ii. Whether the third party has elected to make the principal

liable to the exclusion of the agent

The application of these rules will sometimes depend on the

construction of the document. If an agent without authority acted

on behalf of his principal, he may not be personally liable on the

contract even though he did so fraudulently.

In Lewis v. Nicholson, a married woman bought goods on credit

from a sales man. She was living with her husband and had no

separate properties. The goods were necessaries. It was not certain

whether or not she was contracting as agent for her husband or

whether she had authority to act as his agent. It was held that the

woman was not personally liable under the circumstance she must

be taken to have acted as an agent.

 Intention of the parties

The general rule is that an agent will be personally liable on the

contract if the intention of the parties to the contract is that the

agent will be personally liable. Three factors are important for

ascertaining the intention of the parties.

i. The nature of the signature: if the agent’s signature is

qualified by some words which shows the representative

character of the person signing them, the agent will not be

personally liable. But if the signature is merely descriptive,

then, the agent would be deemed to have contracted

personally. The following phrases accompanying the agent’s

signature have been held to exclude the agent’s personal

liability: ‘sold by my principal’, ‘on account of X or broker’, ‘for

and on behalf of X as agent’, ‘on account of my principal X’

 whereas the following phrases have been held to be descriptive

and to show that the agent was contracting personally e.g. ‘on

behalf of the creditors’, ‘as solicitors to the assignees’,

‘consignees as agent on behalf of X.’

ii. Evidence may show that although the written contract appears

to make the agent personally liable, no such intention was in

the mind of the parties. Evidence is admissible to show that the

person contracting was doing so for the principal if the

admission of such evidence does not contradict the written

document or contract.

It should be noted that parole evidence can only be introduced

to amplify and not to contradict a written contract.

iii. Custom: Evidence may be given to show that according to a

particular custom or trade usage, an agent will be personally

liable but such a custom or trade usage must not be

inconsistent or repugnant with the written document.

iv. Election: even if the agent has rendered himself personally

liable on the contract, he would be relieved of such liability if

the third party chooses to look unto the principal exclusively for

satisfaction under the contract e.g. by suing the principal for

judgment. Where the contract is oral, the agent’s personal

liability is a question of facts depending on the circumstances

of each case.

Implied Warranty of Authority

Where an agent has contracted as an agent, he cannot be made

personally liable on the contract. But, if he has no authority to

contract, then, he would be personally liable to the third party on

the faith of the representation made to the third party.

The principle is that everyone who professes to act as an agent on

behalf of someone else, impliedly warrants that he has authority to

make the contract and unless he expressly disclaims such authority,

or the third party otherwise knows that the agent lacks such

authority.

Rights of Agents

The general rule is that an agent is not a party to the contract

created by him on behalf of the principal. There are instances in

which the agent may be personally liable and in such instances, the

agent conversely has the right to sue the third party. An agent who

is personally liable on the contract can sue but the agent must have

contracted personally. In Bowen v. Morris, a mayor and the

corporation signed a contract of sale one of the terms of which was

that the corporation might have power of sale on the default by the

buyer. Another was that the mayor was to receive a deposit of the

sale. It was held that a mayor could not sue for breach of contract

by the buyer because he had acted merely as an agent not minding

the fact that he used his signature.

 UNDISCLOSED PRINCIPAL

Scope of the doctrine:

An undisclosed principal is one whose existence the third party is

unaware of so that the third party does not know the person with

whom he was dealing was somebody’s agent. The doctrine of the

undisclosed principal has been much criticized as being unsound,

unjust and inconsistent but despite the criticisms, an undisclosed

principal is much the same as the one who is disclosed for he can sue

and be sued in his own name on any contract duly made on his

behalf as long as the agent was acting within the scope of his

authority.

Basis of the doctrine

The doctrine is at variance with the general approach of the law

with respect to contractual rights and liabilities. Numerous

explanations have been made to justify the doctrine of the

undisclosed principal. For now, the safest attitude to adopt is to see

idea of the undisclosed principal as an anomaly which was

introduced and accepted by the common law for reason of

mercantile expediency. The doctrine is strictly controlled by the law

so far as the scope and effects are concerned lest those unusual

relaxations of the strict attitude of the common law be allowed to

cause undue subversion. Generally, there is no difference between an

undisclosed and a disclosed principal. The rights and liabilities are

the same under a contract made by an agent on their behalf.

Rights and Duties

The undisclosed principal can be sued and can also sue on the

contract made on his behalf i.e. he may proceed against the third

party even though he has not been named as a party to the contract

and the third party never knew of his existence. In the same vein, a

third party may after discovering the existence of an undisclosed

principal, proceed to sue under the contract made with his agent.

This position of the law is subject to the following qualifications.

 Identification

This involves the type of evidence to be adduced to prove the

principal.

EVOLUTION OF THE CONCEPT OF HIRE

PURCHASE

Mr. Henry Moore the Bishop’s gate piano maker claimed to have

invented the Hire Purchase trading system in England in 1846. This

trading system soon gained ground with the advent of sewing

machine made by the Singer Manufacturing Company which let out

machines to its customers under a hiring system containing an

option to purchase. This idea was further developed by Wagon

Companies and it soon spread to furniture and other commodities

including such unlikely items as false teeth. The Hire Purchase

system was given judicial approval in Helby v. Matthews (1895) AC

471. The decision in that case seemed to undermine the provisions of

the Factors Act 1889 especially S.9 thereof. Attempts were made to

reverse the judgment by statute in 1912 but the attempts were not

successful. Because of the persistent abuses of the system by the

dealers and because of the little protection afforded the hirer by the

system, demand for legislation regulating the Hire Purchase system

increased. After several unsuccessful attempts, a bill was finally

passed in 1938 to regulate the Hire Purchase transactions and the

bill was called the Hire Purchase Act of 1938.

REASONS FOR HIRE PURCHASE

Under a typical Hire Purchase transaction, the owner delivers the

goods to the hirer on credit and then takes possession of the

particular item. The hirer uses the goods and pays the rest of the

installments and the owner usually charges an interest over the

amount unpaid for being deprived of the capital. In some cases,

instead of the owner parting with his goods on credit, a finance

company will be brought in to provide the capital for buying the

goods. The hirer will fill a form which is an application to a finance

company for the provision of money to finance the purchase. The

finance company will want to satisfy itself of the financial standing

of the hirer. If satisfied, it will enter into an agreement with the

hirer for the hirer to buy the goods on credit from the seller or

acquire it on hire purchase. The finance company then buys the

goods from the seller paying the full cash for the goods and hand it

over to the hirer for his own use who will then pay the agreed

installments to the finance company together with the interest and

other charges. Sometimes, where the dealer or the fiancé company is

not sure of the financial standing of the hirer, the hirer is asked to

provide someone who will guarantee payment of the installments as

and at when due. If the hirer defaults, the guarantor may find

himself personally liable to make the payment instead of the hirer.

The Hire Purchase system has been adopted in order to protect the

owner’s title to goods if the hirer, in breach of his undertaking, sells

them to a third party.

WHAT IS HIRE PURCHASE?

Various definitions have been proffered for this. First, a Hire

Purchase agreement is a contract of hire paid by installments under

which the hirer may become the owner of the goods if he completes

payment of the hire purchase price.

Secondly, a Hire Purchase contract is a contract by which goods are

delivered to a person who agrees to make periodical payments by

way of hire with an option of buying the goods after the stated

installments have been paid. The goods may be returned to the

owner at any time before the option is exercised or payment for the

sum stated on the contract. Until that is done, there is no

agreement to buy the goods.

The hirer in most cases intends to pay for the goods and own them

ultimately. If the agreement entered into is one that obliges the

hirer to buy the goods, it is not a Hire Purchase agreement or

contract but rather a contract for the sale of goods. The fact that

parties label it ‘Hire Purchase’ makes no difference. In Jajira v.

Northern Brewery (1972) 1 MLR 29, it was held that even though the

terms of an agreement are drafted as Hire Purchase agreement, the

court will not treat it as such if good evidence shows its form to be a

cloak for its true nature.

DISTINCTIONS BETWEEN HIRE PURCHASE

AND SIMILAR LEGAL TRANSACTIONS.

a.Contract for sale of goods

This is a contract whereby the seller transfers or agrees to transfer

the property in the goods to the buyer for money consideration

called the price. See s.1 Sale of Goods Act 1893. In this case, the buyer

is bound to buy the goods but in Hire Purchase, the buyer has the

freedom which he may or may not exercise.

b. Bill of Sale

A bill of sale is a document by which the property in the goods is

transferred from one party to another. It is designed for

transactions in which the seller or the donor remains in possession

of the goods after disposing of the property in them. Since the

purchaser is not given the possession of the goods, it is necessary for

his protection that he should have some documents evidencing his

title to the goods. The Hire Purchase agreement is outside the scope

of the bill of sale since the property in the goods is not vested in the

hirer during the currency of the agreement.

c. Conditional Sale

This involves the buyer in a legal obligation to buy but it contains

an express provision preventing the property from passing to the

buyer until he has paid his installments.

d. Money lending
A Hire Purchase agreement is not an agreement for the loan of

money. The hirer is simply paying for the use of the goods and for the

option to purchase them. In a money lending transaction, money

usually passes.

RECEPTION OF HIRE PURCHASE IN

NIGERIA

There is no statute of general application relating to Hire Purchase

in Nigeria. The first English statute on Hire Purchase was the Hire

Purchase Act 1938 and this formed the basis of the first Nigerian

statute on the subject. Prior to 1965, the common law on Hire

Purchase governed the subject in Nigeria and it dealt with the

matter as the formation of the agreement and the detailed

information of what the parties have agreed and it also included

the general law of contract.

The first Nigerian legislation on the subject was the Hire Purchase

Act 1965 which was applicable inu7jh the Federal Territory of Lagos

alone. Its application was extended to the rest of the country by the

Hire Purchase (Application) Decree No. 42 of 1966.

Note however that the Hire Purchase system in Nigeria did not have

immediate effect but came into force on 1st October 1968 by the Hire

Purchase (Appointed Day) Order of 1968.

The development of the Hire Purchase system in Nigeria has been

slow and has been hampered and has not been helped by a number

of factors which were also present when the system was developing in

England. The expansion of the Hire Purchase system brought in its

wake abuses which were beyond the purview of the general law of

contract. Many people were induced to enter into written

agreements which they did not understand and suffered

considerable actions in consequence. The more unscrupulous Hire

Purchase dealers deliberately encouraged their customers to incur

Hire Purchase commitments beyond their means with the object of

allowing them fall into arrears towards the end of the hire period

after most of the installments had been paid so that the dealers

would then exercise their power of possession commonly called the

snatch back and thus secure for themselves a considerable profit

from the goods which they supplied without parting with the goods

themselves.

Matters were made worse with the rule laid down in the case of

Cramer v. Giles 1 CAB & EL 151 that the court would not intervene to

protect the hirer in default so that even if he has defaulted on the

last installment only having punctually paid all the previous

installments, the owner will still be entitled to terminate the

agreement and repossess the goods immediately the default has

arisen without having to return any part of the money he had

received.
In Atere v. Dada Amoo (1957) WRNLR 176, the plaintiff took a lorry

on hire purchase from the defendant and he completed repayment

of 995 pounds out of hire purchase price of 1000 pounds. He then

failed to pay the final installment of 5 pounds when it fell due. This

breach of contract terminated the agreement and the owner was

held entitled to recover possession of the lorry. Although re-possession

and resale of the vehicle enabled the owner to recover more than his

actual loss of 5 pounds, the court still held that the owner was not

obliged to account to the hirer for the excess recovered. This and

many other factors made the hire purchase system unattractive.

FORMATION OF CONTRACT

In a typical hire purchase agreement, the ordinary rules of the law

of contract apply. At common law, there are no formal requirements

for a hire purchase agreement. Written or oral agreements are valid

and binding. The parties must have capacity to enter into hire

purchase agreement and this is also governed by the ordinary rules

of the law of contract.

The terms of a hire purchase agreement must be stated sufficiently

and precisely in such a way that the court will be able either from

the express terms of the agreement or by reasonable implication or

as a result of some reference to an identifiable document to

ascertain the intention of the parties.

Before the creation of any contract of hire purchase, it is essential

that there should be a consensus ad idem between the parties. The

acceptance must match the offer.

Also, it should be noted that a binding agreement does not come

into existence unless there has been an offer and a corresponding

acceptance, the essential terms of which are capable of being

established with reasonable certainty and the acceptance of the

offer must be communicated to the intending hirer.

The intending hirer is however at liberty to withdraw from the

transaction at any time before the communication of the

acceptance even after the finance company (where it is involved)

might have purchased the goods from the dealer.

Note however that the hire purchase agreement which at its

inception is impossible of performance is void ab initio and the

money paid under it is recoverable.

Similarly, the court will not enforce the hire purchase agreement

which is illegal.

OBLIGATIONS OF THE PARTIES AT COMMON LAW

1. Obligations of the owner

i. Title
This obligation which is rarely expressly stated in hire purchase

agreement denotes that the person letting out the goods has title or

right to dispose of the goods. The use of the word ‘owner’ has been

held to import an express condition of title into the agreement. See

Karflex Ltd v. Poole (1933) 2 KB 251. In that case, the plaintiffs were

hire purchase dealers who bought a car from a car seller and hired

it out to the defendants with an option to purchase on payment of

all installments. The defendant paid the deposit and took possession

of the car but he defaulted on the first installment and the plaintiffs

commenced proceedings against him. It then transpired that the

car seller had never been the owner of the car at all but the

plaintiffs paid off the true owner and proceeded with their action

against the defendant. It was held that the action of the plaintiff

must fail because the plaintiff was in breach of an implied

condition that they had a right to sell the goods because as at the

time of delivery of the car, they had no such right. The defendant

therefore who had defaulted on payment of the first installment was

held entitled to repudiate the contract and indeed recover his

deposit.

Note again that in absence of the word ‘owner’ or other words which

denote ownership, there is an implied condition in a hire purchase

agreement that the person letting out the goods on hire purchase

has or will have at the date of the delivery of the goods either title to

the goods or the right to dispose of them.

 ii. Correspondence with Sample/Description

Where goods are let on hire purchase by description, there is an

implied condition that they correspond with the description and

where they are let out by reference to a sample, there seems to be an

implied condition that the bulk of the goods must correspond with

the sample and also that the hirer will have a reasonable

opportunity to compare the bulk with the sample and that the goods

are free from any defect rendering the goods unmerchantable which

would not be apparent on reasonable examination of the sample.

Compare this position at common law with s. 15 of the Sale of Goods

Act 1893. Note that the goods must correspond with the description

in every particular otherwise, the hirer is entitled to reject them even

if the deviation is only minor and does not affect the value. See

Acros Ltd v. EA Romasen & Sons Ltd (1883) AC 470

iii. Delivery

It is obligatory on the part of the owner to transfer possession of the

goods from himself to the hirer. The hiring does not commence until

the goods have been delivered and the hirer is not obliged to accept

them unless they answer the description in the contract. See Karsales

(Harrow) Ltd v. Walis (1956) 12 All ER 866.

Note that unless it is agreed to the contrary, the place of delivery is

the owner’s place of business if he has one, or if not, his residence. If

there is no stipulation as to time in the agreement, the owner must

send or deliver the goods to the hirer within a reasonable time.

When the owner is ready and willing to deliver the goods and

requests the hirer to take delivery, the hirer is obliged to do so

within a reasonable time or he will render himself liable in

damages for breach of contract. Compare s. 29 & 37 of the Sale of

Goods Act.

Delivery is normally effected by physical transfer of possession of the

goods from the owner to the hirer. This may however not be essential

if constructive possession is given.

iv. Quiet Possession

There is an implied warranty of quiet possession in Hire Purchase

agreements. The owner, in addition to putting the hirer in

possession of the goods must leave him in peaceful possession of them

during the currency of the agreement. This warranty is broken if the

hirer’s enjoyment of possession is interfered with either by the owner

himself or by the lawful act of a third party. This obligation as to

quiet possession is a mere warranty, the infringement of which

entitles the hirer only to damages and does not normally relieve

him of his obligation to perform his part of the agreement. However,

where the interference with the hirer’s possession arises as a result of

a defect in the owner’s title, it will normally be to the hirer’s

advantage to base his claim on a breach of an implied term as to

title since this term is a condition, the breach of which entitles the

hirer to repudiate.

Note that if the owner himself wrongfully repossesses the goods in

defiance of the hirer’s right, the fact that the term of quiet possession

is only a warranty and not a condition is irrelevant. The owner has

by his conduct wrongfully repudiated the agreement and the hirer

is entitled if he so desires to treat that repudiation as discharging

him of performance of his obligations under the contract.

v. Fitness For Purpose

There is an implied warranty of fitness for purpose for which the

goods were hired. Where the hirer expressly or by implication makes

known to the owner the particular purpose for which the hirer

requires the goods, so as to show that he relied on the owner’s skill

and judgment, there is an implied term that the goods are

reasonably fit for that purpose. This term cannot be claimed by the

hirer unless the particular purpose for which the goods were

required was made known to the owner before or at the making of

the agreement. This communication must be to the owner or to his

agent.

Note that communication to the dealer is not sufficient since he is

not the agent of the owner to receive and transmit to the owner such

a communication. It is also noteworthy that what is required to

attract the implication of this term as to fitness is the hirer’s

reliance on the skill and judgment of the person letting the goods

on hire purchase. In Bentworth Finance v. De Bank Transport

(1968) 3 ALR Commercial at 52, the court confirmed that where the

hirer makes known the purpose for which the goods are required so

as to show that he relies on the owner’s skill and judgment, a term is

implied that the goods shall be as fit and suitable for that purpose

as reasonable care and skill can make them. However, in Anoka v.

SCOA (1955-56) WRNLR 113, the court said that the hirer cannot

complain of any defect in the goods which could not have been

discovered by due care and skill on the part of the owner.

vi. Merchantable quality

This was defined in Bristol Tramways Carriage Co Ltd v. Fiat Motors

(1910) 2 KB 831 to mean quality such that a reasonable man

acting reasonably would after full examination accept the goods in

the performance of his offer to buy them. This term will in the

absence of an agreement to the contrary be implied in favour of the

hirer where the goods are let by description and where the owner is

a person who manufactures the goods or where he is the dealer of

the goods of that description. Note however that if the hirer had an

opportunity to examine the goods before entering into the

agreement, the owner will not be liable for defects which such

examination would have revealed.

vii. Acceptance of Payment Offered

The owner is under an implied obligation not to refuse installments

validly tendered by the hirer. The owner however may refuse for

reasonable cause e.g. where the hirer is in breach of the duties

under this agreement.

viii. Repairs

Unless the agreement so provides, there is no obligation on the

owner to keep the goods in repair after delivery though if repairs

were necessitated by reason of a breach of the implied condition of

fitness, the owner will have to bear the expenses. If there is no

provision in the agreement requiring the owner to maintain goods

after delivery and the hirer proceeds to have repairs carried out, he

is not entitled to be reimbursed by the owner. If there is a provision

in the agreement requiring the owner to carry out repairs and the

owner fails to do so after receiving reasonable notice from the hirer,

the hirer can deem the agreement as being repudiated or he may

himself arrange for repairs to be carried out and recover from the

owner such expenses he might have incurred by the repairs.

ix. Insurance
In the absence of an agreement to the contrary, there is no duty

imposed on the owner to insure the goods. Most hire purchase

agreements impose an express obligation on the hirer to insure.

x. Maintenance of goods up to the time of delivery

There is an implied term that the owner shall deliver the goods in as

good a state as they were at the time the agreement was made. If the

hirer has examined the goods before the date of the agreement and

makes an application for hire purchase, on the basis of his

examination, it is the owner’s responsibility to see that the goods are

on the same condition as when first seen by the hirer. See Karsales

(Harrow) v. Walis (supra). In that case, the defendant inspected a

car owned by a car seller, found it in good condition, and wished to

take it on hire purchase. The car seller thereafter sold it to the

plaintiff who in turn re-sold it to a hire purchase company. The

defendant made a contract with this company. The contract

contained a term that ‘no condition or warranty that the vehicle is

roadworthy or as to its condition of fitness for any purpose is given

by the owner or implied therein.’ One night, a ‘car’ was left outside

the defendant’s premises. It looked like the car in question but it was

a mere shell. The cylinder head was broken, all the valves were

burnt, two pistons were broken and it was incapable of self

propelling. The defendant refused to accept it or pay the hire

purchase installment and when sued for this, he pleaded the state of

the so-called car. The plaintiffs relied on this exclusion terms in

their reply to the defendant’s case. The Court of Appeal held that the

thing delivered was not the thing contracted for. The exclusion

clause did not therefore avail the plaintiff and judgment was given

to the defendant.

OBLIGATIONS OF THE HIRER

1. OBLIGATION TO TAKE DELIVERY OF GOODS

The hirer has an obligation to accept delivery of goods he agreed to

take under the hire purchase agreement. If the hirer wrongfully

refuses to accept delivery, the owner’s remedy is to claim damages

for breach of contract. See National Cash Company v. Stanley (1921)

3 KB page 292. In that case, where the hirer failed to take delivery

and the bailor sued for rent and arrears, the court held that the

bailor was only entitled to damages for breach of contract.

2. CARE OF THE GOODS

A strict duty of care is usually imposed on the hirer in most hire

purchase agreements rendering him liable for loss or damage to the

goods irrespective of negligence. In the absence of a provision laying

down the standard of care, the hirer is under an implied obligation

to take reasonable care of the goods during the currency of the hire

purchase agreement. The hirer is liable not only for his own

negligent acts, but also those of his servants or agents acting within
the scope of their authority. The obligation of the hirer to take

proper care of the goods appears to be an independent promise and

not a condition precedent to the owner’s obligation to leave the

hirer in quiet possession of the goods during the currency of the

agreement. Therefore, a breach by the hirer of his duty of care will

not justify the owner in seizing the goods and terminating the

agreement unless the agreement itself empowers him to do so or

unless the hirer’s neglect is so grave as to indicate that the hirer is

repudiating his obligations altogether e.g. where he willfully

abandons the goods. In the absence of one of these grounds of

termination, the owner’s remedy is to sue for damages either for a

breach of contract or in tort for conversion.

3. USER CONSISTENT WITH THE TERMS OF HIRING

The hirer is under an implied obligation not to do any act in

relation to the goods which is totally repugnant to the terms of the

hiring. If the hirer does anything which is inconsistent with the

nature of the hiring as by selling the goods as in the case of Whiteley

Ltd. v. Hilt (1918) 2 KB 808 or pledging them as was done in Belsize

Motor Supply Company v. Cox (1914) 1 KB 244 or using the goods for

a purpose different from that stipulated in the agreement as in

Burnard v. Haggis (1863) 14 CBS 45, the hiring by the same fact is

automatically determined and the owner becomes entitled to have

immediate possession of the goods and if he so desires, to terminate

the agreement as a whole.

 4. REPAIR

There is usually no implied obligation on the part of the hirer to

repair the goods hired save to the extent necessary to comply with

the obligation to take reasonable care. Where the agreement

expressly provides that the hirer shall keep the goods in repair

during the hiring, this amounts to an implied authority to the hirer

to arrange for the execution of repair either by himself or by some

third party as at when due.

5. PAYMENT

The hirer has a duty to pay the sums stipulated in the hire purchase

agreement at such time and in such manner as laid down in the

agreement. Note that unless the agreement otherwise provides, the

rules as to payment are those applicable to contracts generally. For

the agreement to be enforceable at all, the time of payment must be

stipulated with reasonable precision either in the agreement itself or

in some other collateral agreement, verbal or otherwise. However,

time of payment is not normally of the essence unless the agreement

otherwise indicates so that a mere delay in payment does not entitle

the owner to treat the agreement as repudiated. Compare Section

10(1) of the Sale of Goods Act 1893. Note that where no place for

payment is stipulated in the agreement, the hirer must seek out the

owner and pay him wherever he may be found. However, in practice,

most agreements usually specify the ways in which payment should

be made by the hirer.

6. INSURANCE

The hirer is under no implied obligation to insure the goods but the

agreement commonly requires him to take out a comprehensive

policy on the goods.

7. PROTECTION OF OWNER’S TITLE

In a hire purchase agreement, the hirer is under no obligation to

give notice of an adverse claim to the person who has supplied him

with the goods on hire purchase. However, in ordinary bailment, the

bailee is under a duty to protect his bailor’s title by informing the

bailor as soon as it is reasonably practicable of any adverse claim to

the goods bailed. Under the hire purchase agreement, the hirer has

a prospective proprietary interest in the goods and he is entitled to

rely on the implied condition as to title on the part of the person

who has let the goods out to him on hire and to continue payment

to such person under the hire purchase agreement notwithstanding

that he knows of an adverse claim by a third party. In Warman v.

Southern Counties Car Finance Corporation Ltd. (1949) 1 All ER

711, the plaintiff entered into a hire purchase agreement with the

defendant who genuinely believed that they were the owners of the

car delivered to the plaintiff. Under the agreement, upon payment

of a requisite number of installments, the plaintiff was to have the

option of purchasing the car for 1shilling. Before the payments were

completed, the plaintiff received notice from the true owners of their

claim to the car. He nonetheless completed his payment to the

defendants under the agreement. On completion of the payments, he

delivered the car to the true owners and brought an action against

the defendant to recover all the payments made by him under the

agreement. The defendant pleaded that in assessing damages, an

allowance should be made to them for the sum which it would have

been reasonable to charge for hiring the car during the 7 months in

which the plaintiff had used it. It was held that the claim must be

rejected on the ground that since the defendants were never at any

time the owners of the car, they were not entitled to charge for its

use.

8. RE-DELIVERY

The hirer has an obligation to re-deliver the goods at the end of the

period of hire if he does not exercise the option to purchase within

the stipulated time. Where delivery becomes impossible through no

fault of the hirer e.g. through accidental destruction of the goods,

he will be discharged from his obligation to return the goods unless

the terms of the agreement indicate that the risk of accidental

destruction or loss is to be borne by the hirer and that the

obligation to re-deliver is a strict liability independent of

negligence.
 9. INFORMATION AND DOCUMENT

A hire purchase agreement normally requires the hirer to notify the

owners of any change of address and to produce on request certain

classes of documents which will enable the owner to see that the

goods are covered by insurance and are not liable to be in jeopardy

at the hands of a third party. Documents normally specified include

receipt for insurance premium in respect of insurance on the goods

and receipts for rent, rates and taxes payable in respect of the

premises where the goods are kept. In agreements relating to motor

vehicles, the hirer may also be required upon termination of the

agreement or the hiring, to surrender to the owner the log book of

the car and all licenses and insurance policies and certificates

relating to it.

REMEDIES

1. REMEDIES OF THE OWNER

There are remedies available to the owner at common law where the

hirer under a hire purchase agreement commits a breach of his

obligations whether those obligations arise under the contract itself

as express or implied terms or from some facts outside the agreement

such as a representation not forming a term of the contract. The

owner’s right against the hirer in the event of a breach may be

affected if the breach is waived. Where the breach is a non

continuing one which causes a loss as by pledging the goods, waiver

of the breach e.g. through acceptance of rents usually denotes not a

waiver of the owner’s right to sue for the breach but simply an

election on the part of the owner not to rely on the breach as a

ground for terminating the agreement. The owner remains entitled

to claim damages for breach of the obligation. However, where the

breach is one which causes no loss e.g. where the hirer uses the goods

on a particular occasion for a performance prohibited by the

agreement, waiver of the breach in effect will result in the hirer

incurring no liability since in the absence of loss to the owner, the

owner’s remedy will be limited to termination of the agreement and

upon the fact that it is a remedy he has elected not to pursue.

It should be noted however that most obligations on the part of the

hirer under a hire purchase agreement are continuing obligations

so that the question of waiver does not arise.

The following are the various categories of remedies available to the

owner at common law.

1. Misrepresentation outside contract and not incorporated as

terms.

The right of the owner in the event of the hirer being guilty of a

misrepresentation depends on whether the misrepresentation was

fraudulent, negligent or innocent. Where the hirer is guilty of a

fraudulent misrepresentation which induces the owner to enter into

the hire purchase agreement e.g. where the hirer misstates his

occupation or other information that he is required to insert in the

hire purchase agreement, the owner can rescind the hire purchase

agreement and recover damages in tort or deceit. The measure of

damages is the loss and expenses incurred by the owner which would

have been affected had he not been induced to enter into the

agreement. Alternatively, instead of rescinding the agreement, the

owner can elect to continue the agreement and claim damages for

deceit. The measure of damages is the sum necessary to compensate

the owner for the loss suffered as a result of entering into the

agreement. The owner’s damages will invariably be nominal if he

elects to continue the hire purchase agreement.

Where the hirer is guilty of negligent misrepresentation, i.e. where

the owner was induced to enter into the hire purchase agreement,

by the hirer’s misrepresentation made in good faith, the hirer is

liable in damages unless he can establish a belief or reasonable

ground that the representation was true. The onus of proving such

belief is placed on the hirer.

Where the hirer is guilty of innocent misrepresentation i.e. where the

hirer’s misrepresentation is neither fraudulent nor negligent, the

owner can rescind the agreement but has no right to damages

except in the unlikely event of his being able to show that the

misrepresentation was a breach of a collateral contract between

himself and the hirer. The measure of damages for

misrepresentation will vary according to circumstances. The owner

must show not only that he has suffered loss in respect of the

transaction, but also that the loss flowed from the

misrepresentation.

2. Misrepresentation incorporated as terms of the contract

Where the hirer has made a representation which is false and the

representation has become a term of the contract, the owner can

choose to rescind the agreement and if the misrepresentation has

been fraudulent or negligent, he can claim damages. Where the

breach constituted by the misrepresentation is so grave as to

constitute a repudiation of the contract, the owner can choose to

accept the repudiation and sue for damages on that basis. The

owner can also choose to affirm the contract and sue or claim

damages for breach of warranty and the measure of damages in

this case will be the loss sustained by the owner as a result of the

breach of warranty.

3. Renunciation before delivery

Where the hirer expressly or by implication renounces his obligations

under the agreement before the time for performance falls due, the

owner may elect to treat the agreement as terminated by such

renunciation and immediately sue the hirer for breach of contract.

The hirer will be regarded as renouncing where he commits an act

which is unequivocally referable either to an intention on his part

to treat the contract as at an end or to a refusal to perform some

obligations so fundamental that their breach will frustrate the

commercial purpose of the contract. Renunciations before delivery

will be most likely to take the form of an intimation given to the

owner before the goods are due to be delivered that the hirer does

not propose to accept delivery. Such intimation entitles the owner to

treat the contract as at an end and if he does so, it is not open to

the hirer subsequently to change his mind and affirm the contract

before performance is due.

Where the owner accepts the hirer’s renunciation as terminating the

contract, the measure of damages he can recover will be the same as

upon refusal to accept delivery actually tendered except that the

expenses of delivery will not form an item of the claim. However, the

owner need not accept the hirer’s renunciation as terminating the

agreement. Instead, he may await the time for performance by the

hirer of his obligations in which event the contract continues to

enure or operate for the benefit of both parties and if the hirer in

fact performs his obligations at the prescribed time, the owner has

no cause of action.

Note however that where the hirer’s renunciation consists of a

intimation that he will refuse delivery of the goods when tendered,

and in fact he does refuse delivery, the owner does not improve his

position by waiting for hire rent (installment) to accrue due since

the hiring does not commence until delivery and the owner’s
remedy is to claim damages and not to sue for hire rent. Therefore,

unless the owner is prepared to have to wait indefinitely for the hirer

to change his mind and accept the goods, the owner has little choice

but to treat the agreement as at an end and claim damages

accordingly.

4. Refusal to accept delivery

The hiring does not commence until the goods have been delivered.

Therefore, if the hirer refuses to accept delivery, no hire rent can

accrue due under the agreement and the owner is not entitled to

sue for any of the installments stipulated. His remedy is to claim

damages for the breach of the contract. He can either elect to keep

the contract open or treat the contract as at an end. Where he does

the latter, the measure of damages will seem to be the unpaid

balance of the hire purchase price less such sum as the owner is able

to obtain for the goods taking reasonable steps to minimize his loss

by disposing of them elsewhere and any sum payable under the

agreement for the exercise of the option to purchase since the hirer is

not obliged to exercise it. The owner is also entitled to recover any

special damages resulting from the hirer’s refusal to accept delivery.

2. REMEDIES OF THE HIRER

1. FOR MISREPRESENTATION
In most cases where a hirer seeks to avoid a hire purchase

agreement on the ground of misrepresentation, the representation

complained of usually relates to the condition of the goods

delivered. For example, a motorcycle represented as being in first

class condition may be found almost not roadworthy. Where these

misrepresentations are material in inducing the hirer to enter into

the hire purchase agreement, he would generally have a right to

rescind the agreement and may also be entitled to damages. The

hirer’s remedies depend on whether the misrepresentation has been

fraudulent, negligent or made innocently without negligence. The

same principle applies here as in the case of the remedies of the

owner but it is important to note that where the misrepresentation

relates to the nature of the document which the hirer is asked to

sign, he may be able to set up a plea of non est factum and thus

establish that no binding agreement ever came into existence.

Where the owner is guilty of some other misrepresentation which

induced the hirer to enter into the hire purchase agreement, the

hirer is entitled to renunciation and damages even though he

could, by elementary enquiry, have discovered the falsity of the

representation and even though no reasonable person would ever

have believed the representation in the first place. It is sufficient

that the representation was made by the owner and acted on by the

hirer. E.g. a hirer who takes delivery of a car represented to be in

first class condition is entitled to return the car and recover the

payment he has made if on delivery he finds that the car is in poor

condition and the fact that the hire purchase price stipulated was a
ridiculously low figure such as a thousand naira is no answer to

the hirer’s claim if he can show that he acted on the owner’s

statement despite the fact that no reasonable person will expect him

to obtain a car in first class or even average condition for that

price.

Where the hirer exercises a right to rescind, he is entitled to recover

all the payment he has made under the agreement together with

any goods tendered in part exchange or any money payment in lieu

of such goods.

The hirer who rescinds may also claim damages if the

misrepresentation was negligent or fraudulent. Instead of

rescinding the agreement, the hirer can elect to affirm the

agreement and claim damages. If the representation was

subsequently incorporated as a term of the contract, then, it becomes

like any other term and the owner’s liability in damages does not

necessarily depend on fraud or negligence. The damages in the

latter case will be for breach for warranty.

2. REMEDY FOR RENUNCIATION

Where the owner renounces his obligations under the agreement

before the time for performance has arrived, the hirer may at his

option elect to treat the agreement as at an end and claim

damages or alternatively affirm the agreement and await the time

of performance of the owner’s obligation.

 3. REMEDY FOR FAILURE TO DELIVER

Where the owner fails to deliver the goods in accordance with the

terms of the hire purchase agreement, the hirer may treat the

agreement as discharged. Alternatively, the hirer may affirm the

agreement and elect to treat the breach of the obligation as a

breach of warranty and claim damages. The owner’s obligation to

deliver the goods carries with it, by implication, the delivery of such

documents as are necessary to enable the goods to be used for their

intended purpose. In Benthworth Finance Co Ltd v. Lubert (1967) 2

All ER 810, it was held that a hire purchase agreement relating to a

motor vehicle does not become operative against the hirer until the

registration book is handed over unless the hirer waives the implied

requirement.

REMEDY FOR DEFECT IN TITLE

If goods are delivered under a hire purchase agreement by one

whose title is defective at the date of delivery, so that the option to

purchase conferred on the hirer is at that date wholly illusory, the

hirer can sue in quasi contract for the recovery of all sums paid

under the agreement as having been paid on a consideration which

has wholly failed and the hirer can in addition recover all expenses

reasonably incurred in relation to the goods for example, for

repairs, insurance, and the amount of any legal expenses incurred

in reasonably resisting a claim against one who ultimately

establishes himself as the true owner. The hirer can treat the

agreement as discharged for breach of the condition as to title and

claim damages. The hirer can affirm the agreement, treat the

breach of condition as a breach of warranty, and claim damages.

In this event, the hirer will continue payment under the agreement

and then claim as damages for breach of warranty, the recovery of

all sums so paid without any deduction in respect of his use of the

goods.

NATURE OF THE SALE OF GOODS

The sale of goods is one of the most frequent transactions of our

time. Many sales that happen are made at any hour of the day

either in open market places and open conversation and countless

series or ways of communication. The law governing the Sale of

Goods transactions is primarily contractual. In Nigeria, it is

codified in the Sale of Goods Act 1893 which is a statute of general

application or in the Sale of Goods Law applicable in the states of the

Federation where they have been promulgated e.g. Sale of Goods Law

1958 which is applicable in the Western Region. Generally, sources of

law relating to Sale of Goods are:

 The common law i.e. principles of contract law

  Sale of Goods statutes

 Other relevant statutes e.g. Infants Relief Act 1874 etc.

What is Sale of Goods?

S. 2 Sale of Goods Act and s. 3 Sale of Goods Law defines Sale of Goods

thus:

A contract of sale of goods is a contract whereby the seller

transfers or agrees to transfer the property in goods to the buyer

for a money consideration, called the price. There may be a

contract of sale between one part owner and another.

The following may be noted about Sale of Goods from the following

definition:

 It is a contractual transaction

 Two parties are involved in the transaction and they are

known as buyer and seller

 The object of the transaction is purchase

 The subject matter of the transaction is the goods.

See s. 2(1) Sale of Goods Law for the definition of goods

“goods” includes all chattels personal, other than things in

action or money and includes emblements, industrial growing

crops and things attached to or forming part of the land which

 are agreed to be severed before sale or under the contract of

sale;

From the definition, a sale can be distinguished form an agreement

to sell. S. 3(3) Sale of Goods Law states that

Where under a contract of sale the property in the goods is

transferred from the seller to the buyer the contract is called a

sale; but where the transfer of the property in the goods is to

take place at a future time or is subject to some condition

thereafter to be fulfilled the contract is called an agreement to

sell.

Note however that an agreement to sell may become a sale when the

time lapses or conditions are fulfilled subject to which the property

in the goods is to be transferred.

FORMATION OF A CONTRACT OF SALE

Creation/Formalities

The creation of the contract for the Sale of Goods is a matter

governed by the general principles of contract as they exist under

common law or as modified by statutory provisions. No special

formalities are required. The elements of an ordinary simple

contract such as offer, acceptance, capacity, consideration,

intention to create legal relations, consent etc are the basic

requirements of a contract for the Sale of Goods. Every sale must be

preceded by a contract where the seller agrees to sell and part with

possession and the buyer agrees to buy and obtain possession for a

price.

The parties must be at consensus in relation to all the terms of the

contract as regards the price, time, place of delivery, quantity and

quality of goods in question etc. The parties will not be seen to be

contracting on the same terms where there is an absence of

consensus or agreement of the mind. The parties must also have an

intention to create a binding legal obligation so that upon breach

of the terms of the agreement by one party, the other could sue to

recover damages for the breach or loss.

Form of contract of Sale

The Sale of Goods contract may be under seal, written or oral. See s.

5 Sale of Goods Law

Subject to the provisions of this Act, and of any Act in that

behalf, a contract of sale may be made in writing, (either with

or without seal), or by word of mouth or partly in writing and

partly by word of mouth or may be implied from the conduct of

the parties.
 Provided that nothing in this section shall affect the law

relating to corporations.

Deed

A deed is a document on which a seal is affixed. The most usual

contracts under seal are conveyances and power of attorney.

Written Contract

Agreements relating to hire purchase, marine policy, bill of sale, bill

of exchange, money lenders contract, pledge, employment, interest

in land etc must be evidenced in writing. S. 4 of the Statute of

Frauds 1677 which still applies in the Northern and Eastern states

provides that certain agreements cannot be enforced orally unless

they are evidenced in writing. Such agreements include a promise

in answer for damages out of one’s estate, default or miscarriage of

another person etc.

The corresponding section in Bendel, Ogun, Ondo and Oyo states is

s. 1 Contracts Law 1958. In Lagos state, the corresponding section is

s.5 Law Reform (Contract) Law CAP 66 Laws of Lagos State 1973

which lists out the agreements which cannot be enforceable by

action unless they are evidenced in writing. These contracts include

contracts for the sale of land or disposition thereof,

mortgage/charge of land or contracts by a person answerable for

the debt, default or liability of a third person.

Oral contracts

These are contracts made by word of mouth

Capacity of the Parties

The parties are known as sellers and buyers. According to s. 4(1)

Sale of Goods law, capacity to buy and sell is regulated by the

general law of contract. The general rule is that any person is

capable of entering into contracts of sale except where they fall

within the following cases or persons rendered incompetent in law to

contract or whose contractual capacity is limited.

1. Infants

Infants/minors may only sell or buy necessaries. E.g. under s. 4(1)

Sale of Goods Law, there is a proviso that says thus:

Provided that where necessaries are sold and delivered to an

infant or minor or to a person who is by reason of mental

incapacity or drunkenness is incompetent to contract he must

pay a reasonable price therefor.

An infant is incapable of entering into a valid contract of sale

unless it is for necessaries. Where he does enter into a contract other

than for necessaries, however, the general rule concerning his

capacity to transfer and acquire property is that the contract is

voidable at the instance of the infant during his infancy or within

a reasonable time after he had attained majority. When the

contract is for the supply of goods, it is absolutely void except in the

case of necessaries where he would be required to pay a reasonable

price.

2. Mentally incapable persons

Mentally incapable persons can only contract for necessaries.

Section 4(2) of the Sale of Goods Law defines necessaries as:

goods suitable to the condition in life of such infant, minor or

other person and to his actual requirement at the time of sale

and delivery.

Contracts of an insane person or person of unsound mind are

therefore generally unenforceable against him since he is not

capable of appreciating the nature of the act. If a sale takes place

during his lucid interval, the sale will be valid whether or not they

are for necessaries. If his state of mind at the time of contract is

unknown, the presumption is that the contract can be enforced.

Therefore, the burden of proof that the other party has knowledge of

his insanity is on the lunatic himself.

 3. Drunkards

An intoxicated person has a limited contractual capacity. The other

person could enforce the contract if the fact of the intoxication is

unknown to him and he can prove that he took no advantage of the

situation. See Gore v. Gibson (1845) 13 F&W 628. Intoxicated persons

may ratify contracts when they become sober. See Matthew v. Barter

(1873) FR 8 Ex 132.

Where necessaries are supplied to him however, he is bound by the

agreement and he is liable to pay a reasonable price.

4. Alien Enemy

During the period of hostilities of a national, the enemy country will

be termed an alien enemy and is incapable of contracting in this

country either personally or by an agent. Thus, the main limitation

is that where there is a statute which prescribes conditions for an

alien, it must be met. See S. 20 Securities and Exchange Act.

5. Corporations

A corporation being an abstraction is not a natural person and

therefore has no hands with which to act. A legal personality is

however given to it by statute so as to enable its organs perform on

its behalf all the powers and rights conferred on it by its Articles of

Association and Memorandum. An exercise of power outside this

ambit is ultra vires the corporation. Since the corporation is an

artificial legal person, it can only act through its organs and

agents which may be directors, manager or any other officer. See S.

38 & 42 Companies and Allied Matters Act.

6. Married Women

Whether a woman has any contractual capacity or not depends on

where the power is exercised in Nigeria. In Bendel, Ogun, Ondo and

Oyo states, the Married Women’s Property Law 1959 gives a woman

the right to sue or be sued for a tort or contract entered into before

or after the marriage. In the rest of the country, the English Married

Women’s Property Act 1862 and 1893 apply. There, the rights of a

woman are only proprietary in nature. Though the law allows her to

enter into contracts in respect of her property, it specifically adds

that shall bind only property she acquired at the time of contract

but also that which she may acquire later i.e. after marriage.

7. Illiterates

An illiterate is defined under the Illiterates Protection Act 1958 as:

A person totally illiterate in the sense that he is unable to read

or write in any language.

If a written document is entered into by an illiterate person who

can prove to the satisfaction of the court that he could not and did

not understand the contents of the document, the contract is not

enforceable against him. It is important that the illiterate

understands the document in which he appends his signature. It is

required that any person who makes a document on behalf of an

illiterate must write on the document his name as the writer and his

address or be liable to a fine of 100pounds or 6 months

imprisonment. The effect of this is to protect an illiterate from

possible fraud. If a document is prepared in a foreign language but

is interpreted to the illiterate, he ceases to be an illiterate for the

purpose of that document. Also, a graduate of a university may be

an illiterate in respect of a document written in a language he does

not understand and which has not been interpreted to him. The

effects of non-compliance with the statutory requirements are as

follows:

1. It makes the contract illegal

2. It makes the contract unenforceable

3. It makes the contract void

4. It may make the contract voidable

It must be noted that the fact that the person cannot speak or write

English does not make him an illiterate in as much as he speaks

and writes in another language. An illiterate means a person who

does not understand the language of the document prepared on his

behalf or who does not read or write in any language whatsoever.

See P.Z. & Co. v. Gusau & Kantoma (1961) NRNLR 1. See also the

decision of the Supreme Court in Oseto v. Uwania (1971) 1 ALR

TERMS OF A CONTRACT

Parties include terms in their contracts of sale either expressly or by

implication. Such terms are either conditions or warranties

depending on the effects such statements have on the existence of the

contract. A condition is usually taken to mean a fundamental term

of the contract while a warranty is taken to be a non-fundamental

term of the contract.

A condition is a fundamental term because it is a term which goes

directly to the substance of the contract or to the root of the contract

and its breach may be regarded by the other party as failure to

perform the contract at all. The breach of such condition therefore

entitles the party to terminate or rescind the contract and treat it as

repudiated.

A warranty on the other hand is a term which is only collateral to

the main purpose of such contract, its breach only gives rise to a

claim for damages but not to a right to reject the goods or to treat

the contract as repudiated. Representation is generally understood

as a collateral promise by one party to a contract which is not made

a term of the contract (it is collateral in the sense that it is

connected to the contract but less important). Whether a statement

is a warranty or a mere representation depends on the intention of

the parties including their conduct and the surrounding

circumstances. Conditions and Warranties are therefore

contractual terms. The courts have therefore categorized

contractual terms since not all contractual terms carry the same

weight over the years. Some have been classified as lesser terms and

others as fundamental terms or major terms.

Conditions are major/fundamental terms of a contract while

warranties are lesser terms. Therefore, whether a stipulation is a

breach of a condition or of a warranty depends on the construction

of the term in the contract. The fact that parties expressly refer to

terms as ‘condition’ or ‘warranty’ will not necessarily give it that

status if it is not so construed by the courts. Over time, it has been

difficult to make a distinction between the 2 terms. One of the ways

of making a distinction is to understand the implication of these

terms in a contract of sale. Therefore, in order to ascertain whether

a term is a condition or warranty, one must give cursory look at the

consequence that will result from the breach.

The term ‘condition’ was nowhere defined in the Sale of Goods Law

but warranty was defined. According to S. 2(1) Sale of Goods Law,

warranty can be defined as

“warranty” means an agreement with reference to goods that

are the subject of a contract of sale but collateral to the main

purpose of the contract, the breach of which gives rise to a

 claim for damages but not to a right to reject the goods and

treat the contract as repudiated.

Express Terms

These are terms which are agreed upon by the parties either orally or

in writing in respect of a particular contract. Since the contract of

sale is an agreement between the parties, they are free to expressly

include in their contract of sale the terms they wish to be governed

by.

Implied Terms

Apart from the express terms between the parties, certain terms which

fall within the usage, custom or ordinary course of dealings between

the parties may be implied and when such terms are implied, the

seller will be estopped from denying such terms.

Subject to the express terms of the contract of sale, such implied terms

relate to time, title, description, fitness for particular purpose,

merchantable quality and sample. The implied terms can be viewed

into 2 way terms or course of dealings of the parties.

 Terms implied by statute/common law

 Terms implied by courts of law such as those arising from

agency, contract of parties or trade usage or custom of the

parties.
TERMS IMPLIED BY STATUTE

Where terms are implied by statute, they will apply to all contracts of

sale whether or not the parties remember to mention them in their

contract. Such terms relate to relevance of time of payment, right to

sell etc as listed earlier.

1. Stipulation as to time

According to s. 11 Sale of Goods Law:

Unless a different intention appears from the terms of the

contract stipulations as to time of payment are not of the

essence of a contract of sale but whether any other stipulation

as to time is of the essence of the contract or not depends on

the terms of the contract.

From the above section, it is clear that time stipulation in the terms

of sale may not be of the essence in the contract of sale depending

on the terms and agreement of the parties i.e. the parties have the

freedom of contract in this regard. Time stipulation as to payment is

prima facie a warranty unless a contrary intention appears in the

contract. This presumption may be rebutted by a party who claims

that time stipulation was intended to be a condition or of the

essence in the contract. Therefore, other time stipulations may be

conditions but whether they are conditions or warranties will

depend on the terms of the contract i.e. the intention of the parties.

See Hartley v. Hymans (1920) 3 KB 475.

2. Implied Terms as to title

In the 19th century, sales were conducted under the casual banner of

caveat emptor. It is argued that there are some obligations which

the seller must fulfill that relate to title. In this area, the court has

maintained the principle of nemo dat quod non habeat. See

Butterworth Kingsway Karflex Ltd. v. Poole (1933) 2 KB 251.

S. 13 generally deals with implied conditions as to title. While the

first provision deals with condition as to title, the 2 nd and 3rd deal

with warranties relating to quiet possession and freedom from

encumbrance. This will be discussed under 3 broad headings.

i. Right to Sell

See generally s. 13(a) Sale of Goods Law

Under s. 13(a), there is an implied condition on the part of the

seller that in the case of sale, he has a right to sell and that in the

case of an agreement to sell, he will have the right to sell the goods

at the time that the property is to pass. Thus, a person to whom

property has not passed will not have a right to sell. In Rowland v.

Dival (1923) 2 KB 500, the plaintiff bought a car from the

defendant and used it for 4 months before discovering that the car

had never belonged to the defendant who had bought in good faith

from someone without title. It was held that the buyer was entitled

to recover the whole price and the seller was not entitled to set off

anything for the 4 months use that the buyer had enjoyed. Note that

the provision of s. 12(a) is very important in the sense that the

liability imposed on the seller is very strict and in fact does not

depend on the fault or negligence or knowledge of the seller. Thus,

the right to sell embraces and encompasses more than just a right to

pass the property in the goods, but the right to pass a good title. See

Niblet v. Confectioners Materials Co. (1921) 3 KB 545. The cardinal

rule therefore is that a person who does not have title cannot be seen

to pass title since he will be giving out another person’s right.

ii. Quiet possession

S. 13(b) provides an implied warranty that the buyer shall have and

enjoy quiet possession of the goods. The buyer is therefore protected

against the wrongful disturbance of the seller or any third party.

Quiet possession is likely to be disturbed when the title is in a third

party. In Niblet v. Confectioners Co. (supra), the seller sold 3,000 tins

of preserved milk and some of the tins bore wrappings which

infringed trademark of a third party. On complaint by the 3 rd party,

the tins were detained by the customs and the buyers were compelled

to remove the label which reduced the value. It was held that the

seller had breached the quiet possession under s. 12(b)

iii. Freedom from Encumbrance

S.13(c) provides an implied warranty that the goods shall be free

from any charge or encumbrance in favour of any 3 rd party not

declared or known to the buyer before or at any time when the

contract is made. In Lloyds v. Scottish Ltd Modern Cars and

Caravans, a judgment creditor in whose favour a writ of fi.fa was

issued delivered it to the Sheriffs. The Sheriffs seized the debtor’s

caravan but let the debtor with it temporarily warning him not to

move the caravan. The debtor sold it to a 3rd party who took it in

good faith. It was held that since the seizure had occurred before

the sale, the purchaser did not acquire title free from s. 12(c) as it

relates to freedom from encumbrance.

3. Obligation of Seller as to Quality of Goods

The Sale of Goods Law imposes stringent obligations on the seller on

the quality of goods to be sold to the buyer. Some of these shall be

examined below:

a) Description
S. 14 provides that where goods are sold by description, there is an

implied condition that the goods shall correspond with the

description and if the sale be by sample as well as description, it is

not sufficient that the bulk of the goods correspond with the sample

if the goods do not also correspond with the description. Description

consists of words which are used to indicate or refer to the quantity,

quality or attributes of the goods. See Adeola v. Henry Stephens and

Sons Ltd (1975) 7 CCHCH 1023 where the sale of 11,020 bags of

American hand wheat flour brand was held to be a sale by

description. Once goods fail to comply with the description made by

the seller, the buyer’s remedy is either to claim damages or to reject

the goods and it makes no difference to his right to reject that the

goods are merchantable. This is mostly applicable where the buyer

has not seen the goods offered to him and he will only rely on the

description. See Varley v. Whipp (1900) 1 QB 513.

On the other hand, description may also apply to a situation where

buyer has seen the goods but relies on the seller’s assessment of the

goods. See Grant v. Australian Knitting Mills Ltd (1936) AC 85.

The provision of s. 14 Sale of Goods Law also applies to the mode of

packing the goods. Thus, in Re Moore & Co Ltd. v. Landauer & Co

(1921) 2 KB 579 packing of the goods by the seller was held to be a

sale by description and s. 14 was applicable.

b)Fitness for particular purpose

See generally s. 15 Sale of Goods Law.

In the opening paragraph of s. 15, the law recognizes the common

law rule of caveat emptor. Nevertheless, under s. 15(a), there is a

requirement of fitness for purpose. This is an implied condition to be

fulfilled by the seller. There are about 4 ingredients to be fulfilled in

this requirement of fitness for purpose.

A. Knowledge of the particular purpose

The buyer must make known to the seller the particular purpose for

which he wants the goods. In Khalil & Dibbo v. Mastrionikolis, it was

held that a buyer of goods cannot recover for breach of an implied

condition that the goods shall be reasonably fit for a purpose under

s. 15(a), where he did not make known to the seller either expressly

or by implication, the particular purpose for which the goods were

required. Where goods are fit for one purpose, they are deemed to be

fit for all purposes under this section. Note however that where there

is only one purpose for which the goods can be used, it must be fit for

that purpose as it would have been deemed to have been impliedly

made known to the seller. See Priest v. Last (1949) 12 WACA 462

where a hot water bottle which burst while in use was held to be

unfit for the particular purpose for which it was bought i.e. it being

a hot water bottle, its purpose would be to put hot water in it.

Where an article has more than one use, the buyer must indicate the

use for which it was required. It must be noted that where the buyer
did not indicate the purpose for which the good was required, it

would be assumed that the goods are suitable for all the foreseeable

applications within the range. Moreover, the particular purpose for

which the goods are required may be communicated by the buyer to

the seller of the goods after which no further information is

required.

B. Reliance on the seller’s skill and judgment

The buyer must have placed reliance on the seller’s skill and

judgment. Such reliance must be evident either from the terms of the

contract or from the surrounding circumstances. In Grant v.

Australian Knitting Mills (supra), a buyer went into M.S. shop to ask

for some men’s woolen underwear. Some woolen underwears were

shown to him and he bought one. When it caused him rashes, he

sued. It was held that the buyer had relied on the seller’s skill and

judgment to select his stock and that since the article was not fit for

his purpose, the seller was in breach.

C. It must be shown that the seller deals in goods of that

description. The requirement that the seller must deal in goods

of that description is satisfied merely by showing that he deals

in goods of that type. E.g. if he sold a Phillips Pressing Iron

whereas he is a general merchant of the National brand of

Pressing Iron, it is sufficient to show that he deals in pressing

 irons and not necessarily to show that he deals in pressing

irons of that particular brand.

D. There is a proviso in s. 15(a) that before the requirement of

fitness for purpose can be invoked, it must be shown that the

goods were not sold under a patent or its trade name. Thus,

the inference that may be drawn is that there is no implied

condition for fitness for purpose when goods are sold under

their patent or trade names e.g. Peak Milk etc. in such

circumstances, the rule of caveat emptor will apply. See Bristol

Tramway Ltd v. Fiat Motors Ltd (1910) 2 KB 831.

The next question to ask is: what is the extent of the seller’s

obligation in the requirement of fitness for purpose? The extent of the

seller’s obligation may be outlined as follows:

 Requirement to cover the nature of goods and their

suitability. See Onotu v. Adeleke and Another (1975)

NMLR 130.

 Requirement cover to packaging of the goods. See

Geddling v. Narsh (1920) 1 KB 668.

 Seller’s obligation will be extended to latent defects. These

are defects that are not discoverable by neither parties

upon a casual observation. See Kendall v. Lillico

c) Merchantable Quality
The dual requirement of merchantable quality are contained both

in s. 15(b), s. 16(2)(c) Sale of Goods Law and s. 14(2) and s. 15(3)

Sale of Goods Act respectively.

The term merchantable quality has not been subjected to any real

examination over time. It was however held in Ollett v. Jordan

(1918) 2 KB 41 at 47-48 that a hot water bottle is not expected to

burst after 5 days of use nor should a new car cease functioning

after a few weeks of its purchase. Goods are unmerchantable where

they are not fit for any purpose for which the goods will normally be

used. If they are used for one purpose, but are suitable for another

purpose, they are of merchantable quality. See Plastic

Manufacturing Co. Ltd v. Toki Nig. Ltd (1976) 12 CCHCJ 2301.

The goods must be merchantable at the time of sale and for a

reasonable time thereafter. Where the contract involves transit, the

goods must be merchantable at arrival at its destination. A major

ingredient of this section is examination by the buyer. Once the

buyer examines the goods, his rights under s. 15(b) are destroyed as

regards defects which such examination ought to have revealed. It

is enough under this provision that the buyer had an opportunity to

examine the goods. If he failed to examine the goods or inspect

them under this section, he would be deemed to have so examined

them. See British & Overseas Credit Ltd v. Animashaun (1961) All

NRL 343.

The rule of caveat emptor can therefore stop the application of s.

15(b)
 d) Sale by sample

S. 15(2) Sale of Goods Act and s. 16(1), (2)(a) & (b) Sale of Goods

Law provides that where there is a sale by sample, there is an implied

condition that the bulk shall correspond with the sample in quality.

The buyer shall have a reasonable opportunity of comparing the

bulk with the sample. The goods shall be free from any defects

rendering them unmerchantable which would not be apparent on

reasonable examination of the sample. For there to be a sale by

sample, there must be a term in the contract, express or implied to

that effect. It is not enough that some samples were shown to the

buyer during negotiation. Once there is a term in the contract that

the sale is by sample, then, the delivery of any good of different

quality will amount to a breach since the goods will not correspond

to the sample. See Khalil & Dibbo v. Mastrionikolis (supra). In that

case, the purchase of engine oil was held not to be a sale by sample

since there was no term in the contract that it was. This was a case

where the 3 sample were shown by the seller to the buyer of which he

chose 1 and did not tell the seller what he wanted and later he

refused to pay and was sued by the seller. For a party to take solace

under s. 16, he must establish that he has complied with the

following:

I. Examination of the Goods

Parties should examine goods supplied so as to detect disparity.

Where the buyer is given the opportunity of comparing the bulk with

the sample, he would be deemed to have made such comparison even

though he had not done so.

II. Freedom from unapparent defects

This relates to defects which reasonable examination of the sample

will not reveal. Where such defects make the goods unmerchantable,

s. 16(2) applies. In Godfrey v. Perry (1960) 1 All ER 36, the retailer

who bought a defective catapult from the wholesaler by sample was

held entitled to recover because the defect in the catapult could not

reasonably have been discovered by him. Note however that where

the buyer has accepted the goods as being in compliance with the

sample, he cannot thereafter reject them, but may sue for a breach of

warranty and claim damages. In West African Import and Export v.

Nassar (1939) 15 LLR, there was a contract for the sale of 600 pieces

of plush with reference to sample. On delivery, the goods were

different from the sample. This entitled the defendant to reject them.

He knew or was in a position to know about the difference and yet

proceeded to accept the goods. The court held that he had accepted

the goods and could not repudiate on the ground that the goods

were not up to standard.

Discuss briefly the various payment devices available in commercial

transactions

TRANSFER OF RISK

Generally, risk of loss of damage is always transferred with

ownership in the goods. S. 20 Sale of Goods Law provides that unless

otherwise agreed, goods remain at the seller’s risk until the property

therein is transferred to the buyer. But when the property therein is

transferred to the buyer, the goods are at the buyer’s risk whether the

delivery had been made or not. The above provision has the

following implications

1. Transfer of risk depends on transfer of ownership

2. Transfer of risk does not depend on possession of goods

3. Where the seller remains in possession of the goods after

ownership in them has been transferred to the buyer, or where

a buyer is in possession of the goods before ownership passes to

him, then, the party in possession is a bailee and must exercise

duty of care.

Exceptions
There are certain exceptions to the rule that risk passes with

ownership and the exceptions are:

a. If there is an express or implied agreement between the parties

that risk does not pass with ownership. Parties may state that

risk will pass before or after ownership.

b. Delay in delivery: Where delivery has been delayed by the

fault of either the seller or the buyer, the goods are at the risk

of the party in default as regards any loss which might have

occurred but for such fault.

c. Seller as bailee: Duty of care imposed on the possession of

goods under the custody warrants that the risk of loss or

damage lies on him.

d. Distance delivery is at the seller’s risk even though the

ownership has passed to the owner.

e. Cost, insure and freight contract: In this, the buyer has paid

for the cost of goods as well as insurance. The risk does not pass

until the shipping documents have passed to the buyer.

Transfer of title by one other than the owner

The general rule that a person cannot transfer goods in which he

does not have title is expressed in the Latin maxim nemo dat quod

non habeat meaning he who has no title cannot pass any title. The

rule is meant to protect the owner’s right to the goods and such
right is enforceable against any person in possession of the goods

even where the person bought the goods in good faith.

There are certain exceptions to the rule. They are:

1. Estoppel

S. 21(1) Sale of Goods Act gives an exception to the general rule that

a person who is not the owner cannot sell. It says:

…unless the owner of the goods by his conduct is precluded

from denying the seller’s authority to sell.’

The implication of this exception is that if the owner of the goods

represents the seller as the owner or conducts himself in a way as to

make the buyer to believe that the seller is the owner, he shall be

precluded from denying the seller’s authority to sell the goods. The

buyer buys a good title.

2. Sale under Common Law

This is also referred to as statutory power of sale. S. 21(2) (b) Sale of

Goods Act provides:

Nothing in this act shall affect the validity of sale under any

special common law or statutory power of sale under the order

of court with competent jurisdiction.

The common law power of sale includes the right to sell as an agent

of necessity and the right to sell in a mortgage.

 3. Sale in market overt

S. 22(1) Sale of Goods Act provides that both where the goods are

sold in a market overt according to the usage of the market, the

buyer acquires a good title to the goods provided he buys them in

good faith without notice of any defect or want of title on the part of

the seller.’

A market overt is a market recognized by the government for a

specific type of goods with a specific time of opening and closing.

4. Sale under a voidable title

S.23 provides:

when a seller of goods has a voidable title thereto, but his title

has not been voided at the time of the sale, the buyer acquires

a good title to the goods provided he buys in good faith

without notice of the seller’s defective title.

5. Further sale by a seller in possession

See S.25(1). The general effect of this section is that if after a sale the

seller remains in possession of goods or their documents of title, the

second buyer will be protected if he buys in good faith without notice

of the previous sale. The essence of the provision is to protect third

party who buys in good faith and without notice of the defect.
Another example is where the owner of goods sells the good and

remains in possession under a hire purchase agreement with the

new owner. A buyer who buys from the hirer with the mistaken belief

that he is still the owner not knowing anything about the sale will

still have a good title.

6. Sale by a credit buyer in possession

The general effect of the section is that where an owner sells goods

on the condition that the person who agrees to buy is allowed to

take possession of the goods and the documents of title but it is

agreed that the property will only pass on payment. If before the

payment, the buyer resells the goods, the second buyer will acquire a

good title.

7. Mercantile Agent

S.21(1) of the Factors Act provides that where a mercantile agent is

with the consent of the owner in possession of the goods, or document

of title to goods, any sale, pledge or other disposition of the goods

made by him while acting in the ordinary course of business of a

mercantile agent is valid as if it were expressly authorized by the

owner, provided that the person taking from him takes in good faith

and without notice that the person making the disposition has no

authority to make the sale.

 REMEDIES FOR BREACH OF CONTRACT

The seller has two basic rights as his remedies

 Real remedies

 Personal remedies

The real remedies are:

1) Right of an unpaid seller in possession

Section 41 provides that subject to the provision of this Act, the

unpaid seller of goods who is in possession of them is entitled to

maintain possession until payment. This is the right of lien which is

applicable only when the full price of the goods has not been paid

and the seller is still in possession of them. The right is lost if the

seller delivers the possession of the goods.

2) Unpaid seller’s right of stoppage in transit

Section 44 provides that a seller may in situation of insolvency of the

buyer if he has parted with the possession of the goods, stop them in
transit i.e. he will resume possession of the goods as long as they are

in the course of transit and may retain them until payment.

3) Unpaid seller’s right of resale

The exercise of the right of lien or stoppage in transit will usually

result in resale of the goods by the seller if the buyer continues to

make default in payment of the price. This right is guaranteed by

Section 48(1) and by virtue of Section 48(3) & (4), the right is

exercisable where:

 The goods are of a perishable nature.

 The seller gives notice to the buyer of his intention to resell and

the buyer does not within a reasonable time tender the price.

 The seller expressly reserves the right of resale in case the buyer

should make a default to pay the purchase price. In the event

of resale, the second buyer acquires a good title over the goods.

 PERSONAL REMEDIES

1. ACTION FOR PRICE

S.49(1) states that where under a contract of sale, the property in

the goods has passed to the buyer and the buyer wrongfully neglects

or refuses to pay for the goods according to the term of the contract,
the seller may maintain an action for the price. The conditions that

are necessary for the seller to succeed if he sues for the price are:

a. Property in the goods must have passed to the buyer.

b. The buyer must have wrongfully neglected or refused to pay the

price.

c. Payment must be in accordance with the terms of the contract.

2. ACTION FOR DAMAGES FOR NON-ACCEPTANCE

S. 37 provides that where a seller is ready and willing to deliver the

goods to the buyer and requests the buyer to take delivery, he is

liable to the seller for any loss occasioned by his neglect or refusal to

take delivery and also for any reasonable charge for care and

custody of the goods. The conditions for the exercise of this right are:

 There must be a request by the seller to the buyer to take

delivery within a reasonable time.

 There must be a failure to take delivery within a reasonable

time by the buyer.

 There must be a loss on the part of the seller.

REMEDIES OF THE BUYER

The buyer too has the following remedies:

 1. Recovery of Price

The buyer may sue the seller to recover the price if the goods are not

delivered or the consideration for the payment has failed.

2. Rejection Of The Goods

If there is a breach of condition, the buyer may repudiate the

contract and reject the goods.

3. DAMAGES FOR NON-DELIVERY

S.51 (1) provides that if the seller wrongfully neglects or refuses to

deliver the goods to the buyer, the buyer may sue for damages for

non-delivery.

4. Specific Performance

S. 52 provides that in an action for breach of contract to deliver

specific goods, the court may direct that the contract shall be

performed specifically without giving the defendant the option of

retaining the goods or payment of damages.

5. Damages For Breach Of Warranty

S. 53(1) provides that where there is a breach of warranty by the

seller or where the buyer elects or is compelled to treat any breach of

a condition by the seller as a breach of warranty, the buyer is not by

reason only of such breach of warranty entitled to reject the goods.

6. Action In Tort

An action of detinue or conversion is available to the buyer if he is

entitled to possession of the goods and they are wrongfully withheld

from him by the seller or the third party.

DISTINCTION BETWEEN SALE OF GOODS AND OTHER TRANSACTIONS

1. SALE OF GOODS AND HIRE PURCHASE

 In a hire purchase contract, the goods are initially bailed and

not sold to the hirer. The hirer at that stage has only possession

and not title to the goods. The owner is therefore allowed in

some situations to seize the goods from the hirer.

 The hirer is not bound to buy the goods hired. He can return

the goods to the buyer at any time and discontinue the

instalmental payment.
  The hire purchase agreement gives the hirer an option to

purchase the goods for a very nominal amount after paying off

the agreed installments.

2. SALE OF GOODS AND MORTGAGE

A mortgage is a transfer of general property in the goods from the

mortgagor to the mortgagee to secure a debt. It may be legal

mortgage or an equitable mortgage.

3. PLEDGE

A pledge is the delivery of goods from one person to another to secure

payment of a debt. It differs from a mortgage because a mortgagee

obtains the general property in the goods whereas a pledgee only

obtains a special property necessary to secure his rights.

4. WORK AND LABOUR CONTRACTS

A contract for work and labour is sometimes difficult to distinguish

from a contract of sale of goods. The test is usually whether the

substance of the contract is the skill and labour exercised for the

production of the item. A contract for the repair of a car is not a

sale of goods even if the repairs involve fitting some new parts into

the car. It only involves the performance of a service.

 5. BARTER OR EXCHANGE OF GOODS

This is when goods are exchanged for goods. A sale presupposes that

price is inclusive in the contract. Therefore, if the consideration is of

goods alone, the contract is one of exchange and the Sale of Goods

Act will not apply since there is no money consideration.

6. BAILMENT

Property does not pass in a contract of bailment. The bailee is

usually a mere custodian of the goods and he will ultimately restore

them to the bailor. It may be a contractual bailment or a

gratuitous one. If gratuitous, it is free. An example is where a

warehouse receives goods for its customers on bailment terms.

7. GIFTS

Since there is an absence of consideration, the only way a gift can

be elevated to contractual status is for it to be made by deed or

under seal. The seal will provide the needed consideration.