Principles of Commercial Law

Cavendish

Publishing

Limited

CP

London • Sydney

Principles of

Commercial Law

Second Edition

EDITORIAL ADVISORY BOARD

PRINCIPLES OF LAW SERIES

PROFESSOR PAUL DOBSON

Visiting Professor at Anglia Polytechnic University

PROFESSOR NIGEL GRAVELLS

Professor of English Law, Nottingham University

PROFESSOR PHILLIP KENNY

Professor and Head of the Law School, Northumbria University

PROFESSOR RICHARD KIDNER

Professor at the Law Department, University of Wales, Aberystwyth

In order to ensure that the material presented by each title maintains the

necessary balance between thoroughness in content and accessibility in

arrangement, each title in the series has been read and approved by an

independent specialist under the aegis of the Editorial Board. The Editorial

Board oversees the development of the series as a whole, ensuring a

conformity in all these vital aspects.

Cavendish

Publishing

Limited

CP

London • Sydney

Principles of

Commercial Law

Second Edition

Professor Michael Furmston

TD, MA, BCL, LLM, Barrister

Bencher of Gray’s Inn

Emeritus Professor of Law and Senior Research Fellow

The University of Bristol

Second edition first published in Great Britain 2001 by Cavendish

Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX,

United Kingdom

Telephone: + 44 (0)20 7278 8000 Facsimile: + 44 (0)20 7278 8080

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Website: www.cavendishpublishing.com

This title was previously published under the Lecture Notes series

© Furmston, MP 2001

First edition 1995

Second edition 2001

All rights reserved. No part of this publication may be reproduced, stored in

a retrieval system, or transmitted in any form or by any means, electronic,

mechanical, photocopying, recording, scanning or otherwise, except under

the terms of the Copyright, Designs and Patents Act 1988 or under the terms

of a licence issued by the Copyright Licensing Agency, 90 Tottenham Court

Road, London W1P 9HE, UK, without the permission in writing of the

publisher.

Furmston, MP (Michael Philip)

Principles of Commercial Law – 2nd ed

1 Commercial law – England 2 Commercial law – Wales

I Title II Commercial law

346.4'2'07

ISBN 1 85941 463 X

Printed and bound in Great Britain

PREFACE

v

The first edition of this book formed part of the Lecture Notes series, which

was intended to help students by giving them a clear outline of the material

to be covered in the course, so as to enable them to concentrate on the

lectures and other reading within a framework which was easy to assimilate

and understand. The second edition has been written with the same purpose

in view although the Lecture Notes series itself is no more.

Apart from bringing the text up to date, there are two more substantial

changes. The first is the disappearance of the discussion of consumer credit.

If commercial law is about the relations between merchants, then the law of

consumer credit, important and complex as it is, is not part of commercial

law. This doctrinal consideration is reinforced by the fact that examination

shows that nowadays relatively few universities include this material in

courses entitled Commercial Law or something similar. I am very grateful

indeed to Peter Shears for undertaking this formidable labour in the first

edition. At a relatively late stage in preparation of the text, it was decided

that a rather fuller treatment of agency was appropriate. My other

commitments did not permit me to do this myself within the desired time

frame and I am extremely grateful to Professor Richard Stone, who has not

only done this, but done it better than I could have done myself.

There is a strong case for a general expansion of the whole work so that it

could fit in to the Cavendish Principles series. This would present a

formidable but exciting challenge but it is one which will have to be

postponed until the third edition.

Michael Furmston

April 2001

CONTENTS

vii

Preface v

Table of Cases xiii

Table of Statutes xxix

Table of Other Legislation xxxiii

PART I – SALE OF GOODS

1 INTRODUCTION TO SALE OF GOODS 3

1.1 NATURE OF THE SUBJECT 3

1.2 IS THE SALE OF GOODS ACT A COMPLETE CODE? 4

1.3 DOMESTIC AND INTERNATIONAL SALES 5

1.4 COMMERCIAL AND CONSUMER SALES 5

1.5 TYPES OF TRANSACTION 6

1.6 MEANING AND TYPES OF GOODS 11

SUMMARY OF CHAPTER 1 15

2 THE PRICE 17

2.1 INTRODUCTION 17

2.2 THE PARTIES SAY NOTHING ABOUT THE PRICE 17

2.3 THE PARTIES FIX THE PRICE IN THE CONTRACT 18

2.4 THE PRICE IS LEFT TO BE FIXED IN A MANNER

AGREED BY THE CONTRACT 18

2.5 FIXING THE PRICE BY THIRD PARTY VALUATION 19

SUMMARY OF CHAPTER 2 21

3 PAYMENT, DELIVERY AND ACCEPTANCE 23

3.1 INTRODUCTION 23

3.2 PAYMENT 23

3.3 DELIVERY 24

3.4 ACCEPTANCE 31

SUMMARY OF CHAPTER 3 37

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viii

4 OWNERSHIP 39

4.1 INTRODUCTION 39

4.2 THE SELLER’S DUTIES AS TO THE TRANSFER

OF OWNERSHIP 39

4.3 MEANING OF ‘RIGHT TO SELL’ 40

4.4 TO WHAT REMEDY IS THE BUYER ENTITLED IF

THE SELLER BREAKS HIS OBLIGATION

UNDER S 12(1)? 40

4.5 SCOPE OF ROWLAND V DIVALL 41

4.6 SUBSIDIARY OBLIGATIONS 42

4.7 CAN THE SELLER EXCLUDE HIS OR HER

LIABILITY UNDER S 12? 42

4.8 THE PASSING OF PROPERTY 43

4.9 RETENTION OF TITLE CLAUSES 50

4.10 TRANSFER OF TITLE WHERE THE SELLER IS

NOT THE OWNER 54

SUMMARY OF CHAPTER 4 65

5 NON-EXISTENT GOODS, RISK AND

FRUSTRATION 67

5.1 NON-EXISTENT GOODS 67

5.2 THE DOCTRINE OF RISK 68

5.3 THE DOCTRINE OF FRUSTRATION 71

SUMMARY OF CHAPTER 5 75

6 DEFECTIVE GOODS 77

6.1 INTRODUCTION 77

6.2 LIABILITY IN CONTRACT: EXPRESS TERMS 77

6.3 LIABILITY FOR MISREPRESENTATION 78

6.4 IMPLIED TERMS 81

6.5 LIABILITY IN TORT 94

6.6 CRIMINAL LIABILITY 99

SUMMARY OF CHAPTER 6 99

Contents

ix

7 EXEMPTION AND LIMITATION CLAUSES 101

7.1 INTRODUCTION 101

7.2 THE POSITION AT COMMON LAW 102

7.3 STATUTORY CONTROL OF EXEMPTION AND

LIMITATION CLAUSES 104

7.4 EUROPEAN STATUTORY CONTROL 110

SUMMARY OF CHAPTER 7 117

8 REMEDIES 119

8.1 GENERAL PRINCIPLES 119

8.2 WITHHOLDING PERFORMANCE, TERMINATION

AND THE BUYER’S RIGHT TO REJECT 120

8.3 SPECIFIC ENFORCEMENT 126

8.4 ACTIONS FOR DAMAGES 128

8.5 PARTY PROVIDED REMEDIES 132

8.6 SELLERS’ REMEDIES AGAINST THE GOODS 134

SUMMARY OF CHAPTER 8 135

PART II – LAW OF AGENCY

9 INTRODUCTION TO THE LAW OF AGENCY 139

9.1 DEFINING AN AGENCY 139

9.2 TYPES OF AGENCY 142

9.3 CREATION OF AGENCY 144

9.4 RATIFICATION 145

9.5 AGENCY BY OPERATION OF LAW 148

9.6 TERMINATING THE AGENCY 150

SUMMARY OF CHAPTER 9 153

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x

10 THE EXTERNAL RELATIONSHIP 155

10.1 AUTHORITY 155

10.2 DISCLOSED AND UNDISCLOSED PRINCIPALS 161

10.3 CASES WHERE A IS LIABLE TO BE SUED 165

10.4 CASES WHERE A IS ENTITLED TO SUE 167

SUMMARY OF CHAPTER 10 169

11 THE INTERNAL RELATIONSHIP 171

11.1 DUTIES OF AGENT TOWARDS PRINCIPAL 171

11.2 RIGHTS OF AGENT AGAINST PRINCIPAL 176

SUMMARY OF CHAPTER 11 181

PART III – CARRIAGE OF GOODS BY SEA

12 INTRODUCTION TO CARRIAGE OF

GOODS BY SEA 185

12.1 NATURE OF THE SUBJECT 185

13 BILLS OF LADING 179

13.1 WHAT IS A BILL OF LADING? 179

13.2 DOCUMENT OF TITLE 192

13.3 THE BILL OF LADING AS A TRANSFERABLE CONTRACT 193

13.4 OTHER DOCUMENTS USED FOR SEA CARRIAGE 195

SUMMARY OF CHAPTER 13 199

14 CHARTERPARTIES 201

14.1 TYPES OF CHARTERPARTY 201

14.2 VOYAGE CHARTERPARTIES 203

14.3 TIME CHARTERPARTIES 211

14.4 BILL OF LADING FOR GOODS IN

CHARTERED SHIP 213

SUMMARY OF CHAPTER 14 205

Contents

xi

15 THE HAGUE AND HAGUE-VISBY RULES 219

15.1 ORIGIN OF THE HAGUE RULES: THE HARTER ACT 219

15.2 THE BRUSSELS CONVENTION OF 1924:

THE HAGUE RULES 219

15.3 APPLICATION OF THE RULES 219

15.4 PROVISIONS OF THE RULES 220

15.5 THE HAGUE-VISBY RULES 221

SUMMARY OF CHAPTER 15 223

16 FREIGHT 225

16.1 INTRODUCTION 225

16.2 FREIGHT PAYABLE ON DELIVERY 225

16.3 LUMP SUM FREIGHT 225

16.4 PRO RATA FREIGHT 225

16.5 ADVANCE FREIGHT 225

16.6 BACK FREIGHT 226

16.7 DEAD FREIGHT 226

16.8 SET-OFF 226

16.9 WHO IS LIABLE FOR FREIGHT? 226

PART IV – INTERNATIONAL SALES

17 GENERAL PROBLEMS 231

17.1 CONFLICT OF LAWS 231

17.2 THE SALE OF GOODS ACT 232

17.3 FINANCE 232

17.4 EXPORT AND IMPORT LICENCES 236

17.5 INSURANCE 237

17.6 THE BILL OF LADING 238

SUMMARY OF CHAPTER 17 239

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18 CIF CONTRACTS 241

18.1 DEFINITION 241

18.2 DUTIES OF SELLER 241

18.3 DUTIES OF BUYER 242

18.4 PASSING OF PROPERTY 242

18.5 PASSING OF RISK 243

18.6 REMEDIES OF THE SELLER 243

18.7 REMEDIES OF THE BUYER 244

SUMMARY OF CHAPTER 18 247

19 FOB AND OTHER CONTRACTS 249

19.1 DEFINITION AND CLASSIFICATION 249

19.2 DUTIES OF THE SELLER 250

19.3 DUTIES OF THE BUYER 250

19.4 PASSING OF PROPERTY 250

19.5 PASSING OF RISK 251

19.6 REMEDIES OF THE BUYER 251

19.7 REMEDIES OF THE SELLER 252

19.8 OTHER CONTRACTS 253

SUMMARY OF CHAPTER 19 255

Index 257

xiii

TABLE OF CASES

Aello, The [1960] 3 WLR 145; [1960] 2 All ER 578 . . . . . . . . . . . . . . . . . . . . . . . 209, 210

Alan (WJ) & Co v El Nasr Export & Import Co

[1972] 2 WLR 800; [1972] 2 All ER 127 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Albazero, The [1976] 3 WLR 419;

[1976] 3 All ER 129 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194, 214

Aldridge v Johnson (1857) 119 ER 1476;

(1857) 7 E & B 885 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Alpha Trading Ltd v Dunnshaw-Patten Ltd

[1981] 2 WLR 169; [1981] 1 All ER 482 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

Aluminium Industrie Vaassen BV v Romalpa

Aluminium [1976] 1 WLR 676; [1976] 2 All ER 552 . . . . . . . . . . . . . . . . . . . . . . 51–53

Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd

[1933] All ER Rep 479; (1933) 50 TLR 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Anglo Russian Merchant Traders & Batt (John) & Co

(London), Re (1917) 116 LT 805; (1917) 61 SJ 591 . . . . . . . . . . . . . . . . . . . . . . 237, 240

Aramis, The [1989] 1 Lloyd’s Rep 213 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

Arcos Ltd v EA Ronaasen Ltd

[1933] All ER Rep 646; (1933) 949 TLR 231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85, 121

Ardennes, The [1951] 1 KB 55; [1950] 2 All ER 517 . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Arenson v Casson [1975] 3 WLR 815;

[1975] 3 All ER 901 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Aries, The [1977] 1 WLR 185; [1977] 1 All ER 398 . . . . . . . . . . . . . . . . . . . . . . . . . . . 226

Armagas v Mundogas

[1986] 2 WLR 1063; [1986] 2 All ER 385. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158–60

Armour v Thyssen Edelstahlwerke AG

[1990] 3 WLR 810; [1990] 3 All ER 481 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Armstrong v Jackson [1917] 2 KB 822 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175, 181

Asfar & Co Ltd v Blundell

(1896) 73 LT 648; (1896) 40 SJ 66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67, 225

Ashington Piggeries v Christopher Hill

[1971] 2 WLR 1051; [1971] 1 All ER 847. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83, 84, 92

Astyanax, The [1985] 2 Lloyd’s Rep 109, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Aswan Engineering v Lupdine

[1987] 1 WLR 1; [1987] 1 All ER 135 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Atari Corp (UK) Ltd v Electronic Boutique Stores

(UK) Ltd [1998] 1 All ER 1010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

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AG of Hong Kong v Reid [1993] 3 WLR 1143;

[1994] 1 All ER 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174, 181

AG for Ceylon v Silva [1953] 2 WLR 1185;

(1953) 97 SJ 384 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

Australasian Steam Navigation Co

v Morse (1872) 27 LT 357 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Australia, The, See Lapraik and Chape

v Burrows, The Australia—

Bailey v Rawlins (1829) 7 LJOSKB 208 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Bank of England v Vagliano Bros

[1891–94] All ER Rep 93; (1891–94) 64 LT 353 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Baring v Corrie (1818) 2 B & Ald 137 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Barrow, Lane and Ballard Ltd v Philip Phillips

& Co Ltd [1928] All ER Rep 74; (1928) 45 TLR 133 . . . . . . . . . . . . . . . . . . . . . . . . . 67

Beal v South Devon Rly Co (1864) 3 H & C 337. . . . . . . . . . . . . . . . . . . . . . . . . 171, 181

Behnke v Bede Shipping [1927] All ER Rep 689;

(1927) 43 TLR 170 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Bence Graphics International Ltd v Fasson UK Ltd

[1997] 3 WLR 205 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Berkshire, The [1974] 1 Lloyd’s Rep 185. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

Bernstein v Pamson Motors (Golders Green) Ltd

[1987] 2 All ER 220; [1987] TLR 384 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32, 35, 89

Blackburn Bobbin Co v TW Allen & Sons

(1918) 119 LT 215; (1918) 34 TLR 508. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Bolton Partners v Lambert (1889) 60 LT 687;

(1889) 5 TLR 357 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145, 147, 153

Bond Worth, Re [1979] 3 WLR 629; [1979] 3 All ER 919 . . . . . . . . . . . . . . . . . . . . . . . 53

Borden v Scottish Timber Products [1979] 3 WLR 672;

[1979] 3 All ER 961 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Boyter v Thomas [1995] 3 WLR 36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Brandt v Liverpool etc, Steam Navigation Co

[1923] All ER Rep 656; (1923) 130 LT 392 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194–96

Brebner v Henderson 1925 SC 643.9.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Bristol and West Building Society

v Mothew [1996] 4 All ER 698 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173