Commercial Law Exam Notes

Summary: Bailment
(1)
(2)
-

Definition
giving possession (not ownership) of a thing to someone else by bailor (giver) to bailee (receiver)
Is there a bailment? Possession or mere licence?
Matt Short v Riverina: must have knowledge that you have possession to be a bailee
Licence = purely a payment to enter onto land: Ashby v Tolhurst no transfer of possession, just
left car on land
- Sydney CC v West; Walton Stores v SCC transfer of possession card must be shown to get car
released, they were specialists at holding cars for ppl etc
- Choosing to receive goods - It will be bailment the moment you do some act to control the goods:
Elvin v Plummer
(3) What type of bailment is it?
- bailment for reward = making money from it eg video shop renting movie to you
- gratuitous = eg loaning Ipod to friend
- bailment at will = give someone goods and can take them back at any time eg lending car to
someone and saying I want it back when I ask for it
(4) What duties does the bailee (receiver) have?
- most important obligation is duty of care (DoC)
- think of it as a continuum zero DoC to full
- the extent to which a bailee owes a duty of care depends on the circ of each case: WGH Nominees
v Tomblin - gratuitous bailment = only guilty if gross negligence
- TNT v May & Baker - the standard of care for bailment for reward is reasonable care of the goods
in the circ
- Pitt Son v Prouletco failed in its DoC to look after the wool
- Hobbs v Petersham no breach of DoC b/c axel snapping was unlikely occurrence
(5) Has there been a sub-bailment?
- someone lends goods to another under a bailment, then the bailee gives those goods to a 3 rd party
(called the sub-bailee)
- Can you sue 3rd party? Theres two lines of authority
a) Can go directly against sub-bailee because the direction the bailee is under moves
through to the sub-bailee (more common approach): Morris v Martin
b) Restrictive approach its only a bailment rship when the sub-bailee knows of the
bailment btw the other parties (less used approach)
- Pioneer Container Case looked at privity of contract, whether DoC is diff btw sub-bailee and
bailor (held no in this case)
(6) What are the rights of bailor/bailee against 3rd parties?
- trespass = interference with possession of goods
- conversion = dealing with goods inconsistent with anothers rights and/or ownership eg if
intending to sell goods, but havent
- detinue = failure to give back goods to person with right to possession of them
NB: in some cases, bailor might be able to sue 3 rd party can sometimes use more than one of those
grounds
(7) Do the bailees fit into a specially recognised category?
(a)
common carrier
- eg Aus post, carry goods for ppl and dont discriminate
- Common Carriers Act 1902 (NSW) they can only exclude liability for (i) acts of God (ii)
inherent defect in the goods

Blower v Great Western Railway bull went crazy while common carrier taking it it was one of
the exceptions under the Act there was no negligence
- S 3 Act if giver of goods doesnt state value, goods are over $20 and it includes eg gold or silver
coins, clocks, maps, paintings, china, silk or certain animals then carrier wont be liable
- For animals liability capped: (a) horses $100 per head (b) cattle per head $30 (c) sheep/pigs $4
per head
(b)
Innkeepers
- an innkeeper is one who provides accommodation, but only for travellers
- a traveller is defined as one whos booked accommodation for that actual night
- if travellers stuff is lost, innkeeper is an insurer like a common carrier
- for damage, if reasonable care was taken, then not liable
o Innkeepers Act 1968 (NSW), innkeeper not liable for certain things of certain kinds if havent
really done anything wrong, then you wont be liable
- S 7: liability of innkeeper limited to $100 provided put up a sign (but theres exceptions to this if
you were negligent or it was a deliberate act when someone has entrusted goods to you for safe
keeping: s 7(3))
- See Theeman v Forte Properties
a. T used to travel there every year however, just because go there every year doesnt
make you a lodger must be more permanent than that
b. Hotel had sign up and said liability limited to $100
c. T said s 7(3) exception applies negligent/deliberate act = loss of jewellery and it did
apply hotel liable
d. Do not have to tell the hotel the value of the goods, just give to them and say put it in safe
keeping for me
(8) What can you do with uncollected goods?
- theres 3 categories thereof
1. ready for delivery, bailor fails to deliver eg buy something from Myers and bailor never turns
up to get it
2. bailee needs to give notice, but cannot get hold of bailor eg gets something fixed, dont get
persons correct phone number, so never collect the goods
3. cannot get hold of person whos goods they are and a reasonable time has passed
- Uncollected Goods Act disposal w/o being liable ->
o If its $5000 worth of stuff, have to get court order to dispose
o If there was a dispute over the cost, no matter what good or reason, have to get court
to determine the price before disposal
o Have to give 28 days notice of disposal for goods less than $5000
o For goods worth $500-5000 6 months notice then can sell or take the goods
Bailment

history
much of bailment comes from Roman times
What is bailment
its its own area of the law
dont need contracts for it to operate
its about what happens when you give someone possession of a thing
When you hand it over, the question is: who bears the risk?
Bailment merely covers possession, and NOT ownership
The most important thing is transfer of possession from one person to another
Because of its nature, the law in this area is most unstructured needs to be flexible to cope,
comes from such an old history its a bit all over the place for these reasons
It really covers goods that must be handed back at a later date eg a loan, or hiring something ->
transfer the possession when loaning it to someone
Bailor = person who parts w/ possession
Bailee = person who receives that possession

Once you become a bailee, many issues/responsibilities arise

Question One: Is there a bailment ie has possession been transferred? Compare to mere licence
Case Analysis: Matt Short v Riverina
Facts:
- someone built a boat and waned to send it
- loaded it onto another boat to send it
o boat loaded on semi-trailer and taken to the dock
o put on law-loader to take it to the boat
o crane lifted it from the low-loader to the ship
- person who made the boat, R, was to send the boat overseas, had a contract and all arranged with
MS to do all the loading and shipping so hes there directing the stevedoring
- the low-loader was driven under a bridge and half the boat was knocked off - $120K worth of
damage
- the manufacturer sued MS and said he was in possession when it was damaged therefore he
would owe the manufacturer the $120K
- MS argued that he had no possession of the boat he was merely in charge of directing the
stevedores to get the boat on the ship to fulfil the contract
Held:
- MS did not have possession
- One must have knowledge of possession to be a bailee

Mere licence v Bailment

Bailment = having possession/dominion/control
Licence = purely a payment to enter onto the land
whether or not someone is bailor or licensor is important in cases eg where you park a car on
someone elses land
- if youre a bailee, have many obligations to the owner of the car as you have possession of it
Case Analysis: Ashby v Tolhurst
Facts:
- A lad parked car on paddock, paid for it, and then it was stolen!
- The lad tried to sue the owner of the land under bailment principles ie pay me for my stolen car
ya bastard
Held:
- there was no transfer of possession as all the lad did was leave the car on the land
- the owner of the land had no control over the car at all
- therefore, no bailment, no damages
Case Analysis: Sydney CC v West
Facts:
- W drove car into car park & had to give ticket to get back out
- Car was stolen by a thief who said hed lost his ticket and asked to get out the car park managers
said sure can mate
- W sued saying he transferred possession of the car to the car park and letting someone else take it
was a breach of their obligation
Held:
- this case was a bailment and possession was transferred to the owners of the car park
Per Barwick CJ & Taylor J:
- there was a contract and a bailment because possession had to be transferred to park the car there
- the ticket said on it this card must be shown in order for the car to be released
- on this ticket was an exemption clause about damage, but it has no application to negligence in
relation to acts done with respect to a bailors goods which are neither authorized nor permitted by
the contract. For instance, if, in the present case, one of the attendants at the parking station has
been allowed by the management to use the respondents car for his own purposes and, in the

course of driving it, had caused damage to it by his negligent driving, the clause would afford no
protection
- if the appellants handed possession of the car to the thief then West is entitled to recover not a
mere act of negligence
- Ashby v Tolhurst can be distinguished because the Ds default was mere negligence or
inadvertence and the facts are completely different
Case Analysis: Walton Stores v SCC
Facts:
- someone parked car came back and it was stolen
- W sued council saying it had possession of the car so had to pay for it
- Because of the last case, theyd changed the terms of the ticket saying that they didnt take
possession of the car upon entry into the car park
- SCC tried to rely on Ashby case
Held:
- Council guilty
- Wasnt like Ashbys case at all
- The car park was for a specific purpose, ie for parking
- Ticket made clear that had to pay before you could get your car back
- Possession therefore was transferred and Ashby not relevant

Choosing to receive goods

Must one choose to receive goods in order to be a bailee, or can they merely be given?
Eg someone leaves you something on your doorstep & then say its bailment and you have to look
after the good
- It will be bailment the moment you do some act to control the goods: Elvin v Plummer
Case Analysis: Elvin v Plummer
Facts:
- thief pretended to be the D and said Id like to get some goods off you dude
- P said super, Ill send em round and sent them to the D
- D then held the goods
- Then the thief called the D and said were here to pick the goods up youve got waiting for us
- The D assumed it was theirs and gave them away
- The supplier (P) then sued the D for giving them away as bailee
Held:
- Thief was rather cunning!
- D accepted the goods and held them in their possession
- They therefore became bailees and had to look after the goods
- Unfortunately they fell for the trick and must be liable
Case Analysis: HD & HO Wills v SRA (State Rail Authority)
Facts:
- there was a manufacturer of cigarettes (W)
- TNT owned warehouses which companies used used the rail-line of SRA to move goods etc
- there was lots of theft going on in the area
- one night a pallet of 300K smokes stolen
- W said TNT responsible, but no
- W then said SRA responsible b/c it owned the land around the factory which the thieves drove
the drunks on so SRA had possession of that truck
- Curious argument!
Held:
- merely driving on ones land doesnt mean you acquire possession if youre the owner of the land
on which someone is driving
- this is an absurd argument you fools

Willsclaimed the SRA was liable, saying that the theft was contributed to by the SRAs not
giving proper security in the fail terminal yard..[but the problem] was due primarily to the
practice of TNT of leaving its shed unstaffed at night.

Types of Bailment
theres many types eg repair, loan, reward, pledge etc: Coggs v Bernard
bailment for reward = hand over goods to make money from that lending eg hiring a movie;
repairing a car = bailment for reward to work out whether its a bailment for reward have to
work out if the supposed bailor is making money from it (standard = reasonable care of goods:
TNT v May)
gratuitous = not making money, but eg loaning something to a friend
bailment at will = give someone goods and can take them back at any time eg lending car to
someone and saying I want it back when I ask for it
NB: all gratuitous bailments are bailments at will need no for consideration to enforce them

o
o

o
-

Duties of the bailee

bailee has many obligations eg return goods on demand and in accordance with the bailment
most important = duty to take care of the goods
Extent of duty of care?
if bailee is an insurer if anything goes wrong with the goods whilst in possession of the bailee,
they have to pay for them
on other hand, a bailee could have zero risk
its a continuum
the extent to which a bailee owes a duty of care depends on the circ of each case: WGH Nominees
v Tomblin

Case Analysis: WGH Nominees v Tomblin

Facts:
- T bought wife a ring
- Mrs T didnt like it, and made visits to store while Mr T was away
- Owners of store knew Mrs T wanted a certain type of ring and pressured Mr T into buying it
- They went into Mr Ts office and said heres the ring, hold on to it while you think about it
- He kept it in his pocket then later on realised hed lost it
- Jewellers tried to sue Mr T saying he had possession of it as bailee and needed to take reasonable
care of it
Question: Was it a bailment for reward or a gratuitous bailment?
Held:
- the court looked at the benefit and who it would be for
- if the benefit was only for the bailor, then only gross negligence would mean Mr T was
responsible for it
- If it was a gratuitous bailment (the opposite of a bailment for reward), then its a completely
different standard Justinian in his book the ways in which a real obligation is contracted A
personis only answerable if he is guilty of fraud and NOT for non-intentional fault such as
carelessness or negligence. He cannot therefore be called to account if the thing deposited, being
carelessly kept, is stolen. so the owner has to bear the risk
- However, if theres connivance or gross negligence, then he might be entitled to relief, but he
bears the onus of proof and evidence must be forthcoming: ODay v OHara
- the loaner of something must be ware of it jewellers had to take care
- Mr T took reasonable care of it
Ration: per Zelling J the defendantwas put in an embarrassing position, where he had no opportunity
to make proper arrangements for the safe custody of the ring and that the ring was stolen as a result of it
being foisted on him in the circ which I have detailed.I am not prepared to find him negligent in those
circ
Case Analysis: TNT v May & Baker

Facts:
Held:
-

TNT running delivery route picked goods up from M

Sub-contractor pick them up and take them to TNT depot, then TNT deliver them with its own
trucks
Sub-contractor picked goods up, took them to TNT depot, but was shut, so took goods home overnight
The tuck was burnt down over-night and the goods were lost
M sued saying it was a bailment for reward (making money from it)

the standard of care for bailment for reward is reasonable care of the goods in the circ
Onus on bailee to disprove negligence (although this is an uncertain point of law)
Rather than looking at what the bailee ought to have done in the circ, the court focuses on what
was actually done and whether it was reasonable in those circ
- It was implied in the contract the goods would be taken to the depot at the end of the collection
round and there was a departure from the contract
- TNT was liable for damages for breach of the contract whether or not the loss was caused directly
by departure of the terms of the contract
- In this cases, TNT was liable
- Barwick CJ held: What in fact occurred was, in my opinion, such a departure from the promised
carriage that TNT was not entitled to rely upon the exemptions of the written contract
- (Windeyer J dissented nothing in contract that TNT had obligation, the goods were at the risk of
the owner of the goods)
NB: if you deviate from the contract, you cannot rely on the exclusion clauses therein; and you could sue
under s 74 TPA if they do deviate assuming theyre a corporation in business which implies due care
and skill and fitness for purpose
Case Analysis: Pitt Son v Prouletco
Facts:
- D sold wool to P under contract
- D kept the wool at its store for the P to pick up
- D was a seller in possession (or bailee in possession)
- And it was a bailee for reward
- A store house was 40 yrs old and made of wood, no fire sprinklers, holes in the surrounding fence
- Someone burnt it down who was responsible for the goods?
- Seller said it was innocent of any wrongdoing
Held: HCA
- reasonable care includes costs of a 3rd partys loses
- couldve done a lot more to protect the wool, but failed to
- bailee (person in possession of goods of another, as theyd already sold the goods to the bailor)
had the onus of disproving liability, but it didnt and it didnt take reasonable care of the goods,
thus liable
- the damage that resulted was from the bailors negligence and was not too remote in the circ
- Gibbs CJ: [it was] a bailee, with duties analogous to those of a bailee for reward, and that the
relevant duty was to take such care of the goods as was reasonable in the circ
- D relied on authority about 3rd parties damaging goods and it not being the 1 st partys fault both
those cases were not relevant b/c the 3 rd partys act was unrelated to the original tortious act: here,
however the negligence of the appellant lay in its failure to take reasonable care to keep the wool
secure by providing an adequate fence
- The appellant has failed to show that it took reasonable precautions to keep the wool safe, and the
damage that resulted from its breach of duty was not too remote.
Case Analysis: Hobbs v Petersham
Facts:
- H was driving goods (bailment for reward)
- The axle snapped and the goods were damaged
Qu: was the axel snapping the fault of H and its failure to provide reasonable care of the goods?

Held:
-

it appeared, on the evidence, H constantly checked the reliability of its truck

The axle snapped suddenly very hard to detect such a problem -> the truck was near new and in
good condition
Onus lies on bailee to disprove fault by showing the steps it did take to prevent the event occurring
In this case, H the bailee did just that

Sub-bailment
someone lends goods to another under a bailment, then the bailee gives those goods to a 3 rd party
(called the sub-bailee)
- rship btw bailor and sub-bailee causes a problem can they be sued directly?
- This is an uncertain point of law, but you probably can sue as if a normal bailment rship: Morris v
Martin
- Theres two lines of authority
c) Can go directly against sub-bailee because the direction the bailee is under moves
through to the sub-bailee (more common approach): Morris v Martin
d) Restrictive approach its only a bailment rship when the sub-bailee knows of the
bailment btw the other parties (less used approach)
Case Analysis: Pioneer Container Case
Facts:
- theres 3 sets of Ps
- Ps wanting to ship goods o/s
- The middle man was a shipping agent who did all the planning
- The goods were on the ship which sunk in fog
- The bailor tried to sue against the shipping agency (as bailee)
- They also tried to sue the ship owners (as sub-bailees)
- In both cases they argued there was want of care for the goods
Issue 1: could they go against the shopping owners directly? The court looked at the two possible
approaches, but basically side-stepped the issue
Issue 2: what about the agency? There were two sets of contracts btw (a) ppl sending the goods and the
agent and (b) the agent and the ship owners (in that contract, it was said the ship owners could go on any
terms they so pleased)
- btw the agent and the ship owners made agreement that if something went wrong, a dispute
would be heard in a Taiwanese court (restrictive trade jurisdiction clause)
- however, the contract was not with the sellers so not binding on them so went to court in Hong
Kong
- to ensure they didnt have to go to Taiwan, the sellers waited before applying to the court in Hong
Kong because there was a time limitation on going to Taiwan court they didnt wanna go to
that court b/c the terms as btw agent and ship owner were so wide
Held:
- the ship owners took goods knowing they belonged to the owners (sellers)
- b/c it was a sub-bailment, the head contract still applied no privity of contract
- therefore the shippers could go on any terms they wanted and the sellers were bound by those
terms
- On the authority of the Gilchrist Watt case, their Lordships have no difficult in concluding that, in
the present case, the shipowners became on receipt of the relevant goods the bailees of the goods
of both [the bailee and the sub-bailee]. Furthermore, they are of the opinion that the shipowners of
the goods became the bailees of the goods for reward
- it wouldnt be right to insist on two different standards of care because the sub-bailee isnt paying
the bailor so it must still be a bailment for reward

Duties of Bailor
common law duties eg where bailor gives goods, they must warn of the dangers of the goods

Termination

if goods, the subject of which are under a bailment, are destroyed then bailment ends
or, if wrongful act of the bailee is committed, ie if bailee goes off and does something outside the
bailment, the bailment there ends

Rights of bailor/bailee against 3rd parties

(i)
trespass = interference with possession of goods
(ii)
conversion = dealing with goods inconsistent with anothers rights and/or ownership eg if
intending to sell goods, but havent
(iii)
detinue = failure to give back goods to person with right to possession of them
NB: in some cases, bailor might be able to sue 3 rd party can sometimes use more than one of those
grounds

(a)
-

Kinds of bailees
common carriers
carry goods for people
they say theyll carry for anyone, w/o discrimination but can discriminate if eg no room for the
stock: James v Cth
- Aus post is an eg of common carrier
- Can exclude common carriers in contracts
- Common Carriers Act 1902 (NSW) they can only exclude liability for (i) acts of God (ii)
inherent defect in the goods
Case Analysis: Blower v Great Western Railway
Facts:
- a bullock went crazy and fell off the train of a common carrier
Held:
- it wasnt the fault of the carrier it amounted to one of the two available exceptions
- per Keating J: the escape of the bullock was wholly attributable to the efforts and exertions of
the animal itself, and that its escape was not occasioned by or attributable to the negligence of the
company
o
-

S 3 Common Carriers Act

A certain class of goods, over a certain price then the person whos the carrier wont be liable
The price is $20
It applies to land only
And only if you dont notify the carry of the true value of those goods
Goods - it applies to include gold or silver coins, clocks, maps, paintings, china, silk
Can also apply to animals if you dont declare the value liability capped (a) horses $100 per
head (b) cattle per head $30 (c) sheep/pigs $4 per head

(b)
-

Innkeepers
common law is now modified by statute, but hasnt replaced the rules
an innkeeper is one who provides accommodation, but only for travellers
a traveller is defined as one whos booked accommodation for that actual night
if travellers stuff is lost, innkeeper is an insurer like a common carrier
for damage, if reasonable care was taken, then not liable
also, under the Innkeepers Act 1968 (NSW), innkeeper not liable for certain things of certain kinds
if havent really done anything wrong, then you wont be liable

s7
liability of innkeeper limited to $100 provided put up a sign (but theres exceptions to this if you
were negligent or it was a deliberate act when someone has entrusted goods to you for safe
keeping: s 7(3))
Case Analysis: Theeman v Forte Properties
Facts:
- T used to go to Blackheath for holidaying
o
-

Held:
-

She had expensive jewellery and asked for it to be put in the safe at the inn
There was no contract
When she came back a week later it had gone
Was the bailee (innkeeper) responsible?
hotel was an innkeeper
however, theres a difference btw a lodger (who stays on a semi-permanent basis) and a traveller at
common law
if youre a lodger, its your own problem
T used to travel there every year however, just because go there every year doesnt make you a
lodger must be more permanent than that
But, the hotel had a sign up saying it limited its liability
So, prima facie, this limits its liability to $100
However, T argued it was under exception of safe keeping and limit doesnt apply
The exception is under s 7(3): s 7(1) shall not have effect where, after the traveller became a
guest at the inn, the property that was lost of damages was deposited by him or on his behalf
expressly for safe custody with the innkeeper or his servant authorized, or appearing to be
authorized, for the purpose, and, if so required by the innkeeper or that servant, in a container
fastened or sealed by the depositor: or he, or some person on his behalf, was unable to deposit the
property expressly for safe custody with the innkeeper or his servant by reason of the refusal of the
innkeeper or of the servant to receive it or by reason of some other default of the innkeeper or
servant; or where the cause of the loss or damage was some default, neglect or wilful act of the
innkeeper or his servant
The innkeeper tried to argue that T didnt say the value of the stuff, but all the person must do
[is] express to the innkeeper what the object of the deposit is, if he would being himself within the
terms of the statute. It does not depend on the form of the words used
So there is no requirement for T to do so, so long as they say heres my stuff
Therefore, the innkeepers liable
Uncollected goods
theres 3 categories thereof
4. ready for delivery, bailor fails to deliver eg buy something from Myers and bailor never turns
up to get it
5. bailee needs to give notice, but cannot get hold of bailor eg gets something fixed, dont get
persons correct phone number, so never collect the goods
6. cannot get hold of person whos goods they are and a reasonable time has passed
Uncollected Goods Act disposal w/o being liable ->
o If its $5000 worth of stuff, have to get court order to dispose
o If there was a dispute over the cost, no matter what good or reason, have to get court to
determine the price before disposal
o Have to give 28 days notice of disposal for goods less than $5000
o For goods worth $500-5000 6 months notice then can sell or take the goods

Summary: Principal and Agent

Agent = person whos acting on principals behalf; principal appoints agent to act on behalf of principal
fiduciary rship
(1) Categories
- Special = agent appointed for special powers eg limited powers to do things; special is usually a
one-off thing
- General = agent appointed for general purpose eg insurance broker, general purpose of acting on
companys behalf general insofar as scope is given
- Universal = agent appointed for pretty much everything eg power of attorney appoint an agent to
do everything for your business while you go overseas for a year eg bank accounts, bills they
acts as though theyre you
(2) Hows P&A come into effect?
(a) Express youre my agent; or company constitution
(b) Implication (i) necessity (wives/bailees old laws) (ii) circ (give money to buy loaf of bread
to someone, w/o saying youre my agent) see Hely-Hutchinson v Brayhead
(c) Estoppel reps made by agent; if agent has actual or apparent authority, then the principal is
bound by it
(i)
there must be a holding out;
(ii)
by a person with actual authority (ie A has actual authority cannot hold out if you
have no authority at all)
(iii)
the 3rd party must rely on the representation
- Then the principal cannot deny authority of A if those elements are satisfied: Freeman & Lockyer
v Buckhurst Park Properties
(d) Ratification principal later accepts/adopts transaction of the now agent - there must be an
unequivocal acceptance of the agents earlier act that was not at first made under authority: Bolton
v Lambert
(3) Liabilities of the Agent
- 3 diff ways agent can go into contract on behalf of principal
(a) Option 1: Principal Disclosed
- ie Im acting on behalf of
- Principal (P) is generally a party to the contract bound by it: Black v Smallwood
(b) Option 2: Unnamed Principal
- tell 3rd P of existence of principal w/o disclosing his name
- generally P bound, A not
(c) Option 3: Principal Undisclosed
- no mention of a P at all
- A generally bound, often P bound as well
- Sin Yin Kwan v Eastern Insurance: A had authority of P to give out insurance policies; therefore
liable for As actions
NB: can modify terms of the agreement (eg I am bound personally to the contract); and if A is acting
outside authority of P, then P not liable etc

10

The basics
separate from tort/contract, its its own branch of the law, yet often is intertwined with those laws
eg contract, vicarious liability
agency is a legal rship btw two people
acts of one of those persons is liable on the other ie A can do acts binding on B
agent = person whos acting on principals behalf; principal appoints agent to act on behalf of
principal
just because two people are legally connected does NOT mean they are necessarily in a rship of
principal/agent
P&A can be distinguished from bailment just because giving one person possession of
something, doesnt mean youre giving them a responsibility to act on your behalf
P&A can be distinguished from trusts where someone owns legal title under obligation to
beneficiaries but the trustee doesnt stand in the shoes of the beneficiaries
However, P&A invokes fiduciary duties
A real estate agent in as agent in a loose sense but they merely put two parties together, as
opposed to standing in ones shoes and acting on their behalf in totality
The kinds of agencies: 3 types
o Special = agent appointed for special powers eg limited powers to do things; special is
usually a one-off thing
o

General = agent appointed for general purpose eg insurance broker, general purpose of
acting on companys behalf general insofar as scope is given

Universal = agent appointed for pretty much everything eg power of attorney appoint
an agent to do everything for your business while you go overseas for a year eg bank
accounts, bills they acts as though theyre you

Hows P&A come into effect?

many diff ways
1. expressly
easiest way is to say youre my agent express words or clear conduct, or through a contract
can also come about through eg company constitution sets out powers for who can do what and
sometimes for rules of agents
2.

implication
agent by necessity
o applies to two kinds of ppl (a) wives (b) bailees
o very old law
o wives used to have authority to pledge credit on behalf of their
husbands to buy necessities of life
o bailees someone held your goods, then theres an emergency then
could, say, throw you goods off a ship so it didnt sink then might not
be liable for the goods
by circ
o clearly implied by the circ that youre an agent
o eg someone says have this money and buy me a loaf of bread you
act as the agent in getting the bread w/o being told you can act as my
agent
o OR
o You can act as my agent to sell my car implied by circ might be to
advertise the car in order to sell it w/o express permission to advertise

3.

estoppel

11

this is based on representations made by the principal

4. ratification
agent does something for you which, at the time, they are not authorised to do
later that say, yeah that was fine
they then have adopted the transaction (ie ratified it)

Authority of the agent

if the agent has authority, then consequences flow from it
if agent does something that is outside the authorised authority given by the principal, the
principal will not be bound by it
if the agent had authority, then the principal is bound regardless
authority can come from any of the above categories ie express, implied, estoppel, ratification
authority goes into two categories
(1)
actual
express I allow you to do this
implied authority to do your job, but w/o actual acknowledgment of authority to do the jobs
within that job description eg if you sell clothes to someone, you have implied authority from the
company to make a contract with the buyer
ratification
(2) ostensible/apparent
estoppel
for estoppel, must look at the rship btw 3rd party and principal
what appears to be the authority of the agent, may not be their authority the apparent authority
could be greater or lesser than it actually is
importantly, if agent has actual or apparent authority, then the principal is bound by it
apparent authority doesnt look at what the 3rd party subjectively believed

the elements of apparent authority

(i)
there must be a holding out;
(ii)
by a person with actual authority (ie A has actual authority cannot hold out if you
have no authority at all)
(iii)
the 3rd party must rely on the representation
- then the principal cannot deny authority of A if those elements are satisfied
Case Analysis: Freeman & Lockyer v Buckhurst Park Properties (BPP)
Facts:
- BPP company set up by K&H (directors); were property developers
- H didnt do much except invest some cash
- K ran it
- K had contract with architects F&L
- BPP said K had acted outside his authority as agent and could not have made a contract with F&L
b/c of that - and refused to pay up moneys owed
Qu: does K have either actual or ostensible authority to make a contract on BPPs behalf?
Findings:
- there was nothing expressly stated in BPPs documents giving K express, actual authority
- a single director does not have authority to sign under implied, actual authority (a managing
director does though)
- so it came down to a question of ostensible authority
- F&L argued that K held out he had authority of BPP and F&L relied on it
Held:
- BPP allowed K to do all things he wasnt strictly suppose to do as a director
- He did have ostensible authority on which F&L so relied
- Therefore, contract binding upon them and F&L is thus estopped from denying the contract
Quotes: per Willmer LJ

12

The act of K in engaging the Ps was clearly one within the ordinary ambit of the authority of a
managing director. The Ps accordingly do not have to inquire whether he was properly appointed.
It is sufficient for them that under articles there was in fact power to appoint him as such. (ie K
basically had powers as managing director and acted like one, even though it wasnt formally
allowed)

Case Analysis: Garnac Grain v HMF Faure & Fairclough

Facts:
- HH director of P; P got taken over by BG, HH still director on the board
- Another director was R
- BG was on the verge of going broke
- HH threw money at it to keep it going
- HH then agreed to put even more money into the company to keep it running, so long as he was
covered and guaranteed get all money back, including what hed given before
- R wrote a note and they both signed it
- P ended up going under and HH wanted his money from BG
- BG said R had no authority to sign the deal and therefore it was not binding upon BG
Held:
- R was doing a lot on behalf of the company
- But his was a diff authority from the last-analysed case
- In this case there was implied, actual authority
- The board agreed that R could do all these things on its behalf and it was common practice such
that it was implied

Rules as to ratification
there must be an unequivocal acceptance of the agents earlier act that was not at first made under
authority
the principal must actually exist at the time the agent acts
ratification of that act must occur within a reasonable time after the agent has acted

Case Analysis: Bolton v Lambert

Facts:
- L writes letter of offer to B
- S, employee of B, writes a letter and accepts
- But at that stage, S had no authority to accept the offer
- S gets a copy of the contract, but then revoke it saying its terms suck
- Then Ls board sues for specific performance
- In order to help them sue, the board passes a resolution adopting the contract
Qu: when was the contract ratified?
Ls argument: there was never an acceptance because S didnt have authority, so L couldnt have possibly
accepted therefore no contract
Held:
- B wins
- There was a clear offer and acceptance; of this there is no doubt
- But, having accepted, the offer was revoked
- Can an offer be revoked, if the offer was made by someone who was at the time acting outside his
authority?
- The retrospective action of ratification is allowed and agent for L therefore acted within his
authority
NB: Wayne suggests this is a bad, if not a plainly erroneous, decision. How can ratification simply wind
back the clock and ignore all that has passed, including the revoking, before it? To him, at least, it did not
seem possible.

The duties of the agent

an agent must follow her instructions

13

must keep things confidential

must take reasonable care of property
agent owes Fiduciary duties to principal (a) cannot profit from conflict of interest or (b) profit
from position w/o permission to do otherwise

rights of the agent against principal

rights to paid commission
lien
paid for expenses
etc

Liabilities of the agent

theres three different ways to sign contract for 3rd parties
1. tell 3rd P of existence and name of principal (principal disclosed)
2. tell 3rd P of existence of principal w/o disclosing his name (principal unnamed)
3. dont mention theres a principal at all to 3rd P (undisclosed principal)

Option 1: Principal Disclosed

- ie Im acting on behalf of
- agent (A) is generally NOT a party to the contract, unless they want to be, then they can sign up to
it too
- Principal (P) is generally a party to the contract bound by it
- These general rules are subject always to the circ of each case
Option 2: Unnamed Principal
- P generally bound by contract
- Generally A not bound, but stronger inference they should be bound
- So A could open self up to liability in this category
Option 3: Principal Undisclosed
- A generally bound
- Often P can be bound too, occasionally not
Case Analysis: Sin Yin Kwan v Eastern Insurance
Facts:
- this was a category 3 case; signed contract not disclosing there was a P
- almost a category 2 case (even though his Honour believed it was a category 2 case, he was bound
to treat it as a 3 b/c the trial judge made a poor error on a point of fact, which his Honour could not
overturn)
- the facts concerned a shipping company which got insurance from an agent didnt know
anything about there being a principal
- the ship got into trouble, I think, and they wanted insurance money
- insurance company said they werent a party to the insurance policy and refused to pay
Held:
- in category 3 cases, can generally sue P
- generally both P and A are parties on the contract
- any defence a 3rd party has against A, he/she also has against the principal
- such cases generally come about where A did something wrong, and 3 rd party suffers from it, and
wants to go against P to get more money
Held in relation to the facts:
- the P is a party to the insurance policy and has to pay up
- although sometimes P might not be able to be sued, this is not one such case
- it was important that the A had authority of P to give out insurance policies
- The Ps knew what was going on, so stop making stupid excuses for not paying up!
Relevant principles: per Lord Lloyd

14

For present purposes the law can be summarised shortly. (1) An undisclosed principal may sue on a
contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into
the contract, the agent must intend to act on the principals behalf. (3) The agent of an undisclosed principal
may also sue and be sued on the contract. (4) Any defence which the 3 rd party may have against the A is
available against his P. (5) the terms of the contract may, expressly or by implication, exclude the
principals right to sue, and his liability to be sued. The contract itself, or the circ surrounding the contract,
may show that the agent is the true and only principal.
o Qualifications of the 3 categories
(A) terms of the contract: may modify the rules terms, for eg, could say liable personally then
cannot sue anyone else: Sin Yin Kwan
(B) nature of contract: certain contracts where 3 rd party might actually want As services, not the Ps
so nature of the contract excludes the P
(C) agent must act on behalf of the principal designed to stop people using others
(D) must be acting within authority of the P ratification is NOT possible here

Liability of P
A does a deal with one Bob Smith, but does it w/o authority of the P
If As not acting inside authority, theres no connexion btw 3rd party and P
But can sue A under breach of warranty of authority or deceit (deceit requires fraud) -> some say
can get damages of contract (which would be for lost profits they make promises come true in
monetary terms), others say equitable estoppel principles

When Agent stuffs up

if agent stuffs up in scope of authority of P, P is liable for torts committed by A (in actual or
apparent authority) - like vicarious liability

Termination
to stop someone acting as an agent can:
1. could have someone appointed to do a thing, as soon as that thing is done, the rship ends
2. both parties can agree to end
3. principal could revoke
4. agent could access renunciation
5. insanity go crazy
6. death (person), non-existence (company)

I.
II.
-

Types of Agents
Factor
someone whose business is to buy and sell for another
see Factors (Mercantile Agents Act)
De Credere Agent
agent sells to third person from P
A not a party b/c said acting for P
But theres additional agreement where A agrees to pay P the money, if 3rd party cannot pay, then A
bears the loss
Insurance Broker
buy insurance for the ppl who want to get insurance
insurance agents work for insurance companies
Powers of Attorney
very broad
see Powers of Attorney Act
continues after death
Corporations
under Corporations Act
Real Estate Agents

III.
IV.
V.
VI.

15

dont really fit here they just bring parties together

Summary: Guarantee
(1) What is guarantee?
- contract in which surety guarantees creditor/obligee an obligation of the debtor/obligator
o guarantor/surety = they make an insurance (eg parents for bank loan)
o debtor/obligator = has to do something (eg kid paying off loan)
o obligee/creditor = person to whom obligation is owed (eg bank)
- the guarantor has to promise to do something (either pay money or do some act) if the debtor fails
in his/her duty: Sunbird Plaza v Maloney
- suretys obligations only kick in on default by debtor: Century 21st Real Estate
- consideration (there must be under contract principles)
o granting credit or supply of goods by the creditor to the debtor at the request of the
surety: Morely v Boothby
o creditor giving debtor extra time for payment of the creditor acts to defer suing the debtor
at the request of the surety: The Colonial Bank of Aus v Kerr
(2) Liabilities and rights of guarantors?
- once default occurred, creditor entitled to call upon surety to pay debt; even w/o 1 st pursuing
debtor: Sunbird Plaza; dont even need to make a demand on surety to pay before come collecting:
Century 21
- once surety pays up, they have rights:
o recover from debtor all moneys the surety paid debtor
o have all securities in hands of creditor assigned to surety so can enforce same recover
from debtor the money paid to creditor
o recover contribution from any co-surety
- surety also rights to set aside guarantee where it:
o is result of misrep, duress, undue influence: Lloyds Bank v Bundy
o is result of unconscionable conduct: Amadio
o is unjust within Contracts Review Act 1980 (NSW)
- is given by married woman for husbands debt where guarantee has been gained from husband w/o
wife properly understanding its effect and where creditor has stood by w/o taking steps to see wife
properly informed of her rights: Yerkey v Jones approved in Amadio
(3) Continuing guarantees and all moneys clauses?
- all moneys = surety having to pay all debts in case of default
problem: when surety isnt told of the full extent of its guarantee to debtor:
a. Is the consideration broad enough to support such a clause?
b. If it is, clause must be construed following objective intentions of the parties
- Re Piccolo: all moneys cl = see 4 things to consider in interpretation
(4) Subrogation?
- where debtor defaults, surety pays up creditor, then rights of creditor are subrogated to surety
against debtor: Sunbird Plaza
- The right to any such property (ie security) will only be available if creditor has been paid in full
and has no other use for the security if creditor still needs more, then it wont be subrogated:
Austin v Royal
- Equity creates fiction where surety replaces creditor: Banque Financere De Le Cite v Parc
(5) Contribution btw co-guarantors?
- right to contribution comes in when 2/more sureties one pays creditor upon default by debtor
one who makes payments may seek contribution by others
- in contract, one can determine what share he or she is to pay: Hong Kong Bank:
o co-sureties can agree to modify right among themselves
o co-sureties cannot agree with creditor to restrict right of contribution among co-sureties
o co-sureties agree with creditor to suspend right to seek contribution
- where one co-surety gets all benefits of transaction, so the parties may not be said in equity to be
co-sureties and right of contribution will not be permitted: Official Trustee Bankruptcy
(6) Discharge?

16

debtor pays off money, surety discharged; (unique) if debtor/creditor change underlying
obligations, w/o guarantors consent, then G is discharged; creditor breaches condition or
intermediate term guarantor can terminate contract

17

Guarantee

The nature of guarantee

definition = contract in which surety guarantees creditor/obligee an obligation of the

debtor/obligator
so, this rship necessarily involves 3 parties
guarantor/surety = they make an insurance (eg parents for bank loan)
debtor/obligator = has to do something (eg kid paying off loan)
obligee/creditor = person to whom obligation is owed (eg bank)
it applies to more things than just paying money
the guarantor has to promise to do something (either pay money or do some act) if the debtor fails
in his/her duty eg home-loan if debtor fails, parents have to pay bank out: Sunbird Plaza v
Maloney
the guarantor and obligator must be two separate ppl
eg 2 get someone to build you a house term says youll use reasonable care and skill in
working get someone else to guarantee that then can sue both if it doesnt happen
suretys (a person who makes himself liable for the actions of another) obligations only kick in on
default by debtor: Re Taylor; Ex parte Century 21st Real Estate
if a contract is void, a surety will be discharged (in marked contract with indemnity): Total Oil
Products v Robinson

o
o
o
-

Case Analysis: Re Taylor; Ex parte Century 21st Real Estate

Facts:
- applicant (21st) claimed to be creditor entitled to seek to set aside deed executed by debtors under
Bankruptcy Act
- two docs in qu related to loan made by applicant to debtors (guarantors) to company (South
Pacific) done by promissory notes
- it was guaranteed that the guarantors would make payment, when demanded any sum to 21st and
that if South Pacific failed, the debtors (guarantors) would pay 21st
- the question before the court was whether or not 21st was a creditor; and whether or not a demand
needed to be made so as to become a creditor
Held:
- cl 2 concerning the obligation on South Pacific to pay up did amount to a guarantee, rather
than an indemnity
Per Burchett J:
- suretys obligations only kick in on default by debtor: see eg Baber v Mackrell
- a liability came into effect without any demand for payment the moment South Pacific failed to
honour its obligations under the guarantee
- It follows that the applicant was, at the date of the deed of arrangement, a creditor of the
guarantors who executed it as debtors
- His Honour avoided the issue of whether it has to come after demand, and just said demand really
wasnt relevant to this case

Consideration
a contract of guarantee needs consideration: can be ->
o
granting credit or supply of goods by the creditor to the debtor at the request of the
surety: Morely v Boothby
o creditor giving debtor extra time for payment of the creditor acts to defer suing the debtor
at the request of the surety: The Colonial Bank of Aus v Kerr
o a payment by creditor to the surety in return for the guarantee
so its giving consideration in return for what the surety promises, in order that the surety will be
bound by the agreement
consideration can be enough if the surety gets some benefit or the creditor suffers some detriment:
Morely v Boothby

18

consideration also important for working out extent of liability of the surety so guarantee given
in consideration of bank continuing an existing account didnt cover opening by the bank of a new
account: National Bank of Nigeria v Alolesi
most modern guarantees are widely drawn consideration is for all moneys owed by debtor to
creditor
if guarantee is expressed to cover particular consideration, wont prevent guarantee from being set
aside if consideration is misrepresented: Vadasz v Pioneer Concrete
b/c guarantee is a contract, must satisfy all requirements necessary to bring contract into existence
eg capacity

Case Analysis: Vadasz v Pioneer Concrete

Facts:
- director of company guaranteed supplier of goods to company the companys past and future
indebtedness
- company was in financial trouble and indebted to supplier for past supplies
- supplier told director it would continue supplies only if a guarantee was given
- director produced a doc which said only future guarantees supplier didnt read contract and
signed
- now takes action to say was induced in the contract by directors rep and therefore avoid liability
for past indebtedness
- 1st instance held that guaranteed only for future indebtedness
- appeal by guarantor arguing not liable for any indebtedness at all
- cross-appeal saying liable for all indebtedness
- both appeals failed
- off to HCA (where agreed with court below)
Held: Per the Court
- guarantor entitled to avoid liability but only to extent of companys past indebtedness
- there was no guarantee where there was no consideration given so past indebtedness not covered
- a better argument by the parties may have been that of partially setting aside the guarantee, rather
than partial rescission, but it wasnt mentioned, so the court cannot analyse it
- appeal dismissed, order from court below stands

Liabilities and rights of guarantors

once default occurred, creditor entitled to call upon surety to pay debt; even w/o 1 st pursuing
debtor: Sunbird Plaza
dont even need to make a demand on surety to pay before come collecting: Re Taylor; Ex parte
Century 21
once surety pays up, they have rights:
o recover from debtor all moneys the surety paid debtor
o have all securities in hands of creditor assigned to surety so can enforce same recover
from debtor the money paid to creditor
o recover contribution from any co-surety
1 and 2 come right rights of subrogation discussed below
surety also rights to set aside guarantee where it:
o is result of misrep, duress, undue influence: Lloyds Bank v Bundy
o is result of unconscionable conduct: Amadio
o is unjust within Contracts Review Act 1980 (NSW)
o is given by married woman for husbands debt where guarantee has been gained from
husband w/o wife properly understanding its effect and where creditor has stood by w/o
taking steps to see wife properly informed of her rights: Yerkey v Jones approved in
Amadio
rights of surety to attack guarantee is heavily litigated

Continuing guarantees and all moneys clauses

guarantee covers only 1 transaction

19

but most are continuing cover past and future transactions eg loans that state cover all moneys
even if surety unaware of future transactions, they cover them
all moneys = surety having to pay all debts in case of default
problem: when surety isnt told of the full extent of its guarantee to debtor:
o Is the consideration broad enough to support such a clause?
o If it is, clause must be construed following objective intentions of the parties
Re Piccolo; Ex parte McVeigh v National Aus Bank interpretation of all moneys clause 4
things per Sundberg J
o Manner consideration expressed relevant, but not conclusive
o Statement of consideration wont cut down wide, unambiguous words
o Statement of consideration (if there is one) doesnt control construction of operative parts
of the guarantee
o Interpretation is qu of intention looking at whole doc and surrounding circ
Subrogation
where debtor defaults, surety pays up creditor, then rights of creditor are subrogated to surety
against debtor
Sunbird Plaza v Maloney:
o Once default occurs, creditor can call surety to pay w/o pursuing first the debtor
o If surety pays creditor, surety is subrogated to rights of creditor to the extent of amounts
paid and can pursue debtor to recover that money paid
Thus, surety can stand in the shoes of the creditor this can even include rights the creditor may
have had over the property of the debtor
The right to any such property (ie security) will only be available if creditor has been paid in full
and has no other use for the security if creditor still needs more, then it wont be subrogated:
Austin v Royal
So even though no direct contract btw surety and debtor, can still sue for money back in equity b/c
against conscience to let them get off Scott free: Meagher, Gummow, Lehane in Equity Doctrines
and Remedies
Equity creates fiction where surety replaces creditor: Banque Financere De Le Cite v Parc
S 3 Law Reform (Miscellaneous Provisions) Act 1965 (NSW) covers this area now
Practically speaking, suretys rights of subrogation often hollow as debtor wont have any money
or assets
Contribution btw co-guarantors
right to contribution comes in when 2/more sureties one pays creditor upon default by debtor
one who makes payments may seek contribution by others
this right comes from common law or equity where isnt fair if one surety pays and none of the
others
in contract, one can determine what share he or she is to pay: Hong Kong Bank of Aus v Larobi
P/L held:
o co-sureties can agree to modify right among themselves
o co-sureties cannot agree with creditor to restrict right of contribution among co-sureties
o co-sureties agree with creditor to suspend right to seek contribution
principles for right to seek contribution set out by Gibbs CJ in Mahoney v McManus
o contribution btw co-sureties so that burden borne equally
o contribution arises whether bound jointly, jointly and severally or severally
o contribution, even if unaware of each others existence
often, though, co-sureties will not be entitled to seek contribution from each other: where:
o agreement among co-sureties not to seek contribution or to limit contribution
o
circ demonstrate in equity the parties arent truly in rship of co-surety despite what
guarantee docs say

20

this is where one co-surety gets all benefits of transaction, so the parties may not be said in equity
to be co-sureties and right of contribution will not be permitted: Official Trustee Bankruptcy v
Citibank Savings
if the parties never intended that rights of contribution would exist, then equity will not permit
contribution: Citibank Savings

o Cases in contribution
Case Analysis: Hong Kong v Larobi
Facts:
- co-guarantors for company that went broke
- HK Bank owed $300M
- All guarantors signed agreement said cannot sue other guarantors until payed the common debt
(ie their share) then can sue to make the others pay
- HK bank chose only to sue 4 of the many guarantors for $300M
- The others said what about the rest of them!
Held:
- the cl was valid and enforceable
- all co-sureties can agree who pays what under contract
- but cannot have an agreement with one party with another that limits the rights of other co-sureties
they must all work together (under privity of contract rules)
Case Analysis: Citibank Savings
Facts:
- RP & RP directors of W ($2 company ie had no assets)
- Citibank loaned to W said wont give money w/o guarantee
- Directors got parents to be sureties and they became sureties also, the directors putting their house
up as security mortgage over the house
- W then went under, guarantor directors became bankrupt
- Citibank took the house and sold it - $240K directors had nothing left
- Then made parents contribute $120K from their children under pretence that all co-sureties have
to give equally
Held:
- no, this was wrong about the children
- some guarantors are more equal than others, so that general rule doesnt apply here
- parents were clearly not as equal as the directors whose company it was
- under equity is equality you can go to the court and get co-sureties to pay their fair share but
this rule may not be appropriate in all circ
- There are many authorities in which it has been acknowledged that it may be shown by extrinsic
evidence that a person stands in a diff relation to other persons involved than the terms of their doc
would show.
Phillips & ODonovan Sometimesthe right to contribution can be displaced by the parties
conduct or the course of events. It has been suggested that contribution is excluded where one
guarantor enjoys the whole benefit of the guarantee in another capacity to the exclusion of his cosurety: in this special situation it might be inequitable to require the co-surety to contribute

Discharge
debtor pays off money, surety discharged
(unique) if debtor/creditor change underlying obligations, w/o guarantors consent, then G is
discharged
creditor breaches condition or intermediate term guarantor can terminate contract

Case Analysis: Ankar Proprietary Limited v National Westminster Finance

Facts:
- NWF arranged lease to GEM for tax dodge
- GEM had to pay to use the stuff, Ankar (A) was guarantor of it up to $125K
- 2 noteworthy clauses:

21

N to notify A if GEM falls behind in payments

N notify A if GEM proposed to assign its lease to someone else so as to pay for use of
machinery
- Both of these occurred, and no one told A
- A purported to discharge b/c of breach of essential terms in contract
Held: HCA
- two terms were conditions and breached
- thus, N had the right to repudiate even slightest breach of a condition can give rise to right to
terminate contract
- per most of the judges: .the special characteristics of the suretyship rship and the fact that it
creates a liabilityon the part of the surety are enough.to justify treating the relevant
obligations in the two provisions as conditions, breach of which, at As option, discharged it from
performance of its obligations under the .Agreement to the extent which they related to the sum
of $125K.
o
o

22

Summary: Credit
(1) Security
- sometimes when you give a loan, you take something of theirs until they take the loan back to
improve your position
- sometimes get possession only (pawn/pledge), sometimes only ownership(BoS)
(2) Bill of Sale (BoS)
- mortgage of GOODS; mortgagor of goods, transfers title in those goods to mortgagee as security
for loan, on condition that when loan repaid mortgagee will reconvey property to mortgagor;
possession does NOT change
- There are 2 types of BoS in the Bills of Sale Act:
o Ordinary BoS = a bill that is not a traders BoS
o Traders BoS
(3) Ordinary BoS
- s 3: can be many things eg declaration of trust, power of attorney etc, but most common = owner
of chattel gives security over those chattels in return for loan of money for a debt
- s 3 excludes eg cars and boats, stock and produce, BoS over foreign goods or goods at sea etc
- system of registration; govern the rights of classes of persons who might wish to seize the goods
from someone who only has possession (not ownership)
- Every BoS where grantee has power to seize goods must be registered within 30 days of being
made under s 4
- In order to register, must be accompanied by: s 4
o Schedule or inventory of goods
o Copy of the bill
o Affidavit as to time bill made
o Description of occupation and residence of grantor
o Description of occupation and residence of every attesting witness to BoS
- s 4(2) covers what happens if dont register BoS: the bill is void against the following ppl
o assignees of chattels contained in the BoS for the benefit of creditors
o sheriffs and other persons executing court judgments in respect of chattels comprised in
BoS
o persons on behalf of whom sheriff and other liker persons executing court judgments
- but, on the other hand, if the BOS is registered, then goods are seized by sheriff, then grantee of
BOS is able to assert his title as mortgagee under BoS in answer to claim by creditors or sheriff
- a BoS will only be void under s 4(2) if the goods:
o are still in possession/apparent possession of the grantor at the date of assignment, or
execution of judgment; and
o still in possession/apparent possession of grantor 30 days after making or giving the BoS
- so this means if the bill was not registered, the sheriff could seize the goods only if they were in
possession/apparent possession of the grantor at the time of execution and execution took place
after the 30 day period
- an unregistered BoS is ONLY VOID against those 2 groups in s 4(2) it will remain valid btw
grantor and grantee and 3rd parties who may buy the goods subject to the BoS: Saltoon v Lake
- s 5 says no validity against official trustee in bankruptcy unless bill registered and registration
renewed once every 5 yrs
- s 5A: have to make a declaration I am the owner of goods or a statement of the true owner of the
goods
(4) Traders BoS
- A trader = person engaged in retail sale of goods
- Goods must be the subject of the BoS owned and used or intended to be used in connexion with
traders business and have to declare this by virtue of s 5B
- If you dont register at all, completely ineffective against anyone (ie no protection): s 5(1) so
grantee cannot even seize goods where BoS contains power to do so (very diff to ordinary BoS)

23

Do register, but dont write traders BoS (ie no declaration), works for ordinary BoS ie for goods
that are not traders goods, but wont work as BoS in respect of trade goods so give mortgage
over traders stock, forget to declare its a traders BoS, insofar as its trading stock, the BoS is
ineffective, but if theres other normal goods, it will be effective
- S 5C spells out what needs to go in the BoS to register it eg address etc
o Place of business or occupation
o Chattels covered by BoS and location of them
o Consideration for the BoS money consideration or otherwise must be stated: GE
Commercial Corp v White
- Must be lodged for registration within 15 days at date granted: s 5C(2)(b)
- If BoS inoperative due to non-compliance with s 5C rules then the moneys secured are
immediately repayable: s 5C(4)
- A BoS is taken to be registered 14 days after its been lodged with the Registrar-General unless
caveat is lodged; once caveat gone, 14 days after it will be registered
- S 5G can lodge objecting to registration of BoS must be lodged within 14 days from time bill
is lodged for registration
- Grantor can try getting caveat removed in court: s 5H
- District Court judge, if satisfied caveator is an unsecured creditor, can say BoS will not be
registered unless grantor pays into court amount owing by grantor to the caveator: s 5I
(5) Other securities
(a) pledge
- deliver goods to someone, give them possession as security to cover goods usually money
ownership doesnt change debtor/pledgor transfers possession, but retains legal title
- pawn - very similar only diff is that its their business to pledge stuff as pawn broker
- they have additional responsibilities as such eg maintain a registry
(b) lien
- lien = right to retain possession of anothers property until a liability is satisfied
a. possessory lien
- in case of a lien, possession remains with creditor
- general and particular liens come under this category
i. general lien
- general lien = right of creditor to retain possession of debtors goods until debts paid btw creditor
and debtor
- eg solicitor and client solicitor can refuse to give client docs until paid
- could arise through custom: Majeau Carrying v Coastal Rutile
ii. particular lien
- this is right of creditor to retain specific goods until debt associated with those goods is paid (they
go together)
- eg repairer send your car to panel beater to repair, panel beater can retain car until pay for the
work
b. equitable lien
- no transfer of possession
- just a right in equity think of it as a charge, just in equity
o Hewett v Court 4 elements: (1) actual or potential indebtedness of owner of property to
the other person (debtor) (2) must come from a payment of consideration for the property
(3) that property was appropriated (connected) to the contract: ie debt or obligation must
be some payment or expense eg improving the land (4) it would be unconscionable for
owner to dispose of property to 3rd party w/o paying off the person whom they owe
(c) Charges
- charge = creditor neither title nor possession over goods
- charge is right to seek payment out of goods by way of sale of those goods, so that the good may
be said to be charged
- no proprietary interest in the goods, merely a right to have them sold for payment of debt
(6) The Consumer Credit Code
- restrictions when offering finance eg 40%pa interest; no mortgage over everything u own etc
- S 6(4); doesnt cover investment properties; pawn brokers; employee loans from own company

24

It limits the amount of interest a person can charge: 40% PA

25

Credit

A security
sometimes when you give a loan, you take something of theirs until they back the loan back to
improve your position
eg pawn something drop off watch and they give you cash until you pay the money back
2 categories of security possession and ownership

Ownership

Possession
Debtor
(possession)
- equitable lien
- charge (statutory or
equitable)

Debitor
(ownership)

Creditor
(ownership)

Creditor
(possession)

- pawn
- pledge
possessory lien

common law mortgage

- bill of sale

sometimes security involves giving possession eg pawn

sometimes non-possessory
person you owe as debtor is the creditor
creditor or debtor can own it and either party can have possession of it
BoS (Bill of Sale)
a BoS is normally a chattel mortgage
mortgage of goods, rather than mortgage of land
definition of mortgage at common law = owner property ie mortgagor of goods, transfers title in
those goods to mortgagee as security for loan, on condition that when loan repaid mortgagee will
reconvey property to mortgagor
theres a transfer of title in the goods, but mortgagor (borrower) retains possession of those goods
mortgagors right to re-conveyance is known as equity of redemption
for mortgages of chattels, ie BoS, ownership of goods transferred, but retain possession so if
default by mortgagor/borrower, mortgagee of goods can seize them and sell them or foreclose
(mortgagee sells as owner)
theres two types of mortgages:
o legal mortgages
o equitable mortgages
legal = mortgagor transfers ownership of goods to mortgagee but mortgagor retains possession
equitable = borrower transfer goods to trustees who hold beneficial interest on trust for lender, or
on trust for transfer of possession if debt not paid, or if paid, then co-convey them; where debtor
gives legal mortgage, they give with it an equitable mortgage the 2nd being call the equity of
redemption; a contract to give a legal mortgage goes also under equity; a mortgage of goods note
yet owned is also an equitable mortgage; deposit of deeds of title of goods as security for lending
money also equitable
BoS usually legal mortgages of goods
Bills of Sale Act (1898) is concerned with registering of BoS and its effect
The Act only applies to written BoS
There are 2 types of BoS in the Act:
o Ordinary BoS = a bill that is not a traders BoS

26

Traders BoS

(1) Ordinary BoS

- debtors keeps possession, but transfers ownership
- defined by s 3
o so, a BoS under s 3 can be:
a BoS
an assignment
a declaration of trust w/o transfer (eg mortgage)
other assurances of personal chattels
powers of attorney, authorities, license to take possession of chattels as security
for debt
any agreement where equity can recognise charge is secured over personal
chattels to be acquired after the date of that agreement
BUT, the most common type = owner of chattel gives security over those
chattels in return for loan of money for a debt
o Things NOT included in s 3:
Deeds of assignment in bankruptcy
Marriage settlements
stock and produce, it comes under own legislation: Liens on Crops and Wool
and Stock Mortgages Act 1989 (NSW)
transfer of assignment of ships
transfer of goods in ordinary course of business
BoS over foreign goods or goods at sea
Bills of lading
India warrants (?)
Warehouse-keepers certificates
- The main purpose of BoS is to govern rights of creditors seizing property that might be covered by
a BoS 3rd parties are often unaware of the true owner, as often lender has possession, but not
ownership
- So to protect creditors, BoS is void against ppl like sheriffs etc if it is not properly registered
- So its there to provide a system of registration; govern the rights of classes of persons who might
wish to seize the goods
- So, a lender whose loan is secured by a BoS should get it registered in order to protect the goods
from being taken away by sheriffs etc acting on behalf of unsecured creditors
- Every BoS where grantee has power to seize goods must be registered within 30 days of being
made under s 4
- The grantor is the person borrowing the money (and giving the goods as security for it), grantee is
person lending the money (and keeping the goods until paid back)
- Registration must be made with Registrar-General at General-Register of Deeds in the City
- In order to register, must be accompanied by:
o Schedule or inventory of goods
o Copy of the bill
o Affidavit as to time bill made
o Description of occupation and residence of grantor
o Description of occupation and residence of every attesting witness to BoS
- if theres a misdescription, but it was accidental or inadvertent and not likely to mislead or
deceive, then court will probably uphold it: s 4A
- if there was omission to register the bill or a misdescription in any supporting affidavit that was
inadvertent or wont cause prejudice, then court can grant extension time for registration to rectify
misdescription: s 4B
- s 4(2) covers what happens if dont register BoS: the bill is void against the following ppl
o assignees of chattels contained in the BoS for the benefit of creditors

27

sheriffs and other persons executing court judgments in respect of chattels comprised in
BoS
o persons on behalf of whom sheriff and other liker persons executing court judgments
if grantee doesnt register BoS, BoS doesnt take effect against those persons, and the grantee
cannot say to sheriff: that item is not the grantors property for you to seize, it is in fact mine
pursuant to the BoS
but, on the other hand, if the BOS is registered, then goods are seized by sheriff, then grantee of
BOS is able to assert his title as mortgagee under BoS in answer to claim by creditors or sheriff
so the purpose of registration is to remove the risk of goods, as possession remains with the
grantor so its impossible to see who the true owner is unless search the Register
a BoS will only be void under s 4(2) if the goods:
o are still in possession/apparent possession of the grantor at the date of assignment, or
execution of judgment; and
o still in possession/apparent possession of grantor 30 days after making or giving the BoS
so this means if the bill was not registered, the sheriff could seize the goods only if they were in
possession/apparent possession of the grantor at the time of execution and execution took place
after the 30 day period
apparent possession = s 3 goods that remain on or about the premises occupied by the grantor,
notwithstanding that formal possession may have been given to another
thus, if bill not registered, grantee (lender) will not be able to assert their rights under bill against
goods if those goods are in possession or apparent possession of grantor, if those goods are taken
by sheriff or assignees for the benefit of creditors
if the goods arent in the grantors possession/apparent possession, then it doesnt matter the bill is
unregistered, grantee can still assert their rights over the goods
an unregistered BoS is ONLY VOID against those 2 groups in s 4(2) it will remain valid btw
grantor and grantee and 3rd parties who may buy the goods subject to the BoS: Saltoon v Lake
o

Case Analysis: Saltoon v Lake

Facts:
- A owned 4 race horses, but needed money
- Saltoon gave him money and security was mortgage over the horses
- So Saltoon technically owned the horses
- Then A sold 1/3 of horses to 3 people
- Eventually L bought the horses
- A doesnt pay any money to S
- L claims the horses are his for having paid his money
- S said the horses were his
Held:
- there was a BoS, but it was unregistered
- it could be used against L b/c he was not a sheriff, nor a liquidator
- L was a bona fide purchaser for value w/o notice
- If S had waited any longer, the liquidator may have come in and taken the goods, and S wouldve
had no claim
- S argued that A had no title to pass (so nemo dat applied)
- L tried to argue estoppel S estopped from denying ownership and was careless but this wasnt
made out
-

s 5 says no validity against official trustee in bankruptcy unless bill registered and registration
renewed once every 5 yrs
so any property, whether in grantors possession/apparent possession or not, will have no effect
against trustees in bankruptcy unless registered the bill will still be valid btw the grantor/grantee
and 3rd parties though: Saltoon v Lake

cars and boats go under Registration of Interests in Goods and no requirement of renewal
o

s 5A

28

have to make a declaration I am the owner of goods or a statement of the true owner of the
goods
2 yrs max gaol if you lie

(2)
-

Traders BoS
A traders BoS = BoS given by trader over his/her trade goods
A trader = person engaged in retail sale of goods: defined in s 3
Goods must be the subject of the BoS owned and used or intended to be used in connexion with
traders business and have to declare this by virtue of s 5B
- If you dont register at all, completely ineffective against anyone (ie no protection): s 5(1) so
grantee cannot even seize goods where BoS contains power to do so (very diff to ordinary BoS)
- Do register, but dont write traders BoS (ie no declaration), works for ordinary BoS ie for goods
that are not traders goods, but wont work as BoS in respect of trade goods so give mortgage
over traders stock, forget to declare its a traders BoS, insofar as its trading stock, the BoS is
ineffective, but if theres other normal goods, it will be effective
- S 5C spells out what needs to go in the BoS to register it eg address etc
o Place of business or occupation
o Chattels covered by BoS and location of them
o Consideration for the BoS money consideration or otherwise must be stated: GE
Commercial Corp v White
Case Analysis: GE Commercial Corp v White
Facts:
- statement of claim = declaration that the traders bill of sale was valid and enforceable according
to its tenor so P was entitled to possession of the property
- this case concerns s 5C(2) of the Bill of Sale Act the consideration for the traders BoS,
specifying the amount of past debt, the advance made at the time of making or giving the traders
BoS, and that future advances are secured by the traders BoS
Held: per Young CJ delivery in equity on behalf of their Honours
- theres two purposes for this section
- (1) ppl dealing with trader will know the goods are the traders actual possession, but not the
traders property
- (2) make sure debtor knows he is entering into solemn mortgage and so a relatively solemn format
is required
- theres some question in this bill about setting out things eg the consideration given
- even though the Act uses the words sets forth, [it is expected] merely that there will appear
somewhere in the doc or in its annexures the info that is required in the form which can be readily
understood by the average person of commerce.
- Ie dont have to formally state it
- So, cannot apply this section to restrictively
-

Must be lodged for registration within 15 days at date granted: s 5C(2)(b)

If BoS inoperative due to non-compliance with s 5C rules then the moneys secured are
immediately repayable: s 5C(4)
A BoS is taken to be registered 14 days after its been lodged with the Registrar-General unless
caveat is lodged; once caveat gone, 14 days after it will be registered
S 5G can lodge objecting to registration of BoS must be lodged within 14 days from time bill
is lodged for registration
Grantor can try getting caveat removed in court: s 5H
District Court judge, if satisfied caveator is an unsecured creditor, can say BoS will not be
registered unless grantor pays into court amount owing by grantor to the caveator: s 5I
o Pledge
deliver goods to someone, give them possession as security to cover goods usually money
ownership doesnt change debtor/pledgor transfers possession, but retains legal title

29

wont give it back until they pay you if they dont pay back, pledgee can sell the goods
eventually
usually pledge operates by way of contract

o Pawn
very similar only diff is that its their business to pledge stuff as pawn broker
they have additional responsibilities as such eg maintain a registry

o Possessory lien
lien = right to retain possession of anothers property until a liability is satisfied
similar to pledge, except lien comes in by operation or law, whereas pledge is an at of one person
transferring possession for security of a debt
possession transferred to lienee, ownership remains with lienor
no inherent power of sale in a lien can only sell, if at all, under state: Uncollected Goods Act
in case of a lien, possession remains with creditor
liens can arise at common law or equity
common law = possessory lien as relies on possession so loss of possession will generally equal
loss of lien
two types of possessory liens
o general lien
o particular lien
equitable lien doesnt depend on possession, but equitable principles: Hewett v Court not yet
clearly defined

general lien
general lien = right of creditor to retain possession of debtors goods until debts paid btw creditor
and debtor
- eg solicitor and client solicitor can refuse to give client docs until paid
- theres many other esp categories eg stock brokers, insurance brokers etc
- outside the categories, may arise through custom but it has to be so customary so as to basically
be an implied term in contract btw debtor/creditor: Majeau Carrying v Coastal Rutile must be
certain, uniform and reasonable
-

Case Analysis: Majeau Carrying v Coastal Rutile

Facts:
- for many yrs, M acted as carrier and warehouseman for CR and owed large sums of money in
respect of those services
- receiver appointed in 72 paid sum of 6.5K in belief it represented that part of the prereceivership indebtedness for the storage and warehouse; then paid some of 5.5K for future debts
- the 6.K was a mistake paid 2.8k too much
- so M used that extra to pay off diff debts
- M later refused to deliver some goods to CR unless its account was settled
- CR sued to recover the goods
- M argued it could refusal delivery b/c entitled to warehousemans lien in respect of goods to
secure the payment of the Balance of the account relating to all former transactions
- This claim was rejected at 1st instanced
- So, it appealed to HCA
- Cross-appeal by CR (1) D shouldnt be entitled to use overpayment to off-set debts (2) b/c sums
paid after appointment of receiver, shouldnt be capable of being set-off for debts of the P which
had arisen prior to the appointment
Held:
Per Gibbs CJ (agreeing with Stephen J, but setting out his reasons for so doing)
- warehouseman has no lien to the amount of charges owed following statute so CL consideration
not worth mentioning
- I agree with the orders given below as to the off-set etc
- And the cross-appeal is wrong for reasons stated by my bro Stephen

30

Per Stephens J (what a writer!)

- the lien claimed is a general lien
- they looked at the trade custom of warehouses in Brisbane area
- traditionally, theres been two classes of ppl who can claim general liens: (1) quasi-public with
duty to public, namely innkeepers and carriers (2) traders improving the goods of others by
expenditure on those goods of skill and labour
- however, liens recognises in other areas and this is what the appellant is running with that
warehouses are now included
- but the claimants must point to some custom entitling them to such a lien which can only be
inferred from a large number of individual acts
- theres no such evidence, so no lien made out
- the appeal should therefore be dismissed
- as to the cross-appeal, it should be dismissed also
- theres no reason at law why you cannot use the money to satisfy debts, being pre-receivership or
for using them for other debts

Particular lien
this is right of creditor to retain specific goods until debt associated with those goods is paid (they go
together)
eg repairer send your car to panel beater to repair, panel beater can retain car until pay for the work

o
-

equitable lien
no transfer of possession
just a right in equity think of it as a charge, just in equity

o
-

Case Analysis: Hewett v Court

Principles:
- 4 things to amount to equitable lien
o actual or potential indebtedness of owner of property to the other person (debtor): debtor
from specific property
o must come from a payment of consideration for the property
o that property was appropriated (connected) to the contract: ie debt or obligation must be
some payment or expense eg improving the land
o it would be unconscionable for owner to dispose of property to 3rd party w/o paying off
the person whom they owe
Facts:
- buyer got house from builders
- builders go bankrupt
- they payed the builders more so they could finish that job
- then the liquidators come in and try to seize the house
Qu: Do the buyers have an equitable lien?
Held:
- it involves indebtedness
- they payed consideration in the form of money for the house
- there was a contract to build it
- it would be unconscionable not to get the house after all the money they paid etc
- therefore, they have an equitable lien over the house and they can get the property ahead of the
creditors
o

Charges
charge = creditor neither title nor possession over goods
charge is right to seek payment out of goods by way of sale of those goods, so that the good may
be said to be charged
- no proprietary interest in the goods, merely a right to have them sold for payment of debt
-

31

The Consumer Credit Code

- Its about offering finance
- Many ppl were getting tricked in finance deals with huge interest rates
- So all the states got together and agreed to follow the Qld Code
- This covers ordinary home-loans, buying a car or getting a student loan as it covers personal
domestic or household credit
- S 6(4); doesnt cover investment properties; pawn brokers; employee loans from own company
- It limits the amount of interest a person can charge: 40% PA
- And you cannot give a mortgage over everything you own or things you dont own yet so
protecting consumers from potential indebtedness
- There can be no third party mortgage only guarantors so parents eg cannot mortgage their
house in order for son to get a loan from the bank

Miscellaneous Case
Case Analysis: North Central Wagon Finance v Brailsford
Facts:
- B owned Albion informed director of company (finance), P, that he needed money to pay an initial
deposit on another car
- P, on behalf of plaintiffs, said carry out in form of hire-purchase agreement, subject to the money
being paid by H, who would be responsible for it being used for the purposes specified
- For hire-purchase docs drawn up
- The theory behind this deal was that B sold to A to Hs company the money, half payable
immediately, the balance by H directed to B (right?)
- Then the guy decided he wanted a diff car
- B never paid the money under the hire-purchase and the Ps bring this action against B
- They contended it was a BoS
Held: Cains J
- 1st qu is to decide whether the hire-purchase was a BoS
- it should be noted If a person deliberately, and with all appropriate formalities, sells his property
to a finance company and then hires it back under a hire-purchase agreement, the agreement is not
a BoS
- If the purpose of the transaction is to enable the hirer to dispose of the property to a customer, the
courts will more readily hold that the agreement is not a BoS
- In my view, this is a case where the real transaction was a loan on the security of the Albion, and
the hire-purchase agreement was a BoS and is void for non-registration
- however, the BoS wasnt registered so void but money can be recovered as money had and
received

32

Summary: Insurance
(1)
-

Definition
insurer = person giving insurance
insured = person receiving it
insurer insures insured against risk eg car stolen insurer pays up
2 forms (i) events based - based on events eg house burning down (ii) claims against the insured =
public liability for people who provide services; so when you get sued, it kicks in often have to
tell them about the claim straight away
(2) Duty of Good Faith
- tell company all info Insurance Contracts Act
(A) Disclosure: s 21(1) if seeking insurance, have to tell all relevant things you know for the decision
of insurer whether or not they are willing to accept the risk; also must tell them everything you
know that a reasonable person would consider relevant to the decision-makers decision; s 21(2):
dont have to tell insurer things of common knowledge; s 21(3): if they ask you a question, and
you obviously dont answer it, that becomes insurance companys problem; whats relevant =
Lindsay v CIC; Advance Insurance Agency v Matthews; Alexander Stenhouse v Auscan
Investments; Permanent Trustees Aus v FAI
o s 28: what happens when theres a failure to disclose or fraud?
(a) Was there non-disclosure or fraud following s 21? Would the insurer have done into the
contract anyway? If yes, then go no further; if no go to (b)
(b) Was there fraud if yes the insurer can set the contract aside and dont pay the claim; if
no, it may have been an innocent mistake, or sloppy go to (c)
(c) the insurers liability is reduced to the amount it would have been, but for the misrep/nondisclosure (so, the qu must be asked what would the insurer have done in the alternative
reality?) it could be zero if, knowing what it ought to have known, the insurers went
ahead anyway
- see Lindsay v CIC
- fraud = deliberate withholding of info that shouldve been disclosed: Burns v MMI
- if choose to avoid contract, it means avoid it from the start: s 11
- even if theres been fraud, court can disregard if eg harsh not to disregard it: s31; but cannot
prejudice insured: s31
(B) Misrepresentations
- s 26: lying, telling the wrong thing; if the victim of the misrep, then can terminate the contract if
you so choose
o S 26(1) truth or falsity of claim if you honestly and reasonably believe something, its
NOT a misrep; onus of proof lies on the insured
o Relevance the fact is presumed not to be relevant unless (i) insured knew or (ii) a
reasonable person wouldve known that, it was relevant to the insurer accepting the risk;
the onus of proof lies on the insurers shoulders
- See Plasteel Windows v C E Heath
o After Signing the Contract: Changing Circ: often contracts say you must tell us if theres a
material change or you wont be covered; s 54 changes the common law rules for material change
during contract period these are the elements; if
o there was an act or omission of insured or 3rd party (in not telling of changing circ)
o after the contract had formed, AND
o insurer wouldve been entitled to refuse the claim under the policy,
o THE RESULT =
o The insurer cannot refuse the claim, but liability is reduced to an amount that is fair,
considering how it was prejudiced by the act/omission
- Exception: s 54(2) where insured causes the loss thats the subject of the claim
- See Ferrcom v Commercial Union; Moltoni Corp v QBE Insurance
o Claims made and known policy

33

claims made and known policy is a policy of telling insurer what has happened within the
insurance period
- compare - FAI v Aus Hospital Care & Gosford CC v GIO
(3) Excluding liability
- unusual exclusion cl must be made known to insured: s 37
- pre-existing defect claims excluded from contract wont apply if (a) insured didnt know and (b)
reas. person wouldnt know: s 46 (same with pre-existing sickness or disability: s 47)
(4) Third Parties
- if 3rd party intended to have benefit of contract, they can enforce it: Trident
- must comply with s 48 tho: named in contract as person with right to claim; insureds fraudulent
non-disclosure etc wont affect 3rd party

The nature of insurance

insurer = person giving insurance
insured = person receiving it
insurer insures insured against risk eg car stolen insurer pays up
insurance comes in two forms
o events = based on events eg house burning down
o claims against the insured = public liability for people who provide services; so when you
get sued, it kicks in often have to tell them about the claim straight away

Duty of good faith

its about telling insurance company about stuff

codifies duty of good faith to each other
o Disclosure failing to tell something
o Misrep giving false answer to questions

(1) failing to disclose

- s 21(1)
- if seeking insurance, have to tell all relevant things you know for the decision of insurer whether
or not they are willing to accept the risk
- also must tell them everything you know that a reasonable person would consider relevant to the
decision-makers decision

exceptions
s 21(2): dont have to tell insurer things of common knowledge, or anything the insurer should
know as its business, or anything that reduces their risk (b/c it would be pointless pointing that one
out)
s 21(3): if they ask you a question, and you obviously dont answer it, that becomes insurance
companys problem they have to chase you up

But whats relevant in the circ?

- Look at the case law
Case Analysis: Lindsay v CIC
Facts:
- building insurance taken out by L
- L owned office area somewhere
- Rented it out to ppl
- Takes out insurance over it
- 2 wks later building burns down
- L hadnt told them it was a brothel
- L knew it was a brothel
Qu: was this a relevant fact he ought to have told the insurance company?
Held:

34

it shouldve been disclosed because it was relevant

generally ppl at such places wont look after them well and this is of importance to an insurance
agency
even if X is effecting the insurance, and under him is Y who knows some relevant details and
doesnt tell X, it doesnt mean this is okay and X gets away with not telling the insurance agency
the words of the Act under s 21 must be understood under the purposive approach
Rogers J:it seems to me that the requirements of s 21(1)(b) are satisfied in that a reasonable
person, in Mr Ls circ, would be expected to know that the nature of the use of the premises was
relevant

Case Analysis: Advance Insurance Agency v Matthews

Facts:
- this case concerned a group of ppl getting insured and whether they each had to say everything
they knew, or whether it was enough to say what they collectively knew
- An insurance form said have you ever had a claim rejected before?
- Husband and wife applied for insurance
- Mrs hadnt been rejected before, but Mr had been
- Mr didnt reveal that
- Their house burnt down, then the insurance company refused to pay saying he shouldve told them
- So, how should s 21 be read in this case?
Held:
- each person must disclose all relevant facts
- also, must disclose everything when renewing the contract: Alexander
- the idea of s 21 is to replace the common law and make a stricter good faith test
- when looking at the actual words of the questions on the form, it is obvious it meant both of the
persons applying and not them collectively question referring to an insured must = coinsured persons
Case Analysis: Alexander Stenhouse v Auscan Investments
Facts:
- Aus owner of property instructed insurance broker S to effect insurance of property
- S A provided cover for the property by way of extension of an existing policy held in the name of
another company, associated with Aus
- Then it expired on one Nov day, only renewed the next Feb
- Then it ran out, but under the agreement, would go on to last another 90 days
- During the 90 days, a fire damaged property extensively
- Condition 2 of contract said if property is changed in any substantial way, insurance not covered
- A spray booth was added to property during this time, adding heaps of flammable materials to the
place this wasnt told to insurers
- The insurer then refused to pay up because of this
- Then it sued Alexander Stenhouse for failure to arrange proper insurance of Auss interest so
negligence and contract issues
- Held in court below, per Cox J, that AS was negligent in failing to get the proper insurance for Aus
and breached contractual duty to get the right contract and follow it thereunder
HCA:
- take the matter back to the court below, dont follow Cox Js judgment
- need to look at more evidence etc
- This is basically a nothing judgment I wonder if Janes even read the thing before putting it in
this book? I dont think he has read a case before, going by the way in which he writes his lecture
notes.
Case Analysis: Permanent Trustees Aus v FAI
Facts:
- P wanted to protect its own business, so it went to FAI and many other companies so theyd all
share the load
- FAI had deals with A, B, C so as to cover P

35

Held:

Then P wanted to rid FAI and get new insurers for a better deal, no doubt
P got an extension for another few months on its existing policy so as to find new people FAI
said yes
Then something happened during the extension period and P put in a claim
However, FAI found out that P had been looking for new insurance agency during this time and
they said P had to tell them they were looking for a new insurance agency before FAI would give
them the extension
Said it was a matter of importance and wouldnt have given extension if new that fact
FAIs argument was WRONG
S 21 doesnt cover common relationships or emotional factors
It was opportunistic of FAI to suggest it wouldnt have given the extension if it had known P was
looking for alternative insurance
[s 21] is not [concerned with]the much broader question of the commercial willingness of the
insurer to accept the risk, still less emotional or individual reactions to that question
s 28: what happens when theres a failure to disclose or fraud?
the elements of s 28 are these:
a. Was there non-disclosure or fraud following s 21? Would the insurer have done into the
contract anyway? If yes, then go no further; if no go to (b)
b. Was there fraud if yes the insurer can set the contract aside and dont pay the claim; if
no, it may have been an innocent mistake, or sloppy go to (c)
c. the insurers liability is reduced to the amount it would have been, but for the misrep/nondisclosure (so, the qu must be asked what would the insurer have done in the alternative
reality?) it could be zero if, knowing what it ought to have known, the insurers went
ahead anyway

Case Analysis: Lindsay v CIC

Facts:
- see facts from above
- there was a non-disclosure of the brothel but it was not fraud ie was not deliberately left out
- have to look at what the insurer would have done if it had known the place was a brothel
Held:
- the insurance company proved it would not have insured the place at all
- therefore, they do not have to pay L any insurance at all
(2)
-

Misrepresentations
s 26
lying, telling the wrong thing
if the victim of the misrep, then can terminate the contract if you so choose
Insurance Contracts Act makes misrep more clear and its consequences: s 26
Changes common law in two significant ways
o S 26(1) truth or falsity of claim if you honestly and reasonably believe something, its
NOT a misrep; onus of proof lies on the insured
o Relevance the fact is presumed not to be relevant unless (i) insured knew or (ii) a
reasonable person wouldve known that, it was relevant to the insurer accepting the risk;
the onus of proof lies on the insurers shoulders

Case Analysis: Plasteel Windows v C E Heath

Facts:
- T had indemnity insurance and P was claiming against T in negligence
- T had insurance with C E H
- The insurance policy asked: Is it the practice of T to sign proposals on behalf of Ts clients?
- T said no, but this was completely false
Held:
- T agues that one of its workers signed the form and didnt know

36

there was no way T could honestly believe the answer was no it was downright lying
even if it wasnt lying, a reasonable person in the position of T wouldnt have answered no
and it was highly relevant based on the type of the insurance to disclose this fact
therefore, C E H Clearly wins

note, mere failure to leave an answer completely blank doesnt mean its a misrep insurance
company must chase it up pursuant to s 27
In my opinion, the onus of proving the application of s 26(1) lies upon the proponent [ie insured
setting out when an untrue statement will amount to a misrep], and of s 26(2) upon the insurer
[that no statement is a misrep unless it satisfies the prescribed test of relevance].
In my view the appellants [T] failed to discharge the onus under s 26(1), and the first respondent
[C E H] proved the elements necessary to est that the material statement was a misrep

After Signing the Contract: Changing Circ

often circ change after contract is signed
often contracts say you must tell us if theres a material change or you wont be covered
s 54 changes the common law rules for material change during contract period these are the
elements; if
o there was an act or omission of insured or 3rd party (in not telling of changing circ)
o after the contract had formed, AND
o insurer wouldve been entitled to refuse the claim under the policy,
o THE RESULT =
o The insurer cannot refuse the claim, but liability is reduced to an amount that is fair,
considering how it was prejudiced by the act/omission
Exception: s 54(2) where insured causes the loss thats the subject of the claim

Case Analysis: Ferrcom v Commercial Union

Facts:
- F owned crane and took out insurance to cover it
- At that time, the crane was not registered to drive on roads insurer said okay, no worries and
insured F
- Later F got it registered and was driving it on the roads when it was involved in a crash
- The contract said that any material damage to the crane will be covered
- However, C argued that it was a material change in circ and they shouldve been told if they
knew, they wouldnt have insured
- F tried to rely on s 54 to make them pay
Held:
- there was an omission
- after the contract formed
- insurer couldve refused to continue insurance because of it
- so insurer doesnt have to pay full amount amount reduced to whats fair by how much it was
prejudiced
- court looked at what insurance company wouldve done if it had known it was registered on the
road
- evidence showed they wouldve cancelled it altogether and not insured
- therefore, they didnt have to pay anything zero liability
- they proved this by their custom and have ample evidence to back it up
Case Analysis: Moltoni Corp v QBE Insurance
Facts:
- Ms worker badly injured, usually covered by insurer under workers comp
- But in the policy, M had to notify QBE of claim as soon as reasonably practical so as to know if
theyre really injured or not
- M forgot this time and didnt tell them

37

Held:

Employees claim was $330K and QBE refused to pay any of it for failure to tell as soon as
practicable
Did s 54 apply?
there was an omission
after contract formed
it could have refused the claim
liability has to be reduced to whats fair in light of how much it was prejudiced by not knowing
QBE couldve got Dr in and a few little other things
However, they really wouldnt have done much at all and wouldve payed the full amount anyway
Therefore, had to pay the full amount
Claims made and known policy
claims made and known policy is a policy of telling insurer what has happened within the
insurance period

Case Analysis: FAI v Aus Hospital Care

Facts:
- there was a claims made and notified policy = started 20 June, ended 20/6/92
- claim at some point in time line against them, but didnt notify them until after the policy ended
- tried to rely on s 54
- there was an omission, etc
Held:
- no evidence suggested that, by being notified after the policy had ended, that they were in any way
prejudiced
- therefore, were liable for the whole claim
Case Analysis: Gosford CC v GIO
Facts:
- policy ended 31/12/91
- was a claims made and notified policy
- May 91, GCC suspects a claim against them, but none made and no notification to GIO
- 1994 there was a claim, only then did they tell GIO
- GCC said s 54 applies and tried to rely on FAI v Aus Hospital
Held:
- s 54 doesnt make a policy go forever
- its a claims made and notified case claim happened outside the life of the policy, therefore GIO
doesnt cover it
- s 54 might get you off notifying straight away during the life of the policy, as in FAI v Aus
Hospitals, but not for claims that happen outside the time period
- case dismissed

38

Summary: Negotiable Instruments

Bills of Exchange (BoE):
(1) Does the BoE satisfy rules of s 8?
a. Unconditional order in writing?
b. Addressed by one person to another?
c. Signed by person giving it?
d. Requiring addressee to pay on demand at fixed or determinable time?
e. A sum certain in money?
f. To the order of specified person or bearer?
(2) The person whos in possession of the bill, or the bearer, are they a holder in due course (or is
the BoE basically useless) pursuant to s 34?
a. Did they take the bill (i) complete/regular on its face (must be complete name: Arab
Bank; (ii) before it is overdue; (iii) w/o notice of dishonour (if any); (iv) in good faith and
for value; (v) w/o notice in any defect in title of indorser (person who gave it to them)
(3) Liabilities?
a. Holders rights: s 43 eg sue in own name enforce payment against parties
b. Acceptor promises to pay once accepted, cannot deny holder: s 59
c. Drawers rights: s 60(1) will pay, and if dishonoured, will compo; cannot deny holder in
due course his capacity etc
d. Indorser: s 60(2) if dishonoured, then liable; cannot deny genuineness
(4) Indorsement
- Qu: what sort of indorsement is the bill?
a. s 37 - negotiate = indorsement + delivery; although bearer bill just delivery enough; must
be written signed see other rules eg whr name misspelt; mere signature on BoE is
enough; entire bill must be endorsed
b. blank (just signature of indorser)
c. special: s 39 name of indorser and indorsee
d. restrictive: s 40 pay such and such only, no one else
e. conditional: s 38 pay such and such when this happens
f. sans recours: s 21 negotiating bill, but negativing the liability of the indorser Pay A in
order without recourse for me, from E Jones so even if bill dishonoured, indorsee has
no recourse
(5) Acceptance
a. Can be either: s 24
i. General drawee assents w/o qualification; or
ii. Qualified varies express terms of the bill as drawn
(a) conditional: ie 1 which makes payment by acceptor dependent on
fulfilment of some condition eg accepted payable when goods are sold
(b) partial: ie acceptance to pay part only of amount for which bill is drawn
(c) local: acceptance to pay only at particular or specified place eg payable
only at Cth Bank of Aus
(d) qualified at time: bill drawn for 2 months accepted payable in 3
months
(e) acceptance by some: eg bill drawn on A, B, C accepted by A & B only
(6) Presentment
- general rule is presentment not necessary for drawer and indorsers of bill to be liable
- however, s 44: acceptance necessary where bill
a. payable after sight, so maturity date may be fixed
b. expressly stipulates that it must be presented for acceptance
c. drawn payable elsewhere than at residence or place of business of drawee
- bill considered presented for acceptance when presented in accordance with following rules: s
46(1)
d. presentation must be made at reasonable hour on business day and before bill overdue

39

e.

where bill addressed to two or more drawees who arent partners, presentation must be
made to them all unless one has authority to accept for all
f. where drawee dead, presentment may be made to their personal rep
g. whr drawee bankrupt, presentment may be made to her or their trustee or assignee whr
authorised by agreement or usage, presentment may be made through the post
- see the rules where dont have to present eg where drawee dead or bankrupt, or try to present but
cannot: s 46(2) may then be treated as dishonoured
- bill not accepted within customary time for acceptance must be treated as dishonour by nonacceptance: s 47
(7) Dishonour
- through non-acceptance or non-payment, bill can be dishonoured; immediate right then for
recourse against drawer and indorsers, and holders rights against acceptor
- can be dishonoured by:
o non-acceptance: s 48
o non-payment: s 52
- to get rights of dishonoured bill, must give drawer & indorsers notice: s 53 must be written, or
can return the dishonoured bill, or verbal communication, go to party of their agent (or personal
rep when theyre dead), if two or more drawers then must go to both: s 54 must also give
reasonable time after actual dishonour of bill: s 54(1). NB: sometimes dont have to give notice s
55(2) eg whr drawer and drawee are same person, drawee fictitious; indorser where aware that
drawee was fictitious when passed bill on
- inland bill not necessary to protect the bill; but if foreign must be protested for dishonour
otherwise drawer and indorsers discharged: s 56 protest bill before a Notary Public
- damages: s 62
o the amount of the bill;
o interest on the bill from time of presentment for payment and maturity of the bill in any
other case;
o expenses of noting and protesting where such are necessary
(8) Discharge
- discharged by
o Payment within proper time: s 64 s 64(1) when bill paid at or after maturity to holder
in good faith and w/o notice of any defect to their title, then discharged; when bill paid by
drawer or indorser, not yet discharged rights still exist, until maturity date (?)
o acceptor becoming a holder: s 66
o waiver or renunciation: s 67
o cancellation: s 68
o unauthorised alteration to a material particular: s 69 whr bill materially altered w/o
assent of all parties parties prior to alteration discharged, but ppl who altered are liable
includes altering date, sum payable, time of payment, place of payment: s 69(2)
Promissory Notes
(1) Definition
- unconditional promise in writing to pay on demand or at fixed future time a sum certain to the
order of a specified person or bearer: s 89
- have to make sure it is fixed at a particular time or future determinate time: Williamson v Rider
Significant Terms to note
(a)
negotiable instrument an instrument which evidences a chose in action, the rights pertaining to
which can, by virtue of either custom or statute, be transferred by mere delivery of the document.
The transferee who takes the instrument in good faith and for value receives a good title on it despite
any defect in the title of the transferor, and can sue on it in his or her own name.
(b)
bill of exchange an unconditional order in writing addressed by one person 9drawer) to another
(draw) signed by the drawer, requiring the drawee to pay on demand, or at a fixed future time, a sum
of money to a specified person or tho the bearer: s 8
(c)
law merchant the customs and usages of merchants which were, as a result of judicial recognition,
accepted into the common law of England.
(d)
drawer the person who draws the instruction

40

(e)
(f)
(g)
(h)
(i)

drawee the person to whom the instrument is drawn

payee a person named on a negotiable instrument as the person to be paid. Where a bill is not
made payable to bearer, the payee must be named or otherwise indicated on the bill with reasonable
certainty: s 12(1)
bearer bill a bill expressed to be made payable to bearer. A bill on which the only or last
indorsement is an indorsement in blank is payable to the bearer: s 13(3)
indorsee the person to whom rights are transferred by indorsement of a bull of exchange
holder in due course a holder of a negotiable instrument, taking it as complete and regular on its
face: s 34(1)

41

Negotiable Instruments
1.

Bills of Exchange (BoE)

Definition and elements of BoE
its a negotiable instrument
3 types
o BoE
o Promissory notes
o Cheques
- A negotiable instrument is title to instrument that can be transferred from one person to another by
delivery, called negotiation
- Unique feature = bona fide holder for value obtains good title, notwithstanding transferor might
not have had good title
- Certain types of instruments have been accepted as part of law merchant as having capability of
being transferable by delivery and thus negotiable: Goodwin v Robarts
Case Analysis: Goodwin v Robarts
Facts:
- whether certain scrip (special security docs) issued by Rus Govt, is a negotiable security for
money so that transfer of it by person not being true owner to a bona fide holder for value can
confer good title on the latter
Held:
- yes it could be
- the law merchant can change with the times
- didnt understand the rest of it, unfortunately
-

some of the important characteristics of negotiable instruments are:

o title passes on delivery in the case of bearer bills or on indorsement in the case of an
order bill
o no notice of transfer is needed to be given to the party liable on the instrument c.f. an
assign of a debt where notice must be given the debtor
o holder of the instrument can sue in his own name
o consideration and bona fide purchaser are presumed
o holder of instrument in due course doesnt take subject to equities
over time, law merchant came to accept negotiable instruments that comprises order by one person
(drawer) to another (drawee) ordering them to pay 3rd person (payee) a specified sum at the
designated time
eg John Brown, three months after date pay JD or order the sum of 1000, from BS
BS is drawer and JB is drawee JB orders BS to pay JD JD can then demand payment from the
date pay any time after 3 months
if bill was marked pay JD or bearer, bill would be bearer bull transferable by delivery of JD to
bearer in that case bearer presents bill to JB for payment
so its all about ordering someone to pay a third party so this allows payment in the future with
certainty good for commercial transactions eg if goods coming by sea, bill of exchange used so
buyer doesnt pay until goods arrive, and seller knows that when goods arrive, they can call for the
money
these bills of exchange formed part of the law merchant -> codified by Sir Mackenzie Chalmers
19th C ; enacted in Aus by Bills of Exchange Act 1909 (Cth) Const gives power of Fed to do this
pursuant to s 51(xvi)
the Act covers both bills of exchange and promissory notes
the Act isnt a complete code, CL still applies to the extent it is not inconsistent with the Act: s
5(2)
s 8(1) outlines elements of a BoE
o unconditional order in writing

42

cannot be any condition attached to payment ie payee cannot be required to do anything other than
present the bill for payment such as to give receipt: Bavin v S W Bank
- must be an order to pay, and not a polite request
o addressed by one person to another
- drawer and drawee must be two diff persons, if they are the same, or the drawee is a factitious
person, then it is in fact a promissory note: s 10(2)
- drawee must be named with sufficient certainty; there can be 2 or more drawees, but they cannot
be alternatives or in succession: s 11
o signed by the person giving it
- must be signed by the drawer, otherwise he isnt liable for it: s 28(1); but can sign in trade name: s
28(2) and signature of firm will bind partners of it: s 28(3)
- s 29 covers forged and unauthorised signatures agent who signs bill outside their authority can
still make it work if it gets ratified, but person who signs w/o authority ie forger, their signature
cannot be ratified
- section doesnt apply to prevent bill with forged signature being operative if person against whom
the bill is being enforced is estopped from denying the genuiness of the signature
o requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable time
- s 15: payable on demand if (i) expressed to be payable on demand (ii) expressed to be payable on
sight (iii) expressed to be payable on presentation (iv) no time is fixed for payment
- s 16: bill payable at fixed or future time if it is expressed to be payable: (i) at a fixed period after
sate or sight, or (ii) on or at fixed period after occurrence of a specified event that is certain to
happen though the time at which the event may happen is uncertain
- an instrument expressed to be payable on some contingency isnt a BoE, and the fact the
contingency so occurs doesnt cure it
o a sum certain in money
- s 14: sum is certain in amount and time
- so 8%pa until arrival in London of payment to cover is not a BoE: Rosenhain v Cth Bank
Case Analysis: Rosenhain v Cth Bank
Facts:
- there was what was purported to be a BoE, payable sixty days after sightpay to the order of C
Company one thousand four hundred and seventy-one pounds ten shillings and sevenpence
(sterling), value received, with interest at the rate of 8 per cent per annum until arrival of payment
in London
- but then it wasnt paid so the bank got a writ to get the money against the appellants
Held:
- this question necessarily turns on whether there is a BoE
- certainty is of primary importance so parties know what liable for or receiving
- so, BoE couldnt say its payable ninety days after sight or when realized because its too
indefinite
- this bill is too indefinite also and cannot be a BoE

o to the order of a specified person or bearer

whr bill not payable to bearer, payee must be named with sufficient certainty: s 12(1)
bill may be payable to two or more persons jointly or to one of two or more persons or the holder
of an office for the time being: s 12(2)
a bill payable to a fictitious or non-existing person may be treated as a bearer bill: s 12(3)
if name of real person inserted then bill can still be treated as bearer bill: Bank of Eng v Vagliano
Bros
if payee real person whos intended to get benefit of bill, then they arent a fictitious payee even if
intention is induced by fraud: North & South Wales Bank v McBeth
Parties to a BoE
where drawee accepts bill for payment, hell write accepted on it so drawee becomes an acceptor

43

the indorser is person who negotiates bill by indorsing and delivering the bill to the indorsee a
person in whose favour the bill has been indorsed and who receives that bill
the bearer is the person in possession of a bearer bill: s 4

Holders
holder of BoE, defined as payee or indorsee whos in possession of the bill, or the person whos
the bearer of the bill: s 4
- possession includes constructive possession ie the possession of your agent
- a holder for value = person whos given value for bill and every holder thereafter, whether or not
theyve given value, except the last indorser
- value means v-consideration: s 4 which is same v-consideration to support a simple contract: s
32
- every party whose signature on the bill is prima facie deemed to have become holder for value: s
34
- so, holder must take a bill (i) complete and regular on its face (ii) before its overdue (iii) w/o
notice of dishonour (iv) in good faith and for value (v) w/o notice in any defect in the title of the
indorser
- so bill showing an error on its face as to the name of a prior indorser is not complete and regular
on its face: Arab Bank v Ross
Case Analysis: Arab Bank v Ross
Facts:
- bank indorsed some BoE, but was dishonoured
- bank wants its money
Held:
-

although indorsement was valid to pass title, the omission of the word company would give rise
to a reasonable doubt whether payees and indorsers were necessarily the same, so the notes
couldnt be said to be complete and regular on the face of it
completeness and regularity must be decided only on inspection of the bill itself
Denning LJ: The word company in this case is not, however, mere description. It is part of the
name itself.The indorsement should be in the same lettering as the name of the payee, for
otherwise ti could not be seen on the face of it to be regular
under s 35(2), every holder of a bill is on the face of it deemed holder in due course; but if
acceptance, issue, or negotiation of the bill was effected by fraud, duress or illegality, the nous
shifts to the holder to prove good faith and value were given after fraud etc
the original payee cannot be holder in due course as there must be prior negotiation of the bill: s
34(1)(b)
holder in due course is in privileged position under Bills of Exchange presumption in their
favour
further, person who derives title to the bill from a holder in due course and whos not a party to
any fraud etc has rights of holder in due course as against acceptor and all parties prior to that
holder: s 34(3)

44

Chpt 23: Negotiable Instruments pp.513-539

Intro
- certain mercantile (relating to merchants or trading wholesaling) instruments have by law or
custom of trade acquired negotiability holder to pass the instruments on from hand to hand by
simple delivery give bona fide holder for value a good title to the instrument, even if the
transferor may have had a defective title these are what negotiable instruments are
- the elements are:
o title to them passes by mere delivery, or where payable by order by indorsement followed
by delivery
o no notice of such transfer need be given to party liable on the instrument
o holder can sue in their own name
o consideration and bona fides presumed
o holder doesnt take instrument subject to equities ie subject to defences available to prior
parties in fact may obtain better title than transferor
- not every doc can be a negotiable instrument only those earmarked by custom or statute most
common types are BoE, promissory notes, cheques, bearer debentures etc
Negotiability and assignability
assignable and negotiable are diff when applied to choses in action (intangible personal property
right)
- BoE can be transferred by delivery, and the person who takes them doesnt take them subject to
equities its free from the requirements of writing and notice to the debtor, transferee does not
normally take subject to equities
BoE
-

its an instrument or doc drawn up by one person (drawer) ordering another person
(drawee/acceptor) to pay a particular sum of money (usually in return for goods sold or money
lent) either to the person drawing up the instrument or to some 3rd person (payee)
on drawee accepting bill, ie agreeing in writing to pay the sum at the specified time, drawer will
transfer bill to the payee
the payee can then negotiate the bill to some other person and so on
the person in holder of the bill at its maturity (the holder) will then present the bull to the acceptor
(drawee) for payment

Uses and advantages of BoE

- uses = fix date of payment by debtor
- fix date of instalment eg whr goods transferred on credit terms
- also for goods which are shipped to the buyer, doc of title (bill of landing) may be attached to bull
of exchange (then called doc bill) use banks to have the bill presented to the drawee and if
necessary having it cleared before the doc are handed over to the purchaser
- this is an advantage for seller who can collect their money before parting with the title to the
goods
- other advantages
o no cash involved
o also, bill may be discounted ie a person with the bill whos suppose to exchange in 6
months may not want to wait, if bank is willing to take risk, might go through with it
earlier
o the bills can be passed on from the party to whom it was given to their creditors and so
forth
Analysis of definition of BoE
- its defined in s 8(1) of the Bills of Exchange Act: a bill of exchange is an unconditional order in
writing addressed by one person to another signed by the person giving it, requiring the person to
whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in
money to or to the order of a specified person, or the bearer

45

Unconditional order in writing

- order to pay money, must NOT stipulate any conditions
- must be unqualified order to pay, with indication of particular fund to get the money: s 8(3) an
account merely expressing request for payment is not a BoE
Addressed by one person to another
- a bill is drawn by drawer and addressed to drawee drawee must be named or otherwise indicated
in the bill with reasonable certainty: s 11(1)
Signed by the person giving it
- BoE must be signed by drawer, or some duly authorised person on their behalf
- If drawers signature forged, or put on bill w/o authority, he/she will not have signed the bill as
required by the Act
Pay on demand or at a fixed or determinable future time
- bill is payable on demand:
o if expressed to be payable, or payable at sight, or on presentation; or
o if no time for payment expressed: s 15(1)
- bill is payable at determinable future time which is expressed to be payable:
o at fixed period after date or sight; or
o on or at fixed period after occurrence of specified event which is certain to happen,
though the time of happening may be uncertain: s 16
- a bill payable:
o upon the death of A is valid as the occurrence is certain although the actual time is
uncertain
o six days after ship clearers pay was held not to be a BoE occurrence was uncertain:
Baker v Efford
o upon marriage of my daughter: invalid b/c occurrence uncertain
o upon a contingency: not a bill, even if the event does occur later: s 16
A sum certain in money
- sum payable is certain, although required to be paid:
o with interest or bank charges; or
o by stated instalments; or
o by stated instalments, with provision that upon default in payment of nay instalment the
whole shall become due; or
o according to an indicated rate of exchange, or according to a rate of exchange to be
ascertained as directed by the bill: s 14(1)
- NB: bill payable with interest at the rate of 8% per annum until arrival of payment in London to
cover was invalid not certain enough for the reason that the exact date the funds would arrive in
London was uncertain: Rosenhain v Cth Bank of Aus
- Where theres more than one sum on the instrument, eg the words is diff to the numbers, take the
lesser of the two: 14(2)
To the order of a specified person or to bearer
- whr bill not payable to bearer, payee must be named or otherwise indicated in the bull with
reasonable certainty: s 12(1) eg order bill may be drawn payable to the drawer or their order, or
payable to the drawee or their order, or payable to a specified 3rd person or their order
- whr payee is fictitious or non-existent, the bill may be treated as payable to bearer: s 12(3) this is
also the case where person designated as payee was just written there for the sake of it they
become the bearer: Bank of Eng v Vagliano Bros
- however, when theres real drawer who has designated an existing person as payee, and intends
that the person should be the payee, the payee cannot be fictitious: North and South Wales Bank v
Macbeth

46

Order or bearer bills

- a BoE may be payable to bearer or to order
- bearer bill doesnt require indorsement to be negotiated to another person that is, mere delivery
is sufficient, whereas an order bill must be indorsed before being negotiated
- to be a bill payable to bearer, express or when the only or last indorsement is in blank: s 13(3)
- a bill is payable to order when: it is so expressed or expressed to be payable to particular person
and doesnt contain words prohibiting transfer: s 13(4)
Immaterial facts omitted
- BoE not invalid b/c immaterial facts are missing eg not dated, doesnt specific the value given,
doesnt specify the place where it is drawn: s 8(4)
Date of bill
- undated bill quite valid, but if dated, deemed to be the date
Simple form of a BoE
- Eg Dear AA, 3 months after date pay C or order the sum of 50K, from BB
- When AA accepts the bill, hell write across the face of ti accepted and indicate the bank where
it is payable
- Hell then put his signature underneath eg Accepted, payable at Cth Bank of Aus, Syd, AA the
mere signature of the drawee on the BoE is enough for acceptance
Parties to a BoE
- drawer = creditor of the drawee
- drawee = debtor of the drawer when writes their acceptance on the bill, he is called acceptor
- payee = person whom the drawee is required by the bull to pay eg C in the above example
- indorser = holder of bill negotiates through indorsement + delivery person negotiating is called
indorser and person to whom its negotiated is called indorsee bearer bills negotiated by delivery
and do NOT require to be indorsed
- bearer = person in possession of bill or note which is payable to them: s 4
- holder = payee or indorsee of bill or note whos in possession of it: s 4
- holder for value = (1) any holder whos given value for the bill (2) any subsequent holder after
value has been given
- holder in due course = person whos taken bill: (a) complete and regular on the face of it (b) before
it is overdue (c) w/o notice of dishonour (if any) (d) in good faith and for value (e) w/o notice at
the time the bill was negotiated to them of any defect in title of person who negotiated: s 34(1)
- see Arab Bank v Ross the supposed holder in due course was not holder because the BoE was
not complete and regular on the face of it, leaving the name company off R & FN Company
- every holder deemed holder in due course unless proved otherwise, except the original payee: R E
Jones v Waring & Gillow
there must be a prior negotiation before holder can be holder in due course
General Position of Parties
- the holder is the primary person to enforce rights under the BoE
- theyll have rights against of enforcement against acceptor, drawer, prior indorsers (if any)
- drawee isnt liable as no contract- but if accepts, then liable as the acceptor if the acceptor then
says that they didnt indorse it, its called dishonoured by non-acceptance and holder ahs
immediate rights of recourse against drawer and prior indorsers
Liabilities of parties
- drawee of bill, after accepting, primarily liable on it; if bills dishonoured, drawers and indorsers
are liable
- Acceptor: by accepting it, (a) engages that theyll pay it according to the intention of their
acceptance; (b) precluded from denying to holder in due course the genuineness of the drawers
signature: s 59

47

Drawer: by drawing it: (a) will be accepted and paid according to agreement and if dishonoured
that will pay it (b) precluded from denying to holder in due course the existence of the payee and
their then capacity to endorse it: s 60(1)

Advantages of holder in due course

- has privileged position holds bill free from defects of title and personal defences of prior parties
and ma enforce payment against all parties liable on the bill: s 43; acceptor is precluded (estopped)
from denying to holder in due course existence and capacity of the drawer and the genuiness of the
drawers signature; any person signing BoE other than drawer or acceptor is liable as indorser to
holder in due course: s 60; holder in due course not prejudiced by prior omission to give notice of
dishonour by non-acceptance: s 53; wrong date by prior holder doesnt matter: s 16
Effect of forged indorsement
- rights of person whod otherwise be holder in due course dont work for forged indorsement,
except for persons who became parties to the bill after the forgery so if A forged it to B, B gets
nothing, but if B passes it to C, hes sweet as
- where holders title defective, but holder obtains payment of the bill, person who pays hi in due
course gets a valid discharge: s 64(1)
Negotiation of Bills
- transferred from one to another
- bill payable to bearer is negotiated by delivery, while bill payable to order is negotiated by
indorsement of the holder completed by delivery: s 36
- where bill states cannot negotiate, then valid only btw the parties themselves (valid inter se)
- if its an overdue bill, the party acquiring it get it subject to any defects it has at its maturity: s
41(2)
Indorsements
- s 36(3): BoE drawn in order is negotiated by indorsement of holder completed by delivery
- to negotiate, indorsement must comply with following conditions:
o must be written on bill and signed by indorser mere signature w/o additional words is
cool
o must be indorsement of entire bill and be signed by indorser
o where bill payable to order of two or more partners, all must indorse it unless 1 has
authority
o where two or more have endorsed, go by the order unless evidence can prove that order is
wrong
o where payees or indorsees are wrongly designated or names misspelt, they may indorse
the bill anyway can add their proper signatures if they want: s 37
Classes of Indorsement
- blank: ie whr indorsee named, only signature of indorser given eg E Jones
- special: ie whr indorsee named in addition to signature of indorser eg Pay A Brown (signed) E
Jones: s 39
- Restrictive: ie whr further transfer of bill is restricted eg Pay D only, (signed) E Jones: s 40
- Conditional: ie indorsement contains some condition Pay Clive Jones upon my election as
Auditor of Aus blah blah: s 38
- Sans recours: s 21 negotiating bill, but negativing the liability of the indorser Pay A in order
without recourse for me, from E Jones so even if bill dishonoured, indorsee has no recourse
Forged Indorsement
- if indorsement is forged, but bank pays the indorsee, in ordinary course of business and in good
faith, it isnt liable
Acceptance

48

acceptance = drawee signifying assent to order of the drawer: s 22(1) ie undertaking by acceptor
to the payee and every lawful holder of the bill to pay it according to the terms of the acceptance
all drawee has to do is write accepted on the bill and sign it: s 22(2)(a) usually write it across the
face of the bill
the only way drawee can perform promise is by payment of the money: s 22(2)(b)
until acceptance by drawee, shes not a party to the contract
although bill accepted, doesnt take effect until delivery of the instrument can be constructive
though giving drawer notice and drawee accepting it

Types of Acceptance
- general or qualified: s 24(1)
- general = drawee assents w/o qualification to order of drawer: s 24(2)
- qualified = acceptance in express terms varies effect of bill as drawn and may be classified as: (s
24(3))
o conditional: ie 1 which makes payment by acceptor dependent on fulfilment of some
condition eg accepted payable when goods are sold
o partial: ie acceptance to pay part only of amount for which bill is drawn
o local: acceptance to pay only at particular or specified place eg payable only at Cth Bank
of Aus
o qualified at time: bill drawn for 2 months accepted payable in 3 months
o acceptance by some: eg bill drawn on A, B, C accepted by A & B only
- such qualification must be written on the BoEs face clear and unequivocal terms
- holder may refuse to take a qualified acceptance, and if holder doesnt get unqualified acceptance,
may treat bill as dishonoured: s 49(1)
- where qualified acceptance taken, holder must obtain assent of drawer and any previous indorser,
otherwise they are discharged from liability on the bill: s 49(2)
- the drawing of the bill cannot be qualified it must be an unconditional order
Presentment
- general rule is presentment not necessary for drawer and indorsers of bill to be liable
- however, s 44: acceptance necessary where bill
o payable after sight, so maturity date may be fixed
o expressly stipulates that it must be presented for acceptance
o drawn payable elsewhere than at residence or place of business of drawee
Time of Acceptance
- bill may be accepted: s 23(1)
o before signed by drawer, or while otherwise incomplete
o when it is overdue, or after is has been dishonoured by previous refusal to accept or by
non-payment: s 23(1)
- when bill payable after sight negotiated, the holder must either present it for acceptance or
negotiate it within reasonable time, otherwise drawer and all prior indorsers are discharged from
liability: s 45
Rules for presentation for acceptance
- bill considered presented for acceptance when presented in accordance with following rules:
o presentation must be made at reasonable hour on business day and before bill overdue
o where bill addressed to two or more drawees who arent partners, presentation must be
made to them all unless one has authority to accept for all
o where drawee dead, presentment may be made to their personal rep
o whr drawee bankrupt, presentment may be made to her or their trustee or assignee
o whr authorised by agreement or usage, presentment may be made through the post: s
46(1)
Promissory Notes

49

Definition: unconditional promise by one person to another in writing to pay on demand or at a

fixed or determinable future time a sum certain to the order of a specified person or bearer: s 89
In Williamson v Rider below, an instrument stating it was payable on or before a given date was
not payable at a fixed or future time and was therefore not a promissory note
A promissory note must be delivered to the payee or bearer otherwise it isnt complete: s 90
Provisions of the Bills of Exchange Act apply to promissory notes mutatis mutandis (ie when the
appropriate changes have been made): s 95

Case Analysis: Williamson v Rider

Facts:
- Ps claim 100 pound on what they claim was a promissory note which said to be paid on or
before Dec 31 1956
- Was it uncertain and a contingency and therefore not a promissory note?
Held: (with Ormerod LJ in dissent)
- the option to pay at an earlier date than the fixed date created an uncertainty and contingency in
the time for payment.therefore the doc couldnt be a promissory note
- As Danckwerts LJ held: on the whole, I have come to the conclusion that the option reserved
by the instrument in the present case to pay at an earlier date than the fixed date creates an
uncertainty and a contingency in the time for payment.

50

Summary: Cheque:
(1) Outline
- drawee always financial institution
- Cheques and Payment Orders Amendment Act 1998 (Cth)
- payee = person to whom cheque payable
- can be bearer cheque goes to bearer
- an order cheque = if its expressed to be payable (i) to person(s); or (ii) to the order of the
person(s); or (iii) person(s) and (b) is not also expressed to be payable to bearer: s 3(1A)
(2) Elements: s 10
o Unconditional order in writing
- order must be more than mere authorisation or request to pay: s 11
- order cannot depend on a contingency: s 12
o Addressed by person to financial institution
- financial institution in s 3(1) = Reserve Bank, State Bank, other persons who carry on banking
- to be a cheque addressed to financial institution need addressed to that financial institution and
no one else, and its named with reasonable certainty
o Signed by person giving it
- cheque may be signed by person giving it or their agent acting under authority
- financial institution may sign by stamp or mechanical means
- signature must be placed on the cheque: s 14
- person must sign cheque intending to do so as a drawer or indorser, otherwise not liable on the
cheque: s 31
- unauthorised signature (includes forged signature: s 3(6)) on cheque wholly inoperative unless an
estoppel arises preventing genuineness of signature being denied or signature ratified but
signature will be treated as that of the person who wrote it: s 32
o Requiring financial institution to pay on demand
- s 14: 1(a) order expressed to require payment on demand, at right or on presentation; or (b) no
time for payment is expressed in the instrument containing the order
o Sum certain in money
- s 15: sum be specified with reasonable certainty; if two sums are specified the lesser applies; sum
specified can be a rate of exchange
(3) Crossings on Cheques
- uncrossed cheque can be paid in cash over counter
- crossing a cheque = direction by drawer to draw bank not to pay cheque other than to a financial
institution: s 54
- in order to constitute crossing cheque: s 53 ->
need to clearly bare across front 2 parallel lines or 2 lines with words not
negotiable btw them
- drawer or anyone else in possession may cross it: s 56
- if drawee bank pays to any person other than financial institution, then bank liable to true owner of
cheque for any loss
- if cheque doesnt appear on face to be crossed, then payment by drawee bank in good faith and
w/o negligence, then no liability for bank: s 93
- cheques can be negotiated, but if words not negotiable are written on cheques, person receiving it
can obtain no better title than the person who gave it had: s 55
- Commissioners of the State Savings Bank of Vic v Permewan Wright Griffith CJ words not
negotiable were warning to take care and cheque may be stolen
(4) Negotiation, Indorsement and Payment
- - all cheques can be negotiated, even if any crossing or markings are on the cheque: s 39
- negotiation = transferring cheque from holder to another person so as to constitute that other
person as a holder: s 40
- in order to negotiate a cheque, there must be indorsement of the cheque: s 41 written or placed
on the cheque and signed by the indorser, indorsement for whole cheque, mere signature on the
cheque will do

51

if cheque transferred, payable to order for value w/o indorsing to the transferee then: s 42 by
virtue of delivery, transferee gets title the transferor had, right to indorse the cheque to another
person
- the drawee bank must present the cheque either dishonouring it or paying it unless bank is aware
of any defect in holders title, bank must pay the cheque: s 67
- drawee bank may refuse payment on presentation if its authority to pay has been countermanded
by its customer the drawee: s 90(1)(a)
- once cheque dishonoured, drawer and nay indorser becomes liable irrespective of any notice of
dishonour: s 70
(5) The liability of parties to a cheque
- drawer of cheque undertakes that payment will be made by drawee bank on due presentment and
if cheque dishonoured will compo holder or indorser of any loss on dishonour: s 71
- drawer estopped from denying holder in due course that cheque when issued was a valid cheque: s
72
- indorser of cheque undertakes payment will be made by drawee bank on due presentment and if
cheque dishonoured will compo the holder or subsequent indorser for any loss on dishonour: s 73
(6) Defences of the paying bank
- paying bank = drawee bank owes certain obligations to its customer (the drawer)
- if it pays cheque against order contained in the cheque may be able to debit drawers account to
the value of the cheque but will be liable for action by drawer for breach of contract
- if cheque fraudulently altered in amount only, then drawee bank may debit drawers account
provided it paid cheque in good faith and w/o negligence: s 91
- so, what is meant by bank paying w/o negligence: test = whether circ are so out of ordinary they
should have aroused doubts in bankers minds and caused bankers to make inquires:
Commissioners of Taxation v Eng Scottish and Aus Bank
(7) Defences of the collecting bank
- collecting bank = holder takes cheque for purposes of paying the bank
- a bank that collected, presented, then paid a cheque to a person who was not the true owner was
liable at CL to the true owner in conversion for the loss of the value of the cheque
- s 95(1) & (2) protect collecting bank where theres been good faith and no negligence
- negligence has same meaning as it had in s 94 (defence of paying bank)
- s 95(2) covers situation of collecting bank collecting order cheque which hasnt been indorsed and
provides that the collecting bank not negligent if the payees name is the same or similar to that o
the customer and it is reasonable in the circ for the collecting bank to have assumed that the
customer was the intended payee
- no longer necessary for customer to indorse cheque in blank for the collecting bank: s 96

52

Definition:
- special kind of instrument many similarities with bills of exchange and promissory notes
- however, drawee is always a financial institution
- since Cheques and Payment Orders Amendment Act 1998 (Cth), non-bank financial institutions eg
credit unions can use cheques (rather than money orders)
- cheque is required to be payable on demand and not in a future time (unlike BoE)
- payee = person to whom cheque payable
- can be bearer cheque goes to bearer
- an order cheque = if its expressed to be payable (i) to person(s); or (ii) to the order of the
person(s); or (iii) person(s) and (b) is not also expressed to be payable to bearer: s 3(1A)
- if payee takes cheque to his bank for payment (called collection) that bank is known as the
collecting bank
- the drawer of the cheque is the customer of the drawee bank
- the law here is governed by Cheques Act 1986 (Cth) before that part of Bills of Exchange Act
1909 (Cth)
- this Act applies to cheques drawn on or after 1 July 1987: s 7
- s 5 applies to cheques drawn by financial institutions on themselves ie bank cheques
-

the Act may be varied by agreement, except with the exceptions of s 6: Section 5, this section and
sections 7 to 16 (inclusive), 19 to 24 (inclusive), 30 to 32 (inclusive), 39 to 41 (inclusive), 43 to 45
(inclusive), 53 to 57 (inclusive), 61, 61A, 62, 62A, 64 to 67 (inclusive), 79, 88, 90 to 95
(inclusive), 97, 98, 100, 115 and 116 have effect notwithstanding any agreement to the contrary.

Elements of a cheque: s 10
o Unconditional order in writing
order must be more than mere authorisation or request to pay: s 11
order cannot depend on a contingency: s 12
o Addressed by person to financial institution
financial institution in s 3(1) = Reserve Bank, State Bank, other persons who carry on banking
to be a cheque addressed to financial institution need addressed to that financial institution and
no one else, and its named with reasonable certainty
o Signed by person giving it
cheque may be signed by person giving it or their agent acting under authority
financial institution may sign by stamp or mechanical means
signature must be placed on the cheque: s 14
person must sign cheque intending to do so as a drawer or indorser, otherwise not liable on the
cheque: s 31
unauthorised signature (includes forged signature: s 3(6)) on cheque wholly inoperative unless an
estoppel arises preventing genuineness of signature being denied or signature ratified but
signature will be treated as that of the person who wrote it: s 32
estoppel will kick in if drawer is aware that his cheques are being forged, but fail to alert the bank
of the forgeries: Greenwood v Martins Bank

Case Analysis: Greenwood v Martins Bank

Facts:
- hubby and wife opened up bank account (joint)
- they arranged with respondents that cheques would be signed by both of them
- then appellant opened further account
- on the new account, drew 19 genuine cheques, but 24 forged (drawn by his wife)
- then later the hubby wanted to get some cash out of the account and asked for the book, but the
lady told her shed taken all the money out to look after her much-in-need sister
- P then found out she had been deceiving him he said hed go to the bank
- Then she went and shot herself! Eeeech
- He went to the bank later on and said it was a forgery

53

Held:
-

The bank said they couldnt do anything because he disentitled himself because (i) he ratified the
act of his wife in putting his name on the cheques (ii) had adopted that act; or (iii) was estopped by
his negligence from alleging that the signatures were not his
Commission held P was estopped from alleging signatures werent his
Court of appeal reversed decision
The P appealed to this court
The Commissioner blamed the negligence of the hubby for the loss the bank incurred
ratification has nothing to do with this issue- for one, it needs v-consideration
but whats important is the issue of estoppel
the respondent waited before alerting the bank of the forgery the bank claims that his silence
until after his wifes death amounted in these circ to a rep that the cheques were not forgeries and
deprived the respondents of their remedy
the appellant says there was no rep, the bank was negligent, and that even if he did tell the bank
straight away, it wouldnt have made much difference
But the mans actions were deliberate keep silent and let the cheques go through then complain
(loser!) this is a rep in itself, a rep that all the cheques are in order and there were all the
elements of estoppel in this case, provided the appellants suffered detriment and because a
husband is responsible for his wifes torts, there was detriment in this case
therefore the Ps appeal necessarily fails and there was estoppel here
if agent is signing on behalf of their principal, wont be liable if use words like for and on behalf
and names their principal: s 33(1)
but even if uses those words, if signs w/o authority will be liable for it: s 33(2)
a person not drawer or indorser who signs cheque intending to be liable on it is treated as if they
were the indorser and their signature an indorsement; but if on the face of it, it is apparent they
didnt intend to indorse, then wont work: s 75
where theres a cheque that has place for authenticating cheque, and only the account holder signs,
then on the face of it the person signing if not intending to become personally liable: Valamios v
Demarco

o Requiring financial institution to pay on demand

s 14: 1(a) order expressed to require payment on demand, at right or on presentation; or (b) no
time for payment is expressed in the instrument containing the order

o Sum certain in money

s 15: sum be specified with reasonable certainty; if two sums are specified the lesser applies; sum
specified can be a rate of exchange

Crossings on Cheques
- uncrossed cheque can be paid in cash over counter
- crossing a cheque = direction by drawer to draw bank not to pay cheque other than to a financial
institution: s 54
- in order to constitute crossing cheque: s 53 ->
need to clearly bare across front 2 parallel lines or 2 lines with words not
negotiable btw them
- drawer or anyone else in possession may cross it: s 56
- if drawee bank pays to any person other than financial institution, then bank liable to true owner of
cheque for any loss
- if cheque doesnt appear on face to be crossed, then payment by drawee bank in good faith and
w/o negligence, then no liability for bank: s 93
- cheques can be negotiated, but if words not negotiable are written on cheques, person receiving it
can obtain no better title than the person who gave it had: s 55
- Commissioners of the State Savings Bank of Vic v Permewan Wright Griffith CJ words not
negotiable were warning to take care and cheque may be stolen

54

Case Analysis: Commissioners of the State Savings Bank of Vic v Permewan Wright
Facts:
- cheques drawn by Ps, who were shipping agents, for purpose of paying Customs duties upon
goods received
- all cheques crossed and marked not negotiable
- there were 22 cheques for some ppl
- then there were 36 for others
- all cheques fraudulently converted by clerk of P and paid by him into own private current account,
and he got paid the money w/o any checks being made by the bank who collected his money
- Ps took action against bank for conversion of the cheques
Held:
- whole court there was negligence by the commissioners of the Bank for the 36 cheques, so
werent protected by s 88
- Duffy, Powers, Rich JJ held that they werent negligent to the 22 cheques and therefore entitled to
the protection (Griffith, Isaacs dissenting)
- Griffith CJ and Powers J negligence in s 88 = omission to take such reasonable care as a banker,
charged with duty of collecting a crossed cheque, ought to take having regard for circ
- Isaacs and Powers JJ have to look at each cheque and test negligence looking at the circ, see if
it aroused doubts in bankers mind as to reliability
- Duffy & Rich JJ protection afforded by s 88 for banker acting in good faith, only when his belief
in the title of the customer might in the circ be reasonably prudent and careful in whether to adopt
that view or not
Isaacs:
- first, is it a bank yes if its the real and substantial business of a body of person, not merely
ancillary, then its a bank
- Now, have they discharged their prima facie obligation to pay over the various cheques w/o
negligence?
- Crossing cheques became recognises practice bankers have become so weary they wont even
touch them w/o a banker cashing them
- Parl increased obligations of the banker to ensure rightful owners protected by fraud and
negligence
- But, still have to look at the circ of the case as they occur at the time
- .on the whole, the appellants have not satisfied my mind that they took care and acted with
caution
Negotiation, Indorsement and Payment
-

all cheques can be negotiated, even if any crossing or markings are on the cheque: s 39
negotiation = transferring cheque from holder to another person so as to constitute that other
person as a holder: s 40
in order to negotiate a cheque, there must be indorsement of the cheque: s 41 written or placed
on the cheque and signed by the indorser, indorsement for whole cheque, mere signature on the
cheque will do
if cheque transferred, payable to order for value w/o indorsing to the transferee then: s 42 by
virtue of delivery, transferee gets title the transferor had, right to indorse the cheque to another
person
cheque payable to two or more persons jointly who are not partners must both indorse cheque for
it to be valid unless one has authority to act for the other: s 43
if name of payee misspelt, person can indorse by using that misspelling they could add their
correct spelt name, but not necessary: s 44
indorsements appearing on the cheque are deemed to be made in order in which they appear: s 48
s 49: holder in due course is in privileged position by being able to hold cheque free from any
defects in title of prior parties as well as being able to give good title to indorsee by negotiation
all holders of cheques are presumed to be holder in due course until the contrary is proved: s 51(1)

55

if drawing, issue or negotiation of cheque shown to have been affected by fraud, duress or
illegality, the holder presumed NOT to be holder in due course unless they prove the cheque was
taken in good faith for value and w/o notice of these vitiating factors: s 51(2)
person who takes cheque from holder in due course, whether for value or not, and who is not a
party to any fraud, duress, or illegality effecting the cheque, has all the rights of a holder in due
course: s 52
drawer or indorser of cheque not liable to pay cheque until presented: s 58
presentment can be waived in circ laid out in s 59
cheque must be presented within reasonable time which is usually prompt: s 60
ss 63, 64, 66 set out procedures for presentation of cheque by the collecting bank to the drawee
bank collecting bank must act promptly: s 66(3) ie clear the cheque
the drawee bank must present the cheque either dishonouring it or paying it unless bank is aware
of any defect in holders title, bank must pay the cheque: s 67
drawee bank may refuse payment on presentation if its authority to pay has been countermanded
by its customer the drawee: s 90(1)(a)
once cheque dishonoured, drawer and nay indorser becomes liable irrespective of any notice of
dishonour: s 70

Post Dated and Stale Cheques

- cheque thats post dated is still valid: s 16 (itll be presumed to be the date the cheque was drawn
or indorsement made)
- cheque deemed not duly presented if presented on date prior to date shown on the cheque: s 61(2)
- stale cheque = appears on face to have been drawn more than 15 months previous: s 3(5)
- stale cheque can be negotiated, subject to limitations of s 46 person takes it subject to any
defects it may have in title at the time the cheque became stale, doesnt receive a better title than
the transferee had
- drawee bank can refuse to pay a stale cheque: s 89
The liability of parties to a cheque
- drawer of cheque undertakes that payment will be made by drawee bank on due presentment and
if cheque dishonoured will compo holder or indorser of any loss on dishonour: s 71
- drawer estopped from denying holder in due course that cheque when issued was a valid cheque: s
72
- indorser of cheque undertakes payment will be made by drawee bank on due presentment and if
cheque dishonoured will compo the holder or subsequent indorser for any loss on dishonour: s 73
- whr cheque dishonoured, holder or an indorser compelled to pay the cheque may recover damages
from the drawer damages = sum order to be paid by the cheque + interest in accordance with
regulations: s 76
- transferor by delivery who is holder of a bearer cheque, not liable on cheque if transferring w/o
negotiating, but certain warranties will be imposed by s 77 the transferor warrants the cheque is
what it purports to be, that the transferor by delivery has right to transfer cheque by negotiation,
and the cheque is what it purports to be
- cheque thats paid in due course by drawee bank is charged: s 78
- a cheque is paid in due course of it is paid to a holder without notice of any lack of defect in the
holders title: s 79
Defences of the paying bank
-

paying bank = drawee bank owes certain obligations to its customer (the drawer)
if it pays cheque against order contained in the cheque may be able to debit drawers account to
the value of the cheque but will be liable for action by drawer for breach of contract
if cheque fraudulently altered in amount only, then drawee bank may debit drawers account
provided it paid cheque in good faith and w/o negligence: s 91
so, what is meant by bank paying w/o negligence: test = whether circ are so out of ordinary they
should have aroused doubts in bankers minds and caused bankers to make inquires:
Commissioners of Taxation v Eng Scottish and Aus Bank

56

Case Analysis: Commissioners of Taxation v Eng Scottish and Aus Bank

Facts:
- cheque drawn pay able to receiver and crossed bank placed in letter box of dept of tax, then
stolen
- stranger opened account with bank by depositing the cheque paid into account and collected
- no inquiries made by the bank
Held:
- no negligence on the part of the bank
- per Lord Dunedin
- bank used s 88 defence about banking acting in good faith w/o negligence
- whether there was negligence is a qu of fact
- b/c its a qu of fact, cannot lay down rules for determining how to say theres been negligence
- it was argued the bank shouldnt have collected a cheque from a man whom they knew nothing
about and should have been suspicious of the way he opened the account
- however, the appellants really have themselves to blame for the manner in which they put the
cheque in the letter box etc
- in this case there was no note of warning on the cheque to suggest due care needed to be had
- case dismissed and no negligence
-

banker and customer are in a contractual rship owe duty of care for cheques so customer
cannot, say, leave chequebook around, or blank, signed cheque bank could then argue it isnt
liable if something like that happened b/c it was customers negligence
National Aus Bank v Hokit held: (1) customer under duty to draw cheques so as not to facilitate
fraud (2) customer under duty to advice bank of any unauthorised cheques drawn
cannot leave gaps on cheque so rogue can easily alter them: Cth Trading Bank of Aus v Syd Wide
Stores

Case Analysis: National Aus Bank v Hokit

Facts:
- employee of several family companies used to sign her employers name with his knowledge
- also signed cheques for her benefit w/o his knowledge
- companies bank then sued by companies for money debited from their account to the girl
Held:
- limited qualification to principle that bank bears the burden of forged cheques should NOT be
extended to include duty on part of customer either in contract or tort to take reasonable
precautions in the management of bank accounts to prevent presentation of forged cheques
- theres two responsibilities of customer (1) customer/creditor has duty to take usual and reasonable
precautions in drawing cheque to prevent fraudulent alteration of it which may occasion loss to the
banker (2) customer has duty to inform bank of any forgery as soon as customer becomes aware of
it
- the bank wanted to extent this that a company was under a duty to check its banking records
- I am of the opinion the Court should not impose upon the bank customers the duties proposed by
the Bank
Case Analysis: Cth Trading Bank of Aus v Syd Wide Stores
Facts:
- P drew cheques to some place CAS
- Crossed and marked not negotiable
- Employee added letter H after CAS to make it say pay CASH
- P said bank failed to take reasonable care in paying the cheques shouldve picked it up
- In its defence, bank said customer owed it a duty and that the customer was negligent it its duty
Held:
- Murphy J looked at social policy
- In this case the negligent drawer should be liable
- But the standard should not be risen and we dont want to turn into a society always suspicious

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Defences of the collecting bank

-

collecting bank = holder takes cheque for purposes of paying the bank
a bank that collected, presented, then paid a cheque to a person who was not the true owner was
liable at CL to the true owner in conversion for the loss of the value of the cheque
s 95(1) & (2) protect collecting bank where theres been good faith and no negligence
negligence has same meaning as it had in s 94 (defence of paying bank)
s 95(2) covers situation of collecting bank collecting order cheque which hasnt been indorsed and
provides that the collecting bank not negligent if the payees name is the same or similar to that o
the customer and it is reasonable in the circ for the collecting bank to have assumed that the
customer was the intended payee
no longer necessary for customer to indorse cheque in blank for the collecting bank: s 96

Electronic Transactions
- now enacted Electronic Transactions Act 1999 (Cth)
- purpose = make transactions done initially under certain Cth Acts valid and of equal status if done
electronically
- part of scheme envisaged States will eventually adopt it

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