Question 1

Issues

In this assignment question, there are four issues.

1. Whether there is a valid offer and acceptance between Gary and Sam

in the first offer?

2. Whether Sam's disagreement of the first proposal is considered as

a rejection to Gary's

proposal?

3. Whether Gary's revocation to Sam is effective?

4. Whether there is a valid contract between Gary and his cousin?

Explanation of law

Agreement

The parties must agree on the rights and obligations created

under the contract. A process of offer and acceptance is a

fundamental part to enable an agreement to form any contract because

it requires consensus ad idem, which is the meeting of the minds of

the parties entering into the contract. It is crucial that an

agreement established a contractual relationship, which means that it

is essential for the parties to be able to define when an offer has

been made and when the offer has been accepted.

In the case Raffles v Wichelhaus (1864) EWHC Exch J19, the

parties entered into a contact to buy a cargo cotton on board a ship

called "The Peerless". Unknown to both Raffles (Plaintiff) and

Wichelhaus (Respondent), "The Peerless" had a sailing in October and

in December. Wichelhaus intended to buy the cotton arriving on the

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October sailing while the Raffles believed it was the December

sailing which had been agreed. When the cotton arrived in December,

Wichelhaus refused to accept the cotton. Raffles sued for breach of

contract. The court applied an objective test and states that a

reasonable people would not have been able to state with certainty

which sailing had been agreed. Therefore, the contract was void as

there was no consensus ad idem because both parties did not agree on

the same element in the contract.

Proposal

Based on Contract Act 1950 s.2 (a), a proposal is made "when

one person's willingness to do or to avoid from doing anything is

signified to one another, with a view to obtaining the approval of

that other to the act or avoidance." In simple word, the proposer

must have definite and certain willingness to be bound by the terms

of the proposal when accepted. Besides, in Contract Act 1950 s.2 (c),

proposer will become the promisor (or offeror) and acceptor will

become the promisee (or offeree) once the proposal is accepted.

In the case Preston Corporation Sdn. Bhd v Edward Leong & Ors

(1982) 2 MLJ 22, the Preston Corporation Sdn Bhd (Plaintiff) was a

book publisher and the Edward Leong (Respondent) was a printer firm.

Preston claimed that there was an overcharged of $500 while Edward

claimed that the ownership of film positive belonged to him due to

the contract’s express terms between them as well as a trade usage

prevalent in the printing industry. Consequently, Edward sued the

Preston. However, Preston denied that the contract contained such

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terms which is so called trade usage. The judgment of court is in

favor of the plaintiff. The respondent’s claim was dismissed as the

extra charges of $500 were clearly erroneous. The ownership of the

reproduced film positives should not be claimed by respondents as the

terms in the quotations submitted by respondent are neither a binding

offer nor a part of contract.

In this case, the Federal Court expressed the view that an

offer is an intimation of willingness by an offeror to enter into a

legally binding contract and that its terms must either expressly or

impliedly indicate that it is to become binding upon acceptance by

the offeree.

Acceptance

(i)

Under Contract Act 1950 s.2 (b), the proposal is accepted "when

the person to whom the proposal is made signifies his approval

thereto". It implies that there must be a positive or overt act by

which the acceptor manifests his assent to the terms of the proposal

to constitute acceptance.

On the other hand, based on Contract Act 1950 s.4 (1), the

communication of a proposal is only complete when it comes to the

knowledge of the person to whom it is made. The proposer must

communicate his proposal to the acceptor to make sure the acceptor

has actual knowledge of the proposal as well as be aware of its

existence before he can be said to have accepted it. It should not be

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a coincidence between what the promisee has done and what was offered

by the proposer.

In the case R v Clarke (1927) 40 C.L.R, the Australian

Government (Respondent) offered a reward for information leading to

an arrest and conviction of persons responsible for the murder of two

police officers. X and Clarke (Plaintiff) were arrested and charged

with murder but later Clarke gave information leading to arrest of Y.

X & Y were later convicted and the plaintiff claimed for the reward.

The court held that the plaintiff failed to claim the reward as the

information he gave was to clear himself and not in reliance of the

offer to reward. In other word, the plaintiff had not intended to

accept the offer at the time the information about the murderers was

given.

Besides, in the case Taylor v Laird (1856) 25 LJ Ex 329, Taylor

(Plaintiff) resigned as a skipper of Laird's (Respondent) ship in the

middle of a voyage. Taylor however assisted to sail the ship home.

The court held the plaintiff cannot claim for fees due as he had

failed to make known his offer to sail the ship home and the

respondent had no opportunity either to accept or refuse the offer.

Thus, no contract existed.

(ii)

Furthermore, according to Contract Act 1950 s.7 (b), the

acceptance should be mentioned in some usual and reasonable manner.

It may be made in writing, orally or implied by conduct. However, if

a method of acceptance has been prescribed by the offeror, the

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acceptance must be according to the manner prescribed. If the

acceptor does not comply with the particular mode, the proposer may

disagree it and insist that offeree complies with the prescribed mode

"within a reasonable time after the acceptance is communicated to

him". If the proposer fails to object to the wrong mode that was

used, he would be considered to have accepted.

In the case Taylor v Allan (1966) I Q.B. 304, Taylor

(Plaintiff) took his car out for a drive, claiming he was covered by

an insurance company's (Respondent) temporary cover notice. The issue

is that could driving the constitute acceptance of the notice of 15

days of cover. The court held that the offer of a motor insurance was

deemed accepted by conduct when the plaintiff drove his car in

reliance on the insurance.

Next, in the case Affin Credit (Malaysia) Sdn. Bhd v Yap Yuen

Fui (1984) 1 MLJ 169, it was held that where a statutory provision

sets out a condition precedent before an offer can be accepted, non

compliance with that condition will result in no contract whatsoever.

Communication of acceptance

The general rule underneath this aspect is that acceptance of

the proposal must be communicated to the proposer. Acceptance is only

effective when it is communicated or brought to the notice of the

offeror. It applies to instantaneous communications whereby the

parties' communication is simultaneous, such as via telephone, fax,

telex. Based on Contract Act 1950 s.7 (a), the acceptance must be

absolute and unqualified for it must be the "mirror image" of the5

offer to be accepted in exactly the same terms of the proposal.

Acceptance must be made in reliance of the offer and it must be

correspond with all the terms of the offer.

If the offeree accepts the offer but then tries to impose new

terms, there is no acceptance. It is a counter proposal, whereby the

terms of the original offer are altered or modified. Thus, a counter

proposal operates as a rejection of the original proposal which

cannot be revived and subsequently accepted. A new offer is created.

As such, the original offeree who makes an offer would become the new

offeror and the original offeror becomes the new offeree who has a

right to either accept or reject the new modified offer.

In the case Hyde v Wrench (1840) 3 Beav, Wrench (Respondent)

offered to sell his farm in Luddenham to Hyde (Plaintiff) for £1200

and Hyde declined. On 6 June, Wrench made a final offer to the Hyde’s

agent offering to sell the farm for £1000. On 8 June, Wrench made a

counter-offer in writing of £950 and Hyde replied that he would

consider the offer. After examining the offer, Wrench refused to

accept and informed Hyde on 27 June. However, on 29 June, Hyde agreed

to buy the farm at £1000 but Wrench refused. Hype sued Wrench for

breach of contract. The court held that this offer was no longer

available. The plaintiff's offer to buy for £950 constituted a

counter offer and terminated the original offer of £1,000. Once

rejected, an offer cannot be revived by subsequent acceptance. Thus,

the judgement of court is favour of the respondent.

A distinction must be discerned between a counter proposal and

a request for further information. If the offeree only seek more6

information or ask if the terms could be modified, such a request

does not end the offer, which can still be accepted after the new

information has been provided.

In the case Stevenson Jacques v. McLean (1880) 5Q.B.D. 346,

Stevenson (Plaintiff) was an iron merchant. McLean (Respondent) was

the holder of warrants for quantities of iron. On Saturday, McLean

offered to sell to Stevenson a quantity of iron at a price of 40

shillings and stated that the offer would remain available until the

following Monday. On Monday, Stevenson telegraphed asking if they

could buy the iron on credit. McLean did not respond and later that

day sold all warrants to another party. Stevenson subsequently sued

McLean for non-delivery of iron warrants alleging breach of contract.

The court held that the plaintiff could still accept the respondent’s

offer even though he had telegraphed to the respondent requesting

details of possible credit terms. The telegram sent by the plaintiff

was not a rejection of the offer but a mere inquiry about whether the

terms could be modified.

Acceptance by post

The rules under acceptance by post are different with the

general rule under acceptance. The postal rule can only apply where

it is reasonable to use the post. The postal rule is not applicable

to telecommunication such as telephone, telex and telegraph.his

agent. Based on Contract Act 1950 s.4 (2)(a), the proposer is bound

by the contract at the moment the acceptor posts his letter of

acceptance irrespective of whether the proposer has knowledge of7

acceptor's actions while under Contract Act 1950 s.4(2)(b), the

acceptor will only be bound once the proposer receives and has

knowledge of the letter of acceptance.

There are illustrations under Contract Act s.4. Firstly,

illustration (a), A proposes,by letter, to sell a house to B at a

certain price. The communication of the proposal is complete when B

receives the letter. Secondly, illustration (b), B accepts A's

proposal by a letter sent by post. The communication of the

acceptance is complete- as against A, when the letter is posted; as

against B, when the letter is received by A.

In the case Entores Ltd v Miles Far East Corporation (1955) 2

QB 327, Entores (Plaintiff) was a London-based trading company. One

day, Entores sent a telex message from England for the purchase of

100 tons of copper cathodes from Miles (Respondent) in Netherlands.

The Miles sent an acceptance by telex as well. However, the contract

was not fulfilled and so Entores attempted to sue the Miles for

damages. The court held that the contract was formed in and was

actionable in London. This is because in instantaneous communication

(telex message), the contract is complete at the moment the

acceptance is received and at the place where the acceptance is

received. Therefore, the judgment of court is favour of the

plaintiff.

Besides, in the case The Household Fire and Carriage Accident

Insurance Company (Limited) v Grant (1878-79) LR 4 Ex D 216, Mr Grant

(Respondent) applied for shares in the company (Plaintiff). The

company's acceptance of the offer was posted to him but was never8

received. The company went bankrupt and they asked Mr Grant for the

outstanding payments on the shares. Mr Grant refused to pay on the

ground that he did not receive an acceptance. The company sued him.

The court held that there was a valid and binding contract because

once posted, acceptance was complete. The post office was a common

agent so acceptance occurred when it reached the respondent's agent.

In the case Ignatius v Bell (1913) 2 FMSLR 115, Ignatius

(Plaintiff) sued for specific performance of an option agreement

which proposed to give him the option of purchasing Bell’s

(Respondent) right over a piece of land. This option was to be

exercised on or before the 20 August 1912. The parties had

contemplated the use of the post as a means of communication. The

plaintiff sent a notice of acceptance by registered post in Klang on

16 August 1912 but it was not delivered till the evening of 25 August

because the respondent was away. The letter remained in the post

office until it was picked up by the respondent. The Court held that

the option was duly exercised by the plaintiff when the letter was

posted on 16 August.

Moreover, in the case Henthorn v Fraser (1892) 2 Ch 27 (CA),

Henthorn (Plaintiff) lived at Birkenhead, called at the office of a

land society (Respondent) in Liverpool, to negotiate for the purchase

of some houses belonging to them. The secretary signed and handed to

him a note giving him the option of purchase for 14 days at £750. On

the next day the secretary posted to Henthorn a withdrawal of the

offer. However, before the withdrawal reached Birkenhead, Henthorn

posted to the secretary an unconditional acceptance of the offer. The

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court held that the binding contract was made on the posting of

plaintiff's acceptance. The revocation of the offer was too late.

Revocation of proposal and acceptance

Contract Act 1950 s.5 (1) and (2) state that as long as before

the communication of an acceptance is complete as against the

proposer or acceptor, a proposal may be revoked at anytime, but not

afterwards. Besides, under Contract Act 1950 s.4 (3)(a) and (b), it

provides that an agreement is regarded as complete as as against the

person who makes it or the person to whom it is made once there is

proper acceptance, it is a valid contract which cannot be revoked. It

is against proposer when it is posted and as against acceptor when it

comes to his knowledge.

In the case Byrne & Co v Leon Van Thien Hoven & Co (1880) 5 CPD

344, Van Tienhoven & Co (Respondent) posted a letter from their

office in Cardiff to Byrne & Co (Plaintiff) in New York by offering

1000 boxes of tinplates for sale on 1 October. However, on 8 October,

Tienhoven mailed a revocation of offer due to the price of tinplate

had risen 25 per cent. The revocation was not received by Byrne until

20 October. In the interim, on 11 October, Byrne received the

original offer letter and telegraphed his acceptance immediately on

the same day. He confirmed this acceptance by letter again on 15

October. Byrne sued Tienhoven for the breach of contract.

The court held that there was a binding contract between Byrne

and Tienhoven. The revocation of the offer was not effective until it

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has been communicated to Byrne due to Section 5(1). When postal rule

is used for revocation, communication is only effect if and when it

is received by the offeree. As the revocation for this case is

happened after the acceptance, thus there was a contract formed in

this case. Therefore, the judgment of court is favour of the

plaintiff.

Consideration

To form an enforceable agreement, a proposal proposed by the

proposer must be accepted by the acceptor. In order for an agreement

to be a contract that is enforceable by law, there must be certain

essential elements, including consideration.

For aspect of consideration, Contract Act 1950 s.2 (e) states

that every promise which involves consideration for each other is

known as an agreement. An agreement which is enforceable by law is

known as a contract according to Contract Act 1950 s.2 (h) whereas an

agreement which is not enforceable by law in considered to be void as

mentioned in Contract Act 1950 s.2 (g). Contract Act 1950 s.26 states

that an agreement made without consideration is void.

For example, A has lost her cat. She promises to pay a reward

of RM200 to anyone who finds her cat and returns it safely to her. B

finds her cat. He has knowledge of the reward. B is entitled to the

reward. B's act of finding the cat and returning it to A is the

consideration for A's promise to pay RM200.

In the case K. Murugesu v. Nadarajah (1980) 2 MLJ 82, Murugesu

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(Defendant) agreed to sell his house to Nadarajah (Plaintiff). An

agreement was written on a scrap paper and says as follows, "I agree

to sell my house number (address) hold under....to Mr Nadarajah, the

present tenant of the house at$26000/- within 3 months from that

date." Murugesu later refused to sell the house and a specific

performance was ordered at the trial and the appellant took the

matter to Federal court. The appears was dismissed.

Apart from this case, there is another case, which is Wong Hon

Leong David v. Noorazman bin Adnan (1995) 3 MLJ 283, the respondent

promised that he would assist in obtaining the approval for the

application for conversion and sub division of the land from the land

administrator. In return, the appellant promised that to pay the

respondent RM268,888 for that service. The court held that even

thought the consideration is executory, was a good consideration.

Thus, there was a binding agreement between the parties.

Application of Law

1. Whether there is a valid contract between Gary and Sam in the

first offer?

Gary and Sam are friends. On 1st January 2015, Gary offered to

sell his bungalow to Sam at RM 500,000 as he will move to oversea and

work over there. Sam and his wife, Samantha was a newly married

couple and they have planned to purchase a house. According to

Contract Act 1950 s.7 (b), if a method of acceptance has been

prescribed by the offeror, the acceptance must be according to the

manner prescribed. In this question, Gary specified in the proposal

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that any of Sam's acceptance has to be done by way of post. Based on

Contract Act 1950 s.2 (a), the communication of Gary’s proposal is

completed when Sam has acknowledged the offer made by Gary on 1st

January 2014. Gary is ready to be bound by the terms of the proposal

when accepted.

Besides, under Contract Act 1950 s.2 (b), the proposal is

accepted "when the person to whom the proposal is made signifies his

approval thereto". Thus, the communication of an acceptance is

completed once Gary received the acceptance. However, on 5th of

January 2014, Sam and his spouses sent a counter proposal whereby

they will only be interested to purchase the bungalow if the price is

reduced to RM 450,000. In other word, the terms of the original offer

are altered or modified. Due to the counter proposal made by Sam, the

contract between Gary and Sam is no longer effective or it is void as

the RM 450,000 was a clear rejection for the Gary’s offer of RM

500,000, which cannot be revived and subsequently accepted. This

question cannot be fall in the category of request for further

information because Sam and his wife stated that they were interested

if the price reduced to RM 450,000, rather than asking if there is

any negotiation allowed.

2. Whether Sam's disagreement of the first proposal is considered as

a rejection to Gary's proposal?

Based on Contract Act 1950 s.7 (a), the acceptance must be

absolute and unqualified for it must be correspond with all the terms

of the offer. Sam and Samantha accepted the offer but then they tried

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to impose new terms, thus it is counted as there is no acceptance.

The letter sent by Sam and his wife, Samantha to Gary is considered

as a counter proposal. In their letter, Sam and Samantha shows no

room of discussion. They are only interested to purchase Gary's house

if only the price is reduced to RM450,000. It is a rejection to the

original proposal.

3. Whether Gary's revocation to Sam is effective?

According to Contract Act 1950 s.5 (1), a proposal may be

revoked at any time before the communication of its acceptance is

complete as against the proposer. In this question, Gary's revocation

is done after Sam's acceptance. Gary's revocation should be counted

as ineffective if a general situation is provided. This is due to

Contract Act 1950 s.4 (2)(a) states that the proposer is bound by the

contract at the moment the acceptor posts his letter of acceptance.

However, in this question, Gary's revocation is counted as effective

for Sam has rejected the original offer himself at the very first

point. Thus, there is no valid contract between them. In other word,

Gary did not even need to send a letter to Sam to revoke the offer he

made earlier for the previous offer is already of invalid.

After his first letter saying they are only interested to

purchase the house if the price is reduced, Sam then sent a second

letter saying that they agreed to purchase the house for the original

price before Gary posted his letter of revocation. In this situation,

Gary is no longer the offeror but Sam. Sam is the offeror who offered

to buy the house at RM500,000, while Gary has the right to either

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accept or reject it. Thus, the revocation to Sam is effective as both

of them are not binding with the contract.

4. Whether there is a valid contract between Gary and his cousin?

On 8th of January, 10a.m., Gary has received an offer from his

cousin to purchase the house at the price of RM 600,000. Gary

received the counter proposal from Sam at 2.30p.m on the same day.

However, Gary had immediately sent a revocation letter to Sam as he

declined to sell it at a cheaper price, RM 450,000. The contract

between Gary and his cousin is valid because Gary has his right to

sell the bungalow to his cousin as he is not bound by the contract

with Sam.

Besides, it is essential to have element of consideration to

form an enforceable agreement. Under both Contract Act 1950 s.2 (g)

and Contract Act 1950 s.26, the laws state that an agreement made

without consideration is void. Gary wanted to sell his house to his

cousin. In return, his cousin promised to pay him RM650,000. Although

the consideration is executory, it was a good consideration. Thus,

there was a binding agreement between Gary and his cousin. In

conclusion, there is no valid contract between Gary and Sam due to

the counter proposal of RM 450,000 offered by Sam.

Conclusion

In the conclusion, there is no valid contract between Gary and

Sam due to the counter proposal of RM 450,000 offered by Sam. Sam’s

disagreement of the first proposal is considered as a rejection to

Gary’s proposal which can not be revived. Gary did not need to make

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any compensation to Sam for there is no breach of contract.

Gary had agreed to sell his bungalow to his cousin at the price

of RM 600,000. The revocation of Gary to Sam is effective whereby

both of them are not binding with the contract. This is due to in

this second proposal, Sam becomes the offeror while Gary becomes the

offeree. Gary has the rights to either accept or reject the offer.

Thus, Gary can freely manipulate his asset. There is a valid contract

between Gary and his cousin as both of them provided proper

consideration to each other.

Gary is advised that he would be successful to deny the action

or claim brought against him from Sam for his breach of promise. Gary

is advised not to compensate or sell his bungalow to Sam.

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Question 2

Maxim of ‘ Nemo Dat Quod Non Habet’

Title represents the certificate of ownership. A Transfer of Title

is significant as it legally shows the title of a good has been

transferred from the seller to the buyer.

Nemo dat quod non habet is a Latin phrase literally means “no

one can give what he does not have” or “no one can give a better

title than he has himself”. This rule is found in the equivalent

Malaysian Sales of Goods Act 1957 section 27. For example, a person

sells the goods which is not belongs to him/her or who sells goods

without under owner’s authority cannot transfer ownership to the

buyers.

Normally, the transaction takes place between buyer and either

the owner of the goods or by authorized agent. However, in reality

there are still typical cases that involve two innocent parties. If

an innocent party purchased a good from a person who is not the

owner, the buyer, gets no title, whatever because this rule protects

the right of true ownership. Hence, if A steals a smartphone and

sells to B who paid value in good faith, but due to A did not have

any title, therefore B would not get ownership also. The smartphone

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would still be owned by C and he could claim it back from B.

Therefore, this rule is able to protect the benefits of bona fide

purchaser which referred to an innocent party who does not notice

that seller has no right to claim the title of the property. The rule

can consider quite complicated because current owners need to trace

back to an ultimate root of property.

Furthermore, based on this rule, the tort of conversion is

applied if a person turning or using the goods that belonged to

another party or unlawful altering their nature. When a party takes

away or wrongfully assumes the right to goods which belonged to

another, it will in general be sufficient evidence of a conversion

but when the original taking was lawful, as when the party found the

goods, and the detention only is illegal, it is absolutely necessary

to make a demand of the goods, and there must be a refusal to deliver

them before the conversion.

Moreover, tort of conversion can be demonstrated by the

Malaysian case of Lim Chui Lai v Zeno Ltd [1964] 30 MLJ 314 . The

chairperson of the Zeno Ltd board of directors entered into an

agreement with a contractor named Ahmad. Ahmad declared to the

Petaling Jaya Authority that Zeno will supply the construction

material. When they attempted to sell the materials, they came to

know that the materials had been sold by Ahmad to Lim Chui Lai. In an

action for conversion, the court held that Ahmad was not the owner of

the property because he was merely bailee that did not have authority

to sell the property. Thus, Lim Chui Lai does not have the title upon

the materials bought from Ahmad.18

Apart from that, the rule, nemo dat quod non habet, can be

illustrated by referring to the case Greenwood v Bennet   [1973] 1 QB

195 . In this case, Bennet, the original owner of a Jaguar car

entrusted it to Searle for repairs. Searle then used it for own

purpose, crashed it and sold the car to a garage proprietor, Harper

for 75 pound. Harper did not realize that the car was not belonged to

Searle and he spent 226 pound repairing it and sold it to the finance

company. The court held that the Jaguar still belonged to Bennet,

Harper could not get the car because Searle did not have the title.

Besides, the position of this rule was confirmed in case Rowland

v Divall [1923] 2 KB 500 . The claimant, a car dealer, bought a car

from defendant for £334. The car dealer painted the car and a

customer bought it with £400. Nevertheless, the car was returned to

the original owner after it was impounded by the police as stolen

car. The claimant returned the £400 to the customer and sued the

defendant under the Sale of Goods Act. The court held that the

ownership remained with the original owner because the defendant did

not have the right to sell the goods as he did not obtain good title

from the thief.

  Apart from that, in the case of Ng Ngat Siang v Arab Malaysian

Finance Bhd & Anor [1988] 3 MLJ 319 which is quite similar with

Rowland v Divall, the plaintiff (P) bought a car from the second

defendant. The second defendant had to pay to MUI Finance from whom

he had earlier obtained a hire-purchase facility to affect the

transfer of title into P’s name. The second defendant retained the

registration card. The second defendant sold the car to B whose19

purchase was financed by the first defendant and cancel the

endorsement of MUI’s ownership. The first defendant endorsed its

ownership claim on the registration card. P applied to the court to

determine whether or not the first defendant had a better title to

the car. It was held that the registration card was not a document of

title and it could not be assumed that the person in possession of it

was the legal owner of the car. Hence, MUI Finance had relinquished

all right to ownership over the car.

Under the rule of nemo dat quod non habet, there are six

exceptions to be applied where the title of the goods can be

transferred to a bona fide party who had bought the goods from the

person who did not have the right to sell it provided that certain

conditions are met. The main condition highlighted in these

exceptions is the buyer who purchases the goods must act in good

faith and does not notice that the seller has no authority to sell

the goods at the time of sales. The aim of these exceptions is to

give a degree of protection to bona fide purchasers as well as the

original owners.

(1) Estoppel

Under Section 23(1) of Sales of Goods Act 1957, it states that

only the true owner of the goods can pass a good title whereas non-

owner can’t pass a good title if the owner of the goods is excluded

or estopped from denying that the seller or dealer had his

circumstances or authority to sell. Under Section 21 (1) there are

two distinct categories which are estoppel by negligence and estoppel

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by representation. Estoppel by negligence occurs when the owner of

goods, because of his negligent or negligence failure to act, allows

the dealer of the goods to sell or offer to the buyer as having the

authority or circumstance of the true owner to sell the good.

Estoppel by representation arises when the owner of the goods has by

his conduct or words that represented to the buyer that the dealer is

the true or real owner of the goods, or has the circumstances or

authority to sell the goods.

An estoppel will arise when the real owner of the goods is by

preventing his conducts and leading the purchaser to deny the

unlicensed seller`s authority to sell the goods. The person who sells

the goods has his or her authority to sell and the buyer buys in

reliance on it. Title by estoppel is bound when it is against the

real owner and that privy to the conduct which the estoppel is based.

It is not applicable in respect of the strangers for the conduct. A

representation by the innocence is needed as to the authority of the

'seller' to preclude the owner for the buyer from establishing the

owner's ownership, where the owner’s conduct makes it goes on sale to

a buyer.

In case, Eastern Distributors Ltd v Goldring [1957] 2 QB 600,

the claimant wanted to purchase a car from a car seller but he did

not have enough money to pay for the deposit. Then, the seller

offered him to buy his van which he gave a suggestion that both cars

will be sold back to the defendants on the hire purchase terms.

Afterwards, the agreement formed in blank had been signed by the

claimant and forwarded it to the dealer who rejected the offer

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before. The dealer rejected the proposal of the car but he accepted

the deal on the van. The court held that there was the effect of

estopping claimant from denying the right of the seller to sell off

the van when the claimant signed the hire purchase form in blank.

Thus, he was estopped from being forcing him to return his van.

Beside, in case Mercantile Credit Co Ltd v Hamblin [1965] 1

W.L.R 423, it is about an owner of a car who signed a form in blank

without understanding it, and believed that the car dealer will be

appeared to be respectable, to raise money for security of the car.

In fact, the dealer used the form that signed in blank to sell the

car to a finance company. There was no breach of duty because the

owner knew the dealer and believed him to be respectable. Thus, it

was held that this was not the carelessness of the owner to sign it

in blank. It was the deception of the dealer that caused the loss and

not the owner.

Furthermore, in case Farquharson Bros v Kin [1902] AC 325 which

shows the estoppel by representation, the timber merchants had their

timber in a warehouse which their employee clerks had only a very

limited authority to control it. A clerk sold timber through a false

name to innocent buyers. The timber company knew it and wanted its

timber back from the buyers. The buyers argued and the owner had

enabled the fraudulent scheme to happen by employing the clerk who

was a thief. Hence, the court held that this requires more comparable

law with simply placing someone in that position and more positive

actions are required. The company did not made any representation to

the buyers; the buyers had never heard of the timber company which

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created by the clerk so there was never any existence of offer by the

employee that he had the authority to sell the wood to the innocent

buyers.

In conclusion, in order to make estoppel an effective exception,

the owner should show his conduct to the buyer that the seller

appeared to be having the authority in selling the goods. Moreover,

as long as the buyer purchases the goods in good faith and without

any notice that the seller has no authority on the goods, the buyer

is entitled to good title of the goods by estoppel.

(2) Sale by a mercantile agent

The proviso to Section 27 of Sale of Goods Act 1957 states that

‘where a mercantile agent is, with agree of the owner, a document of

good title to the goods or in possession of the goods, any sale made

by him will be valid if he was authorized by the true owner of the

goods.’ This is provided that the buyer who acts in good faith does

not notice that the seller has no the authority to sell at the time

of the sale contract. Under Section 2, a mercantile agent can be

defined as ‘an agent who is having in the typical course of business

like an agent authority either to sell goods or to consign the goods

for purpose of sale, to raise money or to buy goods on the security

of goods. Therefore, a bailee, carrier or warehouseman are not a

mercantile agent but are the auctioneer to a broker or a dealer of

goods for getting the commission.

It is being asked, what would happen if the agent that sells the

owner’s goods is without the acknowledgement or authority of owner to

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sell? Basically, a buyer still can obtain a good title as long as he

or she satisfied the criteria. First of all, the agent must be in the

documents of tile or in possession of the goods. Next, the possession

must have the consent of the owner. The owner must agree to the agent

that either having documents of title or possession of the goods as

the agent even though it is not necessarily for the purpose of the

sale. For example, goods for display or to get offers should be done

with the agreement of the owner. When the mercantile agent is acting

in the typical course of business of a mercantile agent, the sale

must be made, which means that it is carried out within business

hours and in the typical way, there is nothing to be led by which an

agent would act. It is supposedly that anything wrong is being done,

or to give him notice that the disposition is the one where the agent

had no authority to do so. Last but not least, the buyer must have

acted in a good faith which is honestly. The buyer must have no

knowledge that the agent does not have authority to sell the goods.

In case, Oppenheimer v Attenborough & son [1908] 1 KB 221, the

defendant who is a merchant commissioned S, a diamond broker who had

diamonds to show to certain people who have the interest to

buy. S, instead of showing them, collateral them with the defendants,

a firm of lenders, who took them in good faith, took an action for

the delivery the diamonds evidence was given. The court held that it

was not a part of the diamond broker's business to pledge the

diamonds, and also the custom of the 621 diamond trade which was not

famous outside the trade agents had no authority to make.

In conclusion, to make this exception to be effectively applied,

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there are few conditions to be fulfilled. Firstly, the mercantile

agent must be in the documents of the titles to goods or the

possession of the goods. Besides, the possession of goods must be

agreed by the owner even though it is not for sale purpose. Thirdly,

the sales should be made when the mercantile agent acts in the

ordinary course of business. Lastly, the buyer must act in good faith

and does not have knowledge that the agent is not authorized to sell

the goods.

(3) Sales by one of joint-owners

Under Section 28 of Sale of Goods 1957, it states that if one of

the joint owners of goods has the possession of them by the

permission of the co-owners, the property of the goods is passed to

any person who bought it. These joint owners must be in good faith

and have not noticed that the dealer has no authority to sell at the

time of the sale contract. It contain two element which is one of the

owner has the sole possession of the goods by the permission of the

co-owners. Second, the buyers who acted in good faith and don’t have

the knowledge of the dealer`s lack of authority to sell.

For illustration, A, B and C jointly owned a juice blender. A

was allowed to keep it and use it since B and C did not know how to

make juice. However, A sold the juice blender to D without permission

from B and C and D also did not notice that A was lacking of

authority in selling the juice blender. It was held that D would

acquire a good title to the juice blender since he bought it in the

good faith.

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In conclusion, in order to make this exception to be applied

effectively, there are three elements that should be emphasized.

Firstly, the goods must be owned by several persons since it is an

exception related to joint owners. Next, one of the joint-owners must

have the sole possession with the permission of the co-owners.

Lastly, the buyer must have no knowledge that the dealer has no

authority power to sell the goods and therefore the buyer purchases

the goods in good faith which makes the buyer acquires good title to

the goods.

(4) Sale by person in possession under a voidable contract

Section 29 of Sale of Goods Act 1957 states that when the seller

of goods has obtained possession from the original owner under

voidable contract; however the contract has not been avoided at the

time of sale, the buyer gets good title to the goods if he acts in

good faith and does not have knowledge about the defect of title by

seller. Voidable contract is provided under Section 19 or 20 of

Contract Act 1950 that an agreement is voidable due to the free

consent of a party is affected by coercion, undue influence, fraud,

misrepresentation or mistakes. Subsequently, the party has the option

to choose either continue the contract with the defaulted party or to

terminate the contract.

Moreover, in order to ensure that the contract is successfully

rescinded by the owner, the court must be able to distinguish the

intention of the original owner to rescind the contract and that the

intention must be made before the resale takes place. With this, it

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can be claimed that the seller does not have a valid title to the

goods and thus he is not allowed to transfer the goods to any third

party. For illustration, A obtains goods from B by fraud and sells

them to C who is an innocent party. When C buys the goods, B has not

rescinded the contract made with A. Hence, C as the third party

obtains good title to the goods provided that C does not notice that

the seller, A has no ownership over the goods.

In case, Car & Universal Credit v Caldwell   [1964] 2 WLR 600 , Caldwell

sold his Jaguar car to Norris, who had paid £10 cash deposit and a

cheque for £965. Besides, Norris left another car as security.

Nevertheless, the following day Caldwell discovered the cheque was

fraudulent and the car left as deposit is a stolen car. He reported

this incident to the police and also contacted the Automobile

Association to try to locate the car. Norris subsequently sold the

car to an innocent third party. The court held that because by this

time the title had been avoided by the seller, the innocent third

party acquired no title under section 29. Even if the owner had

avoided the contract before the resale, title will pass if the seller

was a buyer in possession and the sale had been made in the ordinary

course of business of a mercantile agent, that is, at a market for

used cars.

In conclusion, there are three major elements that must be

concerned to make this exception effective. The first one is the

seller get the possession of the goods under voidable contract. Next,

the voidable contract is not been rescinded by owner before the

resale. The last one is the buyer has acted in good faith and without

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knowledge of the fact that the seller has no good title to the goods.

(5) Sales by a seller in possession after sale

In Section 30 (1) of Sales of Goods Act 1957, it provides that

when the seller of the goods is still having the possession in hands

or the documents of the title to the goods after he or she sold the

goods to the first buyer, the seller is allowed to transfer the goods

to the second buyer too given that the buyer can get a good title to

the goods by acting in good faith and without notice of the previous

sales between the seller and the first buyer. When the title or

possession of the goods is passed to the second buyer who is the

third party, the only action can be taken by the first buyer against

the seller is the breach of contract, for example, claim of damages

from the seller. The second buyer is not facing any action from first

buyer as he or she does not have any knowledge about the transaction

between seller and first buyer. Besides, by just having the second

sales between the seller and second buyer, the second buyer cannot

get a good title to the goods unless the possession or document of

title to the goods is passed to the second buyer by the seller in the

transaction.

According to case, Michael Gerson Leasing Ltd v Wilkinson

[2000] All ER (D) 1140, in Gerson, Emshelf sold industrial equipment

to Gerson which is a financing company under the sales and leaseback

agreement. After that, Emshelf sold the part of this equipment to

another financing company again which is State Securities Ltd who

bought it in good faith. When Emshelf failed to pay the amount due on

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lease, Gerson terminated the agreement and subsequently sold the

goods to Sagebush Ltd without knowledge of the second sale between

Emshelf and State. Again, Sagebush sold the goods to Wilkinson. Since

Gerson never received payment from Sagebush, he claimed the ownership

of all equipment and take action against Wilkinson and State for the

goods. Thus, the court held that the buyer is not authorised to have

ownership of the goods if he have not pay the full amount of purchase

price yet. Thus, Sagebush cannot transfer the ownership of goods to

Wilkinson since he does not pay the full amount and does not hold the

ownership.

In this case, it is provided that the delivery of goods can be

in actual delivery or constructive delivery. Basically, constructive

delivery happens when a seller who has sold the goods is still

holding the possession of goods but he recognizes that the buyer is

entitled to the possession of the goods.

Apart from that, in case, Motor Credits (Hire Finance) Ltd v

Pacific Motor Auction Pty Ltd [1965] 2 All ER 105 , under a display

agreement, Motor Credits Ltd (MCL) who was a dealer in vehicles sold

a number of vehicles to the Plaintiff (P), in which Motor Credits

remained in possession of the cars for display in their showrooms.

MCL were paid 90% of the price and were authorized to sell the

vehicles as agent for P. P revoked MCL’s authority to sell the

vehicles when MCL had financial difficulties. However, MCL had sold

numbers of the cars to D who was bona fide buyer (third party).

Hence, it was held that D obtained a good title since he acted in

good faith and without notice of the transaction between MCL and P.

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For MCL, he is to be treated as continuing in possession and is able

to pass a good title under Section 30. Furthermore, in case,

Worcester Works Finance Ltd v Cooden Engineering [1972] 1 QB 210, as

long as the seller who has sold the goods to the buyer (third party)

still remains continuously in his possession of goods, it does not

matter if his possession is not in any capacity or even unlawful.

In conclusion, there are three conditions that must be fulfilled

so that this exception can take place. Firstly, the seller must

remain in the possession of the goods or documents of title to the

goods after selling the goods. Secondly, the seller or any mercantile

agent who acts for him must sell or transfer the goods or title to

the buyer. Lastly, the second buyer (third party) must act in good

faith and does not have the knowledge of fact about the previous sale

occurred between the seller and first buyer.

(6) Sales by a buyer in possession after sale

Section 30 (2) states that when a buyer has made a purchase or

agreed to make purchase and obtain possession of the goods or the

document of titles to the goods with the consent of the seller, the

buyer can sell the goods to another buyer who acts in good faith and

have no knowledge about any lien or the original seller’s rights or

interests in respect of the goods, the second buyer can get good

title to the goods. This exception is also applicable for the

situation where the first buyer does not obtained a good title to the

goods under the first transaction. Besides, in order to make this

exception effective, the buyer must make sure that the original sales

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contract is a valid contract and is not obtained under any hire-

purchase or sales-or-return contract or bailment. Furthermore, it is

not necessary that the person who transfers the title of the goods to

the second buyer must be the first buyer, for example, a mercantile

agent is authorized to deliver the title of the goods to the second

buyer as long as the agent has the possession of the goods or the

document of title to the goods with the consent of the seller.

For an illustration to this exception, a buyer B has agreed to

buy goods from seller A and thus he takes the possession of the

goods. Nevertheless, buyer B has not yet acquired title to the goods

due to the retention of title clause stated in the contract. Although

buyer B does not have ownership of the goods, he still sells the

goods to buyer C. It is held that buyer C can obtain good title to

the goods too provided that he acts in good faith and does not notice

the transaction between seller A and buyer B. Whereas for seller A,

the action that he can take towards buyer B is to terminate the

contract between both of them.

Apart from that, another example is a buyer B bought a car by

giving a worthless cheque to seller A. Subsequently, the buyer B had

sold the car in Warren Street (an established street market) to buyer

C, an innocent third party, before the police could trace him. The

court held the third party acquired a good title as he purchases in

good faith. Since buyer B sold the car in the market where all

dealers commonly sold cars, it is claimed that the buyer B

transferred the goods in a way where a mercantile agent acting in the

ordinary course of business of a mercantile agent would have sold it.

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In case, Newtons of Wembley Ltd v Williams [1965] 1 QB 560 ,

Plaintiff (P) sold a car to A and received a cheque from him. Once

the cheque was proved to be honoured, the title of the car will be

passed to A. A was given possession of the car but later on, the

cheque was dishonoured. P then rescinded the contract with A.

Nevertheless, A had sold the car to B before that who bought it

without knowledge of the previous transaction between P and A.

Moreover, B had resold it to the defendant (D). Hence, P tried to

take back the car from him. The court held that A, the first buyer,

was in possession of the car with the consent of the owner.

Therefore, he is authorized to pass the car to B with a good title

where B in turn transferred it to D. Thus, D had a good title to the

car too and entitled to own the car since he bought the car in good

faith.

In conclusion, the three main elements of this exception are

required in order to make it applicable. First of all, the buyer

having brought or agreed to buy goods must get possession of the

goods or the document of title to the goods with the consent of the

seller. Secondly, the buyer or mercantile agent who is acting for him

should sell or transfer the goods to the subsequent buyer who is the

third party. Thirdly, the subsequent buyer must buy in good faith and

without notice of the rights of original seller towards the goods so

that he is entitled to the good title of the goods.

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