UNIVERISTY OF LAGOS

DISTANCE LEARNING INSTITUTE

BUSINESS LAW MODULES (CIL 308)

For Year 3 Business
Administration and Year 1
Accounting CLASSES

By

T. O. Dada
S. I. A. Adeosun
O. A. Olugasa
U. Lamikanra

2010
Contents
MODULE 1: GENERAL INTRODUCTION TO LAW AND BUSINESS LAW .........3
MODULE 2: LAW OF CONTRACT: Introduction, Definition of Terms and Formation
............................................................................................................................................10
MODULE 3: LAW OF CONTRACT: Elements of Validity and Operations, Terms of
Contract ..............................................................................................................................15
MODULE 4: LAW OF CONTRACT: Vitiating Elements ...............................................36
MODULE 5: LAW OF CONTRACT: Performance, Discharge and Breach and Remedies
in Contracts ........................................................................................................................41
MODULE 6: LAW OF AGENCY: DEFINITION, CLASSIFICATION AND
CREATION .......................................................................................................................52
MODULE 7: LAW OF AGENCY PRINCIPAL, AGENT AND THIRD PARTY
RELATIONSHIP AND TERMINATION OF AGENCY .................................................60
MODULE 8: LAW OF HIRE PURCHASE: DEFINITION AND PRE–1965
APPLICATIONS ...............................................................................................................65
MODULE 9: HIRE PURCHASE LAW: POST – 1965 REFORMS AND OPERATIONS
............................................................................................................................................69
MODULE 10: HIRE PURCHASE LAW: OBLIGATIONS OF PARTIES AND
TERMINATION ................................................................................................................75
MODULE 11: SALE OF GOODS: DEFINITION, FORMATION AND OPERATIONS
............................................................................................................................................82
MODULE 12 – IMPLIED CONDITIONS AND WARRANTIES ...................................87
MODULE 13 –PASSING OF PROPERTY AND DELIVERY OF GOODS ...................92
MODULE 14: SALE BY NON-OWNER OR GOODS AND CONTRACT
PERFORMANCE ..............................................................................................................96
MODULE 15: REMEDIES IN SALE OF GOODS TRANSACTIONS .........................101
GENERAL REFERENCES FOR FURTHER READINGS............................................105

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 MODULE 1: GENERAL INTRODUCTION TO LAW AND
BUSINESS LAW (CIL 308)

1.1 Introduction
This module is the general introduction to the study and understanding of
Business Law for Distance Learning Students and most especially, the first-
timers.

1.2 Set Objectives

At the end of the course, students should be able to:
(a) Discuss the rudiments of law as a subject
(b) Explain some of the basic concepts in the law for the understanding
of the students
(c) Analyse the fundamental principles in those broad areas of the
study, teaching and the practice of law, and
(d) Identify, define and distinguish the various terms that are prevalent
in the various subjects of law being considered.

1.3 Course Content of the Module

(a) The meaning of Law
(b) Classification of Law
(c) Law, Morals and Religion
(d) Concept of Justice
(e) Rule of Law
(f) Fundamental Human Rights
(g) Functions of law in the Society
(h) Sources of Nigeria Law
(i) What Business Law is
(j) Coverage and Scope of Business Law under Distance Learning
programme of the University of Lagos
(k) Summary of Module 1
(l) Self-Assessment Questions
(m) Solutions to the Questions
(n) Further Readings

1.2 (a) Meaning of Law

Law simply means “that which is laid down, ordained or established; a rule
or method according to which phenomena or actions co-exist or follow each
other. That which must be obeyed and followed by citizens subject to

3
 sanctions or legal consequences is a “law.” The term law is used in
contradistinction to “fact.” Thus questions of law are to be decided by the
court while it is the province of the jury to solve the questions of fact. The
term “law” may also mean an act of the legislature or a statute emanating
from the body so constitutionally empowered to promulgate such laws.
Obedience and enforceability as well as appropriate sanctions are the most
common features of law in any given society.

(b) Classification of Law

(i) Public Law deals with the State in its political and sovereign capacity
e.g. Criminal Law, Administrative and Constitutional Law.
(ii) Private Law is administered between citizens. It deals with
enforcement of rights e.g Contract, Family Law, Torts, Trusts and
Succession.
(iii) Public International Law consists of rules regulating relationship
amongst sovereign states.
(iv) Private International Law is also called “Conflict of Laws,” that is,
differences between the municipal laws of different countries. It
arises from the diversity of laws of the different nations and the need
to reconcile the inconsistency e.g. Marriage laws.

(c) Philosophical Basis of Law

(i) Many views about law have resulted in the evolution of theories and
doctrines.
(ii) Some Schools of Thought in law have also emerged namely:
- Positivist/Analytical School – Austin, Hart, Fuller
- Sociological School – Saving and Maine
- Realist School – Holmes
- Natural Law School - Karl Marx
- Socialist School
(iii) Emergence of Theories and Doctrines
- Plato, Aristotle, Cicero, Black Stone and Pollock
- Austin’s Command Theory
- Kelsenian’s Pure Law Theory
- Acquinas’ Divine Law Theory
- Roscoe Pound – Law as means of reconciling conflicting interest
- Jeremy Bentham – Greatest happiness of the majority
- Socialist School – Law as tool of oppression
- Podgorecki - Law means order

1.3 (d) Law, Morals and Religion

(i) Law consists of rules and regulations.
(ii) Law varies from culture to culture hence the problem of universally
accepted definition. Law is therefore better described in line with
what it does in a particular setting.

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 (iii) Morality is premised on human behaviour. It is based on the notion
of what is good or bad or what is right or wrong in the circumstance.
Ability to enforce law is the main distinction between law and
morality. Law, if disobeyed, is punitive. Violation of moral precepts
leads to social sanction repulsion, indignation or surprise. For
example, adultery, fornication, homosexualism and lesbianism are
moral wrongs while rape and murder are both moral and legal
wrongs. Law and morality differ in the points of “must” and ‘ought’
to.
(iv) Religion guides the morals of a given society by preaching what is
good or bad. It impacts on the inner spiritual being of the people.
According to Philosopher Karl Mark, ‘Religion is the opium of the
people.’
(v) Law is essentially premised on authority and command. Austin
(John) said. “It is the command of the commander to the commanded
and as such, it must be obeyed, good or bad.” Bad laws may still be
valid e.g. in Hitler’s Germany or Saddam Hussein’s Iraq.

1.4 (a) Concept of Justice

▪ Justice means the idea of fairness according to law.
▪ The idea of justice is highly instrumental to the understanding of
law.
▪ Justice is all about the just and fair application of legal rules with
emphasis on fair hearing, natural justice and adherence to the
due process of law. Justice is synonymous with peace in the
society. The antithesis of justice is chaos and anarchy.
▪ Justice also relates to the fair and equitable distribution of
obligations and opportunities in the society. Aristotle’s notion of
justice was concerned with equality. The maker of the law must
be subject to the law.

(b) Rule of Law

- The concept of rule of law pre-supposes that all activities within
the society should be done according to laid down procedures.
There should be no arbitrary actions by individuals, groups or
institutions of governance.
- The idea of Rule of Law was propounded by A.V. Dicey, an
English constitutional law expert who summarized it under the
three principles of legality, equality and impartiality. Access to
these implies freedom, liberty and justice for the citizens.
- Society would be orderly and peaceful. Economic, social and
political development would be assured.
- There would be due regard for human rights and dignity.

(c) Fundamental Human Rights

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 Fundamental human rights are those categories of rights to which
citizens are naturally entitled. They are inalienable rights that cannot
be ordinarily derogated from. Those outlined in the 1999
Constitution (as amended) among others include:
(a) Right to life (s. 33)
(b) Right to dignity of human person (s. 34)
(c) Right to personal liberty (s. 35)
(d) Right to fair hearing (s. 36)
(e) Right to private and family life (s. 37)
(f) Right to freedom of thought, conscience and religion (s. 38)
(g) Right to freedom of expression and the press (s. 39)
(h) Right to peaceful assembly and association (s.40)
(i) Right to freedom of movement (s. 41)
(j) Right to freedom from discrimination (s. 42)
(k) Right to acquire and own immovable property anywhere in
Nigeria (s. 43) Section 44 enacts that there shall be no
compulsory takeover of property without adequate
compensation

Section 45 of the same Constitution, however places limitations on

the exercise of the fundamental rights. This is to the effect that the
constitutional provisions relating to fundamental rights shall not
invalidate any law that is reasonably justifiable in a democratic
society when such legislation is in the interest of defence, public
safety, public order, public morality or public health or for the
purpose of protecting the rights and freedom of other persons.

(d) Functions of law in the society

(i) Maintenance of law and order
(ii) Ensuring national unity and cohesion
(iii) Resolving conflicting interests
(iv) Serving as means of social cleansing
(v) Serving as means of social engineering
(vi) Serving as means of correcting and guiding the people
(vii) Articulating and re-orientating human behaviour within the
society
(viii) Ensuring the smooth ordering of affairs within the society
(ix) Conferring rights and imposing obligations and duties on the
citizens and the government alike
(x) Manifesting and reflecting the ethos of the society. A society
gets the type of law that suits its polity.

1.5 Sources of Nigerian Law

(i) Primary sources

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 - Received English Law – Common Law, Equity, Statutes of
General Application as at January 1, 1900
- Nigerian Legislation and Statutes e.g., Hire Purchase (HP),
Company and Allied Matters Act (CAMA), Sale of Goods Act
(SOGA), Labour Act, Insurance Act.
- Judicial Precedents and Case Laws
- Delegated Legislation – Statutory Instruments and Ministerial
Orders.

(ii) Secondary Sources

- Customary/Islamic Law: The Repugnancy Doctrine states
that customary/Islamic law.
• Must not be repugnant to natural justice, equity and
good conscience.
• Must not be contrary to public policy and
• Must not be incompatible with any law for the time
being in force
- International law – Conventions, Treaties Protocols e.g.,
Economic Community of West Africa (ECOWAS). African
Union (AU), United Nations Organisation (UNO).
- Books by Authors – interpretative opinions.

1.6 What Business Law Is

Business Law which, in wider spectrum is also known as Commercial Law, is an
important branch of the learning, training, teaching, practice and the study of Law.
It covers various aspects of the activities and interactions of human being within
their economic and social millieu. Business law therefore encapsulates all areas of
commerce, trade, industrial and manufacturing undertakings of man within the
society. The subject specifically embraces such phenomena as Contract, Agency
Hire Purchase, Sale of Goods, Trademarks, Copyrights, Company Law,
Negotiable Instruments, Employment and Labour Matters, Advertising and
Marketing activities, Hotels and Hospitality businesses, Taxation and Insurance.
There is therefore no doubt that these human – based endeavours would require
copious regulatory legal framework and control in a conducive environment that
would facilitate their smooth operations.

1.7 Coverage of Business Law Syllabus under the Distance Learning

Programme of the University of Lagos
The wide coverage of Business Law notwithstanding, deliberate attempt
has been made at the Distance Learning Institute, University of Lagos, to
limit the scope of study of the subject. Consequently, topics such as the Law
of Contract, Agency Law, Hire Purchase Law and Sale of Goods Act are
emphasized and taught in greater details. Company Law is not included
because it is given separate treatment as a distinct subject under

7
 ACCOUNTING (Year 3, Code CIL 306) in Distance Learning Institute’s
programme.

1.8 Summary of Module 1

This module attempts a general introduction of law to students, most of whom
invariably may not have had any rudimentary knowledge of the subject. The
format has therefore been put in a simple summary outline manner. The set
objectives and purposes for learning and study of Business Law (CIL 308) as a
course are also summarized. The module is particularly designed to assist the
students by preparing their minds before being ushered into the main threshold
of Contract, Agency Hire Purchase and Sale of Goods studies.

1.9 Self-Assessment Questions

1. Attempt a definition of law as a subject

2. Outline and briefly describe the categories into which law may be
classified.

3. Write short explanatory notes on any one of the following:

a. Law, Morals and Religion
b. Rule of Law
c. Fundamental Human Rights
d. Concept of Justice

4. Briefly describe the main sources of Nigerian laws

5. What do you understand by the Phrase “Business Law”?

6. Distinguish between primary and secondary source of law.

7. Law performs many functions within a given society. Which of the

underlisted functions is not the function of law properly so-called?
(a) Maintenance of law and order
(b) Resolving conflicting interests
(c) Serving as means of social segregation
(d) Serving as means of social engineering
(e) Articulating and re-orienting human behavior within the
society.

8. Which of these is not a veritable source of Nigeria law?

(a) Received English law

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 (b) Nigerian legislation
(c) Customary/Islamic law
(d) Oral laws
(e) Judicial precedents.

9. The concept of the rule of law was propounded by

(a) Jean Boden
(b) Karl Marx
(c) Dicey A.V
(d) John Austin
(e) John Locke

10. The body of law which establishes rights between persons and
provides for redress for violation of those rights is known as ………..
Law.
(a) Criminal (b) Civil (c) Contract
(d) Commercial (e) Stare decisis

11. Tom and Jerry entered into a contract whereby Tom agreed to sell
Jerry N1,000 worth of heroin, an illegal substance. This is an example
of a ……
(a) quasi contract
(b) void contract
(c) voidable contract
(d) secondary party beneficiary contract
(e) valid contract

12. Which of the following is NOT a necessary part of contract?

(a) legal capacity (b) offer and acceptance
(c) legal objective (d) consideration
(e) documentation

Solutions to the Questions

1. Law may be described as a body if rules and regulations made by the sovereign
or state to regulate human conduct in a given society and backed by sanction for
the purpose of maintenance of order and peace.

2. Law may be classified according to substantive and procedural perspectives.

For the former are examples like Public, Private, Property or Commercial Law,
Public international law and Private international law. Examples of procedural or
adjectival classifications are civil and criminal law and law of evidence.

3. (a) We have answered what law is in (1) above. Morals are the values of a given
people as to what constitutes good bad. Religion is the expression of man to the

9
superior being who is seen as the ultimate determiner of the end of man. Religion
guides the morals of a given society by preaching what is good or bad. It impacts
on the inner spiritual being of the people. The three are compliments to one
another except law which is backed by sanction.

(b) The concept of rule of law pre-supposes that all activities within the society
should be done according to laid down procedures. There should be no arbitrary
actions by individuals, groups or institutions of governance. Rule of law requires
that everyone is under the law; no one is above the law. The law is no respecter of
persons. It suggests equality before the law.

(c)There are some inalienable rights for all human beings to uphold their dignity.
These are contained in our constitution especially in chapter 4.

(d) Justice is a relative concept which means fairness. Justice is all about the just
and fair application of legal rules with emphasis on fair hearing, natural justice
and adherence to the due process of law. Justice is synonymous with peace in the
society. The antithesis of justice is chaos and anarchy. In law justice is determined
by the means of proof and procedure.

4. The main sources of our laws are primary and secondary sources.

5. Business law is the classification of law dealing with commercial transactions

between individuals in society. Business law therefore encapsulates all areas of
commerce, trade, industrial and manufacturing undertakings of man within the
society. The subject specifically embraces such phenomena as Contract, Agency
Hire Purchase, Sale of Goods, Trademarks, Copyrights, Company Law,
Negotiable Instruments, Employment and Labour Matters, Advertising and
Marketing activities, Hotels and Hospitality businesses, Taxation and Insurance.
There is therefore no doubt that these human – based endeavours would require
copious regulatory legal framework and control in a conducive environment that
would facilitate their smooth operations.

6. Primary sources of law involve direct laws applicable as they are while
secondary sources are those that require certain further steps to become
applicable.

7. C

8. D

9. C

10. C

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11. B

12. C

Further Readings:
Alabi, Bolaji Business Law in Nigeria. Lagos: BRA & Associates, 2003
Dada T.O. General Princples of Law. Lagos. T.O. D. & Co., 2006.
Olugasa, Olubukola Law of Contract through Nigerian Cases, Lagos: BPrint, 2007

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

11
MODULE 2: LAW OF CONTRACT: Introduction, Definition of Terms
and Formation

2.1 Introduction
The module is designed to introduce students to the aspects of the definition and
interpretation of terms in the making and the formation of contracts.

2.2 Learning Objectives

At the end of the course students should be able to:
(a) Identify the various types of contracts and the elements of their validity
(b) Explain the meaning of contract and identify the various parties in its
formation
(c) Discuss the rights, duties and liabilities of the various parties

The purpose of this module is to present to the students a brief background to the
evolution of the law of contract, its nature, description, types and to introduce the
elements of a valid contract.

The Law of Contract evolved out of the translation of some publication on law of
obligations that emanated from a French Jurist, Ponthier, in 1806. Unlike other
laws that are formulated by parliament, contract involves laws made by
individuals based on their agreement (called contract) to be bound by them. The
courts will enforce the contract if invited where parties to it disagree.

2.3 Course Content of the Module

(a) What is Contract?
(b) Types of Contract
- Informal Contract
- Simple Contract
- Bi-lateral Contract
- Unilateral Contract
- Void Contract
- Voidable Contract
- Illegal Contract
- Valid Contract
(c) Summary of Module 2
(d) Self-Assessment Questions
(e) Solutions to the Questions
(f) Further Readings

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2.3. What is Contract?
Contract like other concepts cannot be defined; at best it can be described. By
nature contract is as wide as one can imagine the extent of human interactions,
particularly business transactions. Interestingly, contract appears in virtually all
our day-to-day dealings with one another. Our formal teaching and learning of
law of contract actually only provides the basic framework of how contracts
should be entered, performed and discharged or where breached, the available
remedies.

Each time you board a commuter bus or taxi cab, you enter into a contract with
the driver or bus conductor as the case may be. How? Whenever you jump on a
commuter bus which conductor announces its destination and fare, you ordinarily
conclude a contract between you and the conductor of the bus. Your obligation is
to furnish the fare while the bus operator is under the obligation to take you to
your destination. Informal as that relationship may seem, it involves the basic
requirements of a contract.

What then is contract? Contract may be described as a voluntary agreement

between two or more persons which is legally enforceable. It confers some rights,
duties and liabilities on the parties to the agreement to do or not to do a particular
thing(s). In it is a promise or set of promises which, if unfulfilled, the law may
enforce or remedy in one way or the other. A contract brings about a legal
relationship between parties to it. It is all about the enforcement of the promises
made in the agreement freely entered by the parties. There must indeed be a
consensus ad idem, i.e., meeting of the minds of all parties to the contract.

According to Aditya S. McDuffy (2001) a contract is “a promise, or set of promises,

for breach of which the law gives a remedy, or the performance of which the law
in some way recognizes as a duty.”

The case of Obminami Birch & Stone (Nig.) Ltd v. AIB Ltd (1992) 3 NWLR (Pt
229) 260 at 309 described the concept as:

“… a voluntary agreement whereby a person undertakes for reward (consistent) to

perform an act for another and its terms are as contemplated and admitted by the
parties themselves. It creates an obligation which is enforceable in law.”

In the case of Orient Bank (Nig.) Plc v. Bilante Int’l Ltd (1997) 8 NWLR (Pt 515)
37 at 76, Tobi JCA (then) amplified the definition this way:

“A contract is an agreement between two or more parties which creates reciprocal legal
obligation or obligations to do or not to do a particular thing. For a valid contract to
be formed, there must be mutuality of purpose and intention. The two or more minds

13
 must meet at the same point, event or incident. They must not meet at different points,
events or incidents. They must be saying the same thing at the same time. They must
not be saying different things at different times. Where or when they say different
things at different times, then they are not “ad idem” and thereby no valid contract is
formed. The meeting of minds of the contracting parties is the most crucial and
overriding factor in the law of contract. The minds must be ad idem or ad idem facit.
In Okubule v. Oyegbola (1990) 4 NWLR (Pt 147) 723, the Supreme Court held
that an agreement will not be binding on the parties to the contract until their minds
are at one both upon matters which are cardinal to the species of agreement in question,
and also upon matters that are part of the particular bargain”.

To establish the consensus ad idem, a prerequisite to the existence of a valid contract,

certain elements must be present. Those elements are known as the elements for
the formation of contract. These are – offer, acceptance, consideration, intention to
create legal relationship, and capacity to contract. See Nekka Bab Nig. Ltd v. ACB
Ltd (2004) 2 NWLR (Pt 858) 54.

A contract may be formal or informal. In other words, it may be written or oral, or

partly written and partly oral. A written contract is a formal contract; it is
otherwise known as a deed. It is an executed contract. By executed contract is meant
a contract (a written agreement) that has been signed, sealed and delivered
(although delivery is no longer a compulsory element). It means that the contract
has been fully performed by the parties to the contract. For instance, in the case of
sale of land or transfer of shares, as soon as parties to the sale have mutually agreed
to the terms stated in the written contract by signing their respective columns in
the agreement, the interest in the property passes to the buyer even though the
buyer is not yet in possession of the property.

There are cases where the law specifically requires that certain contracts must be
in writing (See section 4 of Statutes of Fraud). Some examples are sale of land,
shipping agreements, bank loan agreements, etc.

2.3 Types of Contract

Generally, contracts are classified under common law as informal/simple and
formal. The courts have also come up with another classification called express
and implied contracts. Apart from these are other contracts so named because of
certain peculiarities they bear.

Express contracts are contracts voluntarily and intentionally entered by the parties
validly having fulfilled all requirements of the elements of contract.

Implied contracts, on the other hand, are contracts entered into by parties without
deliberately intending to. The law infers from the conduct of the parties in the
transaction that a contract exists between them. It is a contact derived by operation
of law.

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Informal/Simple contracts are executory contracts, meaning to be performed,
unlike executed contracts. They are more often than not oral. They may be wholly
oral, or partly oral and partly written.

Formal contracts are deeds or contracts which are in writing. They must be signed
and sealed and delivered although delivery is no longer a must in contemporary
times. They are executed contracts, meaning they take effect as performed from
the moment of parties signing. Section 4 of the Statute of Fraud in England
adopted also in Nigeria requires certain types of contractual transactions must be
in writing. Examples are sale of land, lease above three years, loan, etc.

Bi-Lateral Contracts are contracts between at least two parties whereby each party
promises a performance. That makes each party an obligor on his promise, on the
one hand, and an obligee on the other party’s promise, on the other hand, e.g.,
contracts of sale.

Unilateral Contract: In a unilateral contract, only one party makes the promise in
exchange for an act to be performed by the other. A promise of reward for finding
a lost property is a typical example. In the case of Carllil v. Carbolic Smoke Ball
Co. Ltd. [1893] 1 Q.B. 256, the defendant company placed an advertisement with
a promise to pay £100 to any person who buys and uses its product according to
prescription and yet caught influenza. The court held that was an offer; an offer,
to the world. The plaintiff bought the drug, followed the prescriptions, and still
contracted influenza. Her performance of the requirements of the offer was
deemed as acceptance. She was therefore entitled to the reward of £100.

Void Contract: A purported contract which has not one of the elements of a
contract, or is not enforceable as all the elements of a valid contract are absent, or
owing to a vitiating element such as mistake, or by law deemed non-existent or
the conditions precedent are non-exiot. (See Pan Bisbilder Nig. Ltd v. Bank Ltd
(2000) 1 NWLR (Pt 642) 684 at 693).

Voidable Contract: A contract purportedly entered as valid but which may be set
aside at the instance of a party to the contract on grounds that although the
elements appear to be present, there have been some extraneous elements that
render them not genuine and thereby no consensus ad idem. It remains valid until
set aside. If further steps are taken to change the position of parties, it may become
binding. Black’s Law Dictionary (7th ed.) defines it as “a contract that is void as
to the wrongdoer but not void as to the party wronged, unless that party elects to
treat it as void.

15
Illegal Contract: A purported contract prohibited by law and particularly
sanctioned by the law. (See Pan Bisbilder (Nig.) Ltd supra. It is also void, but its
difference lies in the fact that it is, in addition, sanctioned.

Valid Contract
According to the pronouncement of Onalaja JCA in the case of Opara v. D. S. (Nig.)
Ltd (1995) 4 NWLR (Pt 340) 440 at 463, the essentials of a valid contract are:
(a) Offer and acceptance
(b) Legal capacity to contract
(c) Valuable consideration
(d) Intention to create legal relationship

The case of NNB v. Odaife (1993) 8 NWLR (Pt 310) 235 at 243-4 added
(e) The parties must be ad idem on the subject matter of the contract”

These are, however, not strictly followed under a formal contract where you have
the document properly executed. Besides, the modern day approach to the study
of law of contract prefers to avoid the concept of consensus ad idem. So, instead of
emphasising the intention of the parties to a contract as conveyed by their words
or conduct, the meaning a reasonable man would draw from the contract is the
focus. That approach has been tagged as the process of “objective interpretation”.
In Nigeria, however, the element of consensus ad idem is still relevant, albeit it is the
court that ultimately distils the intention of the parties by their interpretation.

2.4. Summary of Module 2

We have attempted to highlight the nature of contract. In the discussion we
mentioned the description of a contract, types of contract, and introduction to the
elements of contract.

2.5 Self-Assessment Questions

1. With the help of decided cases, explain what you understand as contract.
2. In what area of human interactions can contract be found?
3. Enumerate five types of contract and describe them.
4. Discuss the effect of consensus ad idem in contract.
5. What are the basic elements of a valid contract?
6. Contract has been described as a ………… agreement whereby a person
undertakes for some reward to perform an act for another and its terms are as
contemplated and admitted by the parties themselves.
a. voluntary b. anticipated c. compulsory d. determined e. contemplated
7. Which of the following principles would you identify as central to the classical
law of contract?
a. Freedom of information b. Freedom of contract c. Freedom from
oppression d. Consumer protection e. Freedom of speech

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 8. Contract, in other words, may be described as an agreement between two or more
persons which confer some…………………..on parties to the agreement a.
rights, freedom and obligations b. rights, obligations and dutiesc. rights,
liabilities and promises d. rights, freedom and liabilities e. rights,
obligations and liabilities
9. The difference between a void contract and an illegal contract is that ……….
a. the former attracts a sanction b. the latter attracts a sanction c. the former
keeps the contract alive d. the latter keeps the contract alive e. none of
these options
10. Which of the following is NOT a main element of a contract?
a. Acceptance b. Invitation to treat c. Consideration d. Capacity
e. intention to create legal relationship

2.6 Solutions to the Questions:

1. The court in the case of Obimiami v AIB and in Orient Bank v Bilante defined
contract as a voluntary agreement entered into by parties with the intention to be
bound. The intention to be bound is founded on the presence of offer, acceptance,
consideration, capacity and intention to create legal relationship.

2. Contract occurs in human interactions that are commercial.

3. Types of contract include informal, simple, formal, bilateral, unilateral, etc

4. Once a party has made an offer and the other accepts the offer without
modification in their free will then there is said to be consensus ad idem and the
parties must have the intention to be commercially bound having satisfied other
elements of contract. The effect is that there is a binding agreement.

5. A valid contract must have offer, acceptance, consideration, capacity and

intention to create legal relationship.

6. a 7. b 8. e 9. b 10. B

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

17
iag@dli.unilag.edu.ng
08033366677

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MODULE 3: LAW OF CONTRACT: Elements of Validity and Operations,
Terms of Contract

3.1 Introduction
The module teaches those aspects of the law of contract embracing the elements of
the validity and operations in contractual obligations.

At the end of this module, the student is expected to have fully understood the
various elements of contract formation. Beyond that, the student is expected to be
able to identify the elements and analyse any case study of business transactions
where contract exists.

This module discusses elements of a valid contract with some illustrations and
guided by some notable decided cases. The elements include offer, acceptance,
consideration, contractual capacity and intention to create legal relation.
Distinction is drawn between various situations that tend to appear as offer, i.e.,
invitation to treat, Counter-offer and cross-offer. Apart from explaining
acceptance, mode of acceptance and its communication are given due attention.

3.2 Learning Objectives

At the end of the course, students should be able to:
(a) Discuss the various ingredients that make for the validity of contracts
(b) Explain and analyse the various cases and authorities that have been cited
to illustrate the points.

3.3 Course Content of the Module

(a) Offer
(b) Acceptance
(c) Consideration
(d) Contractual capacity
(e) Intention to create legal relations
(f) Privity of contracts
(g) Contractual terms
(h) Exemption Clauses
(i) Summary of Module 3
(j) Self-Assessment Questions
(k) Solutions to the Questions
(l) Further Readings

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3.4 Elements of Contract

3.4 (a) OFFER

What is an offer in contract? An offer in law of contract could be summed
up as the definite, clear, and final proposition made by an offeror to an
offeree and with the intention to be bound if accepted. Wakama v. Kalio
(1991) 8 NWLR (Pt 209) 123 at 130, citing Black’s Law Dictionary, described
it as:

“A manifestation of willingness to enter into a bargain, so made as to justify

another person in understanding that his assent to that bargain is invited
and will conclude it”.

An offer is that final proposal which empowers the offeree to accept and which
acceptance will transform the offeror’s promise into a contractual obligation.

Tobi (JCA then) stated in Orient Bank v. Bilante (1997) 8 NWLR (Pt. 515) 37 that
“An offer is a proposal which emanates from the offeror to the offeree to enter into an
agreement to do or not to a particular thing…. A valid offer must be precise, and
unequivocal, giving no room for speculation or conjecture as to the real content in the
mind of the offeree. The offer must place at the doorsteps of the offeree a clear intention,
a desire to enter an agreement with which the offeree on clearly defined terms, the
expectation of acceptance on the terms as defined on a possible counter-offer, which
could be a basis for further negotiation. Of course the offeree has the 3rd option of
outright rejection of the offer.

Note that an offer not known to a party who purportedly accepts the offer is not
recognized in law. There are also instances whereby offers may cross, i.e. cross-
offer. This occurs where two parties make offer to each other at the same time but
unknown to either of them. Cross-offers do not constitute offers recognized in
law. See Tinn v. Hoffmann & Co (1873) 29 LT 271 at 278.

In Union Bank of Nig. Ltd v. Saw Nig. Ltd & Ors (1994) 8 NWLR (Pt 361) 150,
Iguh JSC said at P. 168

“… offer capable of being converted into an agreement by acceptance, must consist of

a definite promise to be bound provided that certain specific terms are accepted. The
offeror must have completed his own share of the formation by which the court may
finally decide on his own readiness to undertake an obligation upon certain conditions
leaving to the offeree the option of acceptance or refusal”.

Offer and other similar but different concepts

Offer must be distinguished from other appearances of purported offers which
include the following:
(1) advertisement

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(2) tender
(3) goods displayed
(4) passenger transport tickets or time tables
(5) auction sales
(6) job interview invitation letter
(7) Catalogues containing list of products with prices.

All these (but not limited to) are classified in law as invitation to treat.

What is an invitation to treat?

In distinguishing an offer from an invitation to treat, the court usually considers
not only the words used but also the circumstances that surround the use of the
words including the conduct of the parties. Tobi JCA (as he then was) said in
Orient Bank (Nig) Plc v. Bilante Int’l Ltd (1997) 8 NWLR (Pt 515) 37 at 80

“Does the mere use of the word ‘offer’ really constitute an offer in law? I think not.
The Court must examine the totality of the document to come to the conclusion that
an offer is made on it. It may be an invitation to treat although it contains the word
‘offer’. Similarly, a statement may be an offer although it is expressed as an
“acceptance”. In Innih v. Fermado (1990) 5 NWLR (Pt 152) 604, the court held that
an invitation to treat is a mere declaration or willingness to enter into negotiation. It
is not an offer and cannot be accepted as to form a binding contract.”

In general, an invitation to treat has been described as mere “puff” or invitation to

“chauffer” i.e., an invitation to negotiate. It appears like an offer but it is not an
offer. It is an invitation to the other party to make an offer. It involves negotiation
processes that come before an offer. (Note, however, that a unilateral offer may
come by way of an advertisement as in the case of Carllil v. Carbolic Smoke Ball
Ltd. (1892) 2 Q. B. 484). It is not an offer and cannot be accepted so as to form a
binding contract.”

Examples of Invitation to Treat

Advertisement: An advertisement is generally not an offer but an invitation to
treat. In the case of Partridge v. Crittendon [1968] 1 WLR 1204, an advertisement
of the sale of wild birds was held not to be an offer. In that case, a party was held
not liable to a law of England that prohibited the sale of wild life on the ground
that advertising the sale of some wild birds was not an offer but an invitation to
treat.

Note that this rule is applicable indeed to advertisements of bilateral contracts.

For a unilateral contract like the case of Carllil v. Carbolic Smoke Ball Co. Ltd.
(1892) 2 Q. B. 484 Supra, an advertisement amounts to an offer. There are
circumstances that an advertisement constitutes an offer to the world as in the case
of Carllil v Carbolic Smoke Ball Co. Ltd supra.

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Tenders: A statement calling for tenders or that goods are to be sold by tender is
not an offer in law. In the case of Harvey v. Facey [1893] A.C. 552 H telegraphed
to F, “Will you sell us Bumper Hall Pen? Telegraph lowest price.” F in response
telegraphed, “Lowest cash price for Bumper Hall Pen £900. “The response was
held to be a statement as to price and not an offer. A decision in the case of
Blackpool and Fylde Aero Club Ltd v. Blackpool Borough Council (1990) suggests
that an invitation to treat may contain an implied covenant to consider all tenders
that conform to specified conditions stipulated in a tender. This is not a binding
principle in Nigeria.

Auctions: In an auction sale, the bids do not constitute an offer until the hammer
falls. The auctioneer has the right to accept or decline the lot before the buyer
accepts the bid. But where the auction is subject to as in the case of McMarcus v.
Fortescue [1907] 2 KB1, a reserve price the auctioneer’s purported acceptance of a
lower bid to the reserve price does not constitute an offer. However, the reserve
price must be expressly stated. The advertisement of an auction is not an offer to
hold it.

Goods Displayed: Goods displayed in shop windows, at some shelves, show

rooms with fixed prices do not constitute offers. They are invitations to treat. The
buyer may offer to buy at the price on the good but the shopkeeper or cashier may
accept or reject it. The offer made by the buyer in this instance is actually not an
offer but an invitation to treat. The actual price is exclusively in possession of the
cashier/shopkeeper who cross-checks and makes an offer by stating the precise
price in the shop’s book. If the buyer is willing to buy at the price that the is book
offered by that cashier, then he can accept the offer made by the cashier.
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd
[1953] 1 QB 401, a prohibited poison displayed on shelf was held by the court as
not an offer. Note that where that shopkeeper expressly states that the first buyer
at the price will be accepted, then it will amount to an offer. In England, in the case
of Thornton v. Shoe Lane Parking (1971) 2 Q.B. 163, it was held that where the
display was made by a machine, the display will amount to an offer.

Share offers: A public offer of shares does not constitute an offer in law (Hebb’s
case [1867] L.R. 4. Eq.9). But a letter on ‘rights’ issue of new shares to an existing
holder is an offer.

Passenger’s Tickets/Transport: Of all the categories of invitation to treat, this has

been the most difficult aspect to ascertain. For cases where tickets are used, the
problem arises as to whether the ticket passes for a contractual document, or not.
In some cases where it is clear that the ticket is a contractual document the request
for the ticket is regarded as offer while the issuance of it is considered as
acceptance. But in some other cases, the ticket itself is considered as the offer and

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the taking of it the acceptance. The same principle may be applied to the Lagos
State Joint Partnership BRT system.

Although our transport system is still more of an informal contract, we can safely
say that the announcement by the conductor of the destination of a bus and the
price constitute the offer while the passenger’s stepping into the bus to sit and
proceed on the drive amounts to acceptance. See the dictum of Lord Greene MR
in Wilkie v London Passenger Transport Board [1947] 1 All ER 258.

Communication of Offer
One important step that needs be noted here is that an offer will be valid and
complete when it is communicated. In other words, it has come to the knowledge
of the offeree. The offeree cannot accept an offer the knowledge of which he does
not have. Why? The reason is that there cannot be meeting of minds where one
party is ignorant of the offer.

Note, however, that the position is not quite certain in all jurisdictions. In the case
of Gibbons v. Proctor (1891), a policeman who was ignorant of an offer of reward
for certain information was given the reward having sent in the information, albeit
innocently. Whereas in the Australian case of R. v. Clarke (1927) 40 Cr. L Rep 227
the court held that “… there cannot be an assent without knowledge of the offer;
and ignorance of the offer is the same thing whether it is due to never hearing of
it or forgetting it after hearing.” This view appears to be the preferred approach
presently.

Counter-offer
A valid offer is made upon certain terms that must be clear and final. Those terms
must be complied with if the offeree wishes to keep the offer alive, valid and
thereby capable of his accepting it. Where, however, the offeree chooses to vary or
modify the terms of the offer, at best what he has done is called a counter-offer. A
conditional acceptance or any fresh term introduced while purportedly accepting
an offer by the offeree amounts to a counter-offer. (See Innih v. Ferrado supra) Per
Agbaje JSC in the case of Okubule v. Oyagbola (1990) 4 NWLR (Pt 147) 723 at 742,
adopting the principle from Chitty on Contract (23rd Edition)

“A counter-offer by the offeree has a dual significance! it amounts to

[1] a rejection of the offer;
[2] it destroys that offer so that it cannot subsequently be accepted” (See Hyde
v. Wrench (1840) 3 Beave 334)

These principles have been reached in several notable contract related cases. See
NNBC v. Agric Incorporation (1990) 3 NWLR (Pt 332) 329 at 344. In that case, per
Kalgo JCA (then),

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 “….where communication to the offeror takes the form of an attempt to vary
the terms of the offer, then it fails to take effect as an acceptance. It is then a
counter-offer which the original offeror can then accept or reject. And in law,
a counter-offer, apart from failing to be an acceptance, amounts to a rejection
of the original offer which cannot be accepted subsequently”.

See also Hyde v. Wrench (1840) 3 Beav 334; Tinn v. Hoffmann & Co (1873) 29 LT
271 at 278 the locus classicus of the principle. Note that request for mere information
or inquiry is not counter-offer. See FGN v. Zebra Energy Ltd (2002) (Pt 798) 18
NWLR 162 SC.

Termination of Offer
There are instances where an offeror may change his mind and no longer wishes
to make the offer. This, depending on the circumstance of each case, may be a very
thin line between offer and acceptance. The general principle of law is that
revocation of such an offer must be made before acceptance is communicated. The
intricacies here shall be further explained under communication of acceptance. But
note that the following constitute the modes of revocation or termination of an
offer:

1) Counter-Offer - A counter-offer, as earlier mentioned destroys an offer. An

offer so destroyed cannot be revived. So, where a condition attached to an offer,
expressly or impliedly, is unfulfilled, the offer is terminated.

2) Revocation – An offer may be revoked. The case of Routledge v. Grant (1828)

4 Bins 653 stated this principle. This must be done before acceptance, including
where offer is made open except where the offeree has furnished consideration.
But that revocation must be communicated effectively to the offeree. Postage
rule does not apply here (see Byrne v. Van Tienhoven (1880) 5 CAD 344) though
if acceptance was posted before it is communicated then it can no longer be
terminated. The revocation need not emanate from the offeror himself (BCC
Plc v. Sky Inp (Nig) Ltd (2002) 17 NWLR (Pt 795) 80 at 106. See also Dickson
v. Dodds (1876) 2 Ch. D 463 where a third party made the revocation known to
the offeree before acceptance. Similarly, in Henthorn v. Fraser (1872), a
revocation of an offer posted is only effective when received. Note that it is not
yet determined when and how a unilateral contract may be revoked.

3) Rejection – An offer may be extinguished or terminated by an express or

implied rejection by the offeree. Express, if curtly rejected or implied, for
example, by counter-offer. Once rejected it cannot be brought back to life.

4) Lapse of Time – An offer can lapse only where the offeror requests exclusively
that acceptance can only be made by performance of the requested act, so that
offer can be revoked at any time before the performance is completed. (FGN v.

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 Zebra Energy Ltd (2002) 18 NWLR (Pt 798) 162 at 192 8 C. Although the general
principle appears to be that where the offeror stipulates time limit for
acceptance and the offeree fails to accept within that time the offer lapses, or
where no specific time limit is given, a reasonable time takes the course. See
also Ramsgate Victoria Hotel v. Montefoire (1866) LR 1 Ex Ch 109.

5) Death – This has two dimensions;

i) death of the offeree which naturally ends the offer as none else
can accept the offer. Note that no direct authority is available here
other than the obiter dicta in the case of Dickinson v. Dodds
(supra); and
ii) death of offeror. In the latter case, the knowledge of the offeror’s
death by the offeree determines the offer before acceptance. If
otherwise, his estate bears the liability if the type of contract is
one that can be performed by his personal representative, e.g. an
offer of a guarantee. See Brandbuy v. Morgan (1862) 158 ER 877
(Ex).

6) Failure of Condition – A conditional offer, once not met, will result in the
termination of the offer. Here therefore, an offer is subject to a condition, once
that condition is not fulfilled by the offeree, the offer terminates. Examples of
such conditions include time limit of offer, goods for sale to be in saleable
condition, etc. See Financings Ltd v. Stimson [1962] 3 All ER 386.

7) Intervening Incapacity – An offer may be terminated if certain circumstances

occur which render the offeror or offeree incapacitated to contract. Some of
such events include bankruptcy, insolvency, insanity, disaster, etc.

3.4 (b) ACCEPTANCE

By the authority of Innih v. Ferrado supra at 617 & 622
“for an acceptance to be operative, certain conditions must be fulfilled:
(1) The acceptance must be plain
(2) It must be unequivocal
(3) It must be unconditional
(4) There must be no variance of any sort between it and the proposal (offer)
(5) It must be communicated to the other party without unreasonable delay.

Therefore a valid acceptance occurs only where the offeree has unreservedly
assented to the exact terms proposed by the offeror. The acceptance is usually
elicited from the words on documents which had passed between parties or
inferred from their conduct.

It is not enough for an acceptance to be a final expression of consent (assent) to the

terms of the offer, it must be positive and must correspond with the terms of the

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offer and this, as earlier stated, may be ascertained from the words, intention or
conduct of the offeree. Okubule v. Oyagbola (supra).

There are circumstances that a party may seek clarifications on the offer. The
request for further information is neither acceptance nor a rejection. The offer
stands. In some other circumstance a parties may include the expression “subject
to contract” or another similar to that in their contract. The law as stated in UBA v
Tejumola & Sons Ltd, is that where the terms of the contract have been negotiated
and agreed the expression shall not render the contract unenforceable. But where
the terms have not been negotiated and agreed the expression renders the contract
unenforceable.

Acceptance vs Counter-Offer
In the case of Orient Bank (Nig.) Plc v. Bilante Int’l Ltd Tobi JCA (then) elucidated
the difference between an acceptance and a counter-offer as follows:
“There is a distinction between acceptance and a counter-offer while the
former consolidates the offer and therefore the contract, the latter speaks a
different language from the offer and therefore moves away from the contract
as it is in a totally different camp…. a counter-offer, as the name implies,
counters the offer of the offeror, which may convey the effect of rejecting the
offer and making new proposals by way of fresh offer. In a counter-offer, the
offeree seems to play both the role of an offeror and that of an offeree. In his
status as an offeree, he receives the offer. Technically in his status as an
offeror, he makes new or additional proposal to the original offeror, who has
the liberty and option to accept or reject the new additional proposals”.

Mode of Acceptance: According to BCC Plc v. Sky Inp (Nig) Ltd (2002) 7 NWLR
58 at 106, “there are various modes of accepting an offer, by promising, by silence;
by act or performance; by alternative modes as may be enshrined in the offer”. But
the acceptance must be brought to the notice of the offeror.

The Supreme Court of Nigeria, per Agbaje JSC, in the case of Okubule v.
Oyagbola (supra) pronounced, by way of adoption of Chitty on Contract (23rd
Edition pp 25 – 26), that

“once it is clear that a definite offer has been made by one party it is necessary
to show that that offer has been accepted by the other party”.

By implication an acceptance must be communicated to the offeror by the offeree

in very clear terms.

In communicating an acceptance of an offer the offeree must consider the offeror’s

prescription or direction as regards the preferred method of communication if the
offeror so did. Whether such mode of communication has been prescribed

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depends on the inference to be drawn from the circumstances (See Annon Lodge
Hotels Ltd v. Mercantile Bank (1993) 3 NWLR (Pt 284) 721 at 730.

This rule is, however, subject to certain exceptions, the most important of which
concerns communication by post which by the general rule provides that
acceptance is completed once it is posted (Orient Bank v. Bilante supra). It does
not matter if the acceptance was not received (Household Fire Insurance v. Grant
(1879). This no doubt may result in some difficulties. For instance, it gives room
for a situation whereby an offeror may not be aware that his or her offer has been
accepted. And, if we are to go by the provision that there must be a consensus ad
idem, where then lies the meeting of mind at the point the offeror is ignorant that
the contract was sealed by acceptance? It would appear the authorities available
are yet to address that problem. Further discussion on this shall be made under
acceptance by postage.

Acceptance must be by positive/external evidence

For there to be an acceptance of an offer, there must be an external manifestation
of consent via, some word said, an act done by the offeree or by his authorized
agent which, in the eye of the law, will amount to communication of the offeree’s
acceptance to the offeror’s offer. (See Orient Bank v. Bilante (supra); NNSC v.
Agric Incorporation & Yabatech v. Nigerlec (supra) Mental or internal acceptance
is not sufficient (Felthouse v. Bindley; (1862) 11 CB 869 Yabatech v. Nigerlec
(supra).

Exceptions to the rule of communication of acceptance

1) By Post: In the case of Adams v. Lindsell (1818) 1 B & Ald 681, 683 the rule
was laid that where a letter emanated as offer, its acceptance takes effect as
soon as the acceptance is posted. But telex and fax came under
instantaneous modes of communication, which by the authority of Entores
Ltd v. Miles Far East Corporation (1955) 2 Q.B 327, are deemed same as
oral communication and which will only be effective when received.
Although a case on new technological developments in communication
such as e-mail and others has not yet been tested in this regard, it is likely
that they will be categorized as instantaneous modes of communication like
e-mail, fax and telex. Good enough Section 84 of the Evidence Act 2011 now
accommodates this species of documents.

In the case of Alhaji R. A. Afolabi (Trading as Ifelodun Bros) v. Polymera

Industries Nig. Ltd (1967) All NLR 154, the Supreme Court held that
acceptance must be signified in the mode required by the terms of the offer
which was to

“read, study carefully and sign duplicate copy attached signifying

your agreement to all points as listed above and return same at the
earliest convenience for records”.

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 That did not include the postage rule.

2) Waiver: Parties may choose to waive the need for communication expressly
or by implication. It is expressly waived in cases of unilateral contract like
Carllil v. Carbolic Smoke Ball Ltd., (supra).

The posting rule applies only where the circumstances show that it is within
the contemplation of the parties that posting is the appropriate means of
communicating the acceptance. Posting should be used unless:

1) It is unreasonable to use posting in the circumstance – See Innih v. Ferrado

(Supra).

2) It negates the term of contract – as shown in Afolabi v Polymera Industries

Ltd (1967) 1 All NLR 144 where it was held that “an offer cannot be
accepted by anyone except the person to whom it is made and acceptance
means the assent of that person, signified in the mode required by the
terms of the offer. The acceptance in that case was expected to be by signing
the duplicate and return it their earliest convenience. See PTI v. Uwnanu
(2000) 5 NWLR (Pt 205) 112 at 120.
3) It will result in injustice or absurdity – In the case of Henthorn v. Fraser,
an offer made open for fourteen days was revoked a day after the offer, not
to the knowledge of the offeree who posted his acceptance shortly before
the arrival of the letter of revocation. The court held that the acceptance fell
within the contemplation of the mode of acceptance whereas the revocation
did not.

4) It is not properly posted – especially when not dropped in the post box.
Giving it to an official of the post office is no good posting.

5) It is misdirected due to the carelessness of the offeree Contract

From the foregoing therefore, a contract comes into existence the moment a
clear and precise offer and unconditional acceptance of the terms are made
because at that point a consensus ad idem exists unless proved otherwise.
(Tsokwa Motors (Nig) Ltd v. NAN Ltd (1996) 9 NWLR (Pt 471) 129 at 145
Alfihin Ltd v. A. G Fed (1996) 9 NWLR (Pt 475) 634 at 656-7.

3.4 (c) CONSIDERATION

The essence of a business transaction usually is to gain something at one point in
time. Usually in business transactions, one “gains” and “loses” at the same time.
You exchange something for the other. Consideration is that value that is
exchanged whereby parties benefit something at the expense of giving something
in return. It could be an act, forbearance or a return promise. So, after offer and
acceptance, the law would locate consideration that backs up both the offer and

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the acceptance. It is consideration that cements the relationship as service,
particularly, for a simple contract (not under seal). Note, however, that
consideration is not as easy to define as has been done. The definition adopted
here is that which we are used to in Nigeria and some common law countries. But
a school has also emerged making them two schools of thought. The first that we
have mentioned is classified “Benefit and detriment school” while the second
school is the “Bargain theory school”. In the latter school, it is believed that parties
subjectively view the contract as a product of exchange or bargain. In reality both
schools talk about the same thing in different ways and in different expressions.

Some have adopted the-easy-way-out definition which limits consideration to the

price of the promise in a purchase and sale scenario. The House Lords approves
of this definition in the case of Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co
Ltd. (1915) AC 847.

Muhammed JCA, in the case of Anwasi v. Chabasaya (2000) 6 NWLR (Pt 681) 408
at 417, citing and amplifying the definition of consideration in the case of Currie v.
Misa, (1875) L. R. 10 Ex. 153 the locus classicus on this definition, stated thus:

“A valuable consideration in the eye of the law may not exist either in some right,
interest, profit or benefit accruing to the one party, or some forbearance, defilement,
loss or responsibility given, suffered or undertaken by the other. Thus consideration
does not only consist of profit by one party but does exist where the other party
abandons some legal right in the present, or limits his legal freedom of action in the
future as an inducement for the promise of the first, so it is irrelevant whether one
party benefits but enough that he accepts the consideration and that the party giving
it does thereby undertake some burden or lose something which in contemplation of
law may be of value”.

It is also explained as “the performance or promise to perform obligation already

imposed by a contract between a plaintiff and a defendant is not a consideration
for any new promise by the defendant.

Rules of Consideration
1) Consideration must move from the Promisee to the Promisor: For a person with
whom a simple contract has been made (the promisee) to be able to enforce
the contract, consideration must have been given by him to the promisor or
some other person at the promisor’s request. Anwasi v. Chabasaya (Supra).
The general position under this rule was established in the case of Price v.
Easton (1833) 4 B. & Ad. 433. The decision held therein is to the effect that
if A owes B sum S and T promises A that he would help A settle his debt to
B if A would do certain work for him (B). Where T failed to fulfill his
promise to A after, B cannot succeed to enforce T’s promise to pay since
consideration only moved from T to A and not from T to B. This also brings
about the principle of privity of contract. See also Thomas v. Thomas (1842)

29
 2 QB 851 and Tweddel v. Atkinson (1861) 1 B & S 393 at 398-9; Cardoso v.
Doherty (1936) WACA 78.

There is however an exception to this rule. The present position has limited
its application to the principle that consideration must move from the
promise and not necessarily to the promisor in cases involving bank
guarantees.

2) Consideration need not be adequate but must be sufficient: It is settled law that
consideration must be real but need not be adequate although a patently or
grossly inadequate consideration may in appropriate cases amount to
strong evidence of fraud. See Spasco Vehicle & Plant Hire Co. v. Alraine
(Nig) Ltd (1995) 8 NWLR (Pt 416) 655 at 672 SC. This rule is well illustrated
in the case of Chappell v. Nestle (1960) where wraps of sweet were held as
adequate consideration. It is required to be of economic value, however, for
instance, cessation of complaint will not amount to consideration as no
economic value is in it.

3) Consideration must not be past. It may be executory or executed: Executory

consideration refers to a promise to be performed in future while executed
consideration occurs where the promise is made in return for the
performance of an act as in the case of Carllil v. Carbolic Smoke Ball.
(supra) A promise cannot be based upon a consideration that was provided
before the promise was made. See the case of Oba Akenzua II v. Benin
Divisional Council (1959) WRNLR 1. In the case, the Oba of Benin offered
to assist the Defendants obtain some land from another organization based
in Benin. It was meant to be a gratuitous service. He succeeded in getting
the Council their desire. The Council promised the Oba some forest
resources in appreciation. The Oba wanted the court to enforce that
promise. He failed because the promise was held among other things as
past consideration. But note that it was so held based also on the principle
of public policy. See also Roscorla v. Thomas – (1842) 3 Q. B. After sale of a
horse the defendant assured the buyer it was a sound horse, free of any vice.
The contrary was discovered later. The court held that the defendant was
not liable as consideration was past and the warranty by the defendant had
no consideration. Note, however, that in other cases like Lampleigh v.
Braithwaite (1615) Hob 105; 180 ER and Re Casey’s Patents (1892) 1 Ch.
104 where similar promises were not held as past consideration but as
commercial issues that entitled the plaintiffs to some reward. Each case may
therefore be considered on its facts and merits as long as substantial justice
is achieved.

Exceptions to the Rules of Consideration: There are some exceptions to the

rules of consideration. The exceptions are to the effect that not all promises

30
 in what may appear as contractual relationships will be accepted as
consideration by the courts. These include:

a. Public Duty: Where a person is under public duty to do certain things s/he
is bound to fulfill that duty. A promise made to him by another to induce
him to fulfill that public duty does not constitute consideration in the eye
of the law. See the case of Collins v. Godefroy (1831) 1 B & Ad 950, where
the court held that a person promised some remuneration for time spent in
attending court to give evidence on behalf of a party cannot enforce it as he
was only fulfilling a public duty. The same line was toed in Oba Akenzua
II’s case (supra). But where the person exceeds that public duty he may be
entitled to that remuneration where he performs beyond what public duty
demands.

b. Contractual Duty: Where a person is under a contractual duty, a promise

to make him to fulfill that contractual duty will not constitute consideration
in the eye of the law. That was the decision reached in the case of Stilk v.
Myrick (1809) 2 Camp 319, where some sailors of a ship on a voyage
deserted her. The rest of the crew members were induced by a promise of
extra pay if they got the ship to the shore. They did as required but they
were not paid as promised. The court held that there was no consideration.
Note, however, that where they exceed their contractual duty, that promise
will be deemed a valid consideration and the party is therefore entitled to
further remuneration.

c. Duty Imposed by 3rd Party Contract: A promise made to perform or the

performance of a duty already owed to a person may be good consideration
for a promise given to another. This is typical of the act of a guarantee for a
loan. This principle is well enunciated in the case of Shadwell v. Shadwell
where an uncle promised to pay his nephew £150 per annum if that nephew
marries his fiancée. The court held that promise as good consideration
rejecting the argument that there was no consideration, for the uncle’s
promise since the nephew was under an obligation already to marry the
fiancée.

Exceptions to Existing Duties

There are certain contractual duties under common law which equity had to
remedy as they were creating some commercial hardships. These exceptions
became necessary with certain developments in business transactions.

1. Forbearance to Sue and Compromise: An express or implied promise to

refrain from enforcing a validly existing claim is deemed as good
consideration for a promise given in return. In the case of Alliance Bank v.
Broom, the court inferred forbearance from the facts that the bank refrained

31
 from bringing an action against the defendant. The bank had asked Broom
to give security over a loan facility. Broom promised to assign certain title
documents as security but failed to do so. Broom contended that there was
no consideration for the promise. Rejecting that contention, the court held
per Kindersley VC that “Although there was no promise on the part of the
plaintiff to abstain for any certain time from suing for the debt, the effect
was that the plaintiff did in fact give, and the defendant received the benefit
of some degree of forbearance; not indeed for any definite time, but at all
events, some extent of forbearance.” The same conclusion will be reached
even where the party in forbearance has the slightest chance of success in
court. See Callisher v. Bischoffsheim (1870) L.R. 5 Q.B. 449.

2. Accord and Satisfaction: “Accord and satisfaction is the purchase of a

release from an obligation whether arising under contract or tort by means
of any valuable consideration, not being the actual performance of the
obligation itself. The accord is the agreement by which the obligation is
discharged. The satisfaction is the consideration which makes the
agreement operative." - See British Russian Gazette and Trade Outlook
Ltd. v. Associated Newspapers Ltd. (1933) 2 K.B. 616 at pp. 643-4; (1933) All
E.R. Rep. 320 at p. 328. Although the definition talks of the obligation
arising from contract or tort, yet the principle of accord and satisfaction
extends to all obligations irrespective of their source, according to the
learned authors of the Principles of the Law of Contracts by Salmond and
Williams, 2nd Edition at page 496." This was the dictum per UWAIS, C.J.N.
in the case of Shell Pet. Dev. Co. Nig. Ltd. v. F.B.I.R (1996) 8 NWLR (Pt.466)
256. Under common law, a creditor who entered an agreement to settle for
lesser amount than the actual credit with a debtor, like in the case of
forbearance to sue and compromise, may later file an action to recover the
difference. The reason is that in common law, a waiver of credit facility for
lesser amount is not recognized as consideration. The Pinnel’s case (1602)
5 Co Rep 117 and later buttressed by Foakes v. Beer (1889) 9 App. Ca. 605
established the principle that payment of a lesser sum in satisfaction of an
obligation to pay greater amount cannot be satisfaction for the whole.

3. Promissory Estoppel: This doctrine brought about the solution much

needed to remedy the absurdity or hardship introduced by the principle in
The Pinnel’s case (1602) and Foakes v. Beer (1884). The doctrine was
introduced through the landmark decision of Lord Denning in the case of
Central London Property Trust Limited v. High Trees House Limited (1947),
relying on the Hughes v. Metropolitan Railway (1877). The court held that
a promise to waive or accept a lower rent during the Second World War
years was binding on the landlord notwithstanding the fact that the tenants
had furnished no common law consideration for it. It could be submitted
that the promise has been recognized in law as sufficient consideration and

32
 therefore no need for another. But this doctrine has not been free from some
legal checks as well in the English jurisdiction. Its limitations have been set
down as follows:

1. there must be an existing legal relationship;

2. the promisee must have relied on it the promise of the promisor;
3. it is used as a shield and not a sword; and
4. it must be clearly inequitable for the promisor to renege on the
promise.

3.4 (d) CONTRACTUAL CAPACITY

For there to be a contract it is necessary that the persons entering the contract must
be recognized as persons that are allowed to enter into a contractual relationship
in law. In actual fact, the capacity relates to a person’s right to avoid liability in a
contract. Persons here include natural and artificial persons.

1) Natural Persons Recognized in Law to Contract include all human beings

except infants, insane, drunk, illiterates and, under customary law at a time,
married women.

2) Infants: The law defines the age of adults from place to place. In Nigeria, a
person below the age of 21 is deemed an infant under the law of contract.
A person below that age is known as a Minor in contract. Under customary
law, a person below the stage of puberty is considered a minor.

A contract entered into with a minor is deemed “absolutely void in law (See
Infants Relief Act 1874 s. 1). That is the general rule. In practice, the courts
have through some decided cases recognized certain circumstances under
which a contract entered into with an infant will be a valid and enforceable
contract.

(b) Contract of Necessaries – Necessaries are those goods and service that are
appropriate to the needs of the minor at the particular stage or condition of
life he is at the time the contract was made. These include food, drink,
clothing, shelter and other basic needs of life. His status is fundamental
here. The necessaries also will be determined according to each fact. In the
case of Omidiji v. F.M.B (2001) 13 NWLR (Pt 731) 646 at 672 Per Akintan
JCA (then) pronounced that

“at common law infants or minors are barred from entering into contracts.
The only exceptions are in respect of contracts which are for the infant’s
necessaries…., the buyer of the house, being an infant, was therefore
incapable of entering into the contract. The purported sale of the house to
the said infant purchaser is therefore null and void”.

33
Other contracts outlawed by the Infant’s Relief Act 1874 include contracts relating
to money lending. But the following that are voidable at the instance of the infant
otherwise remain binding on the other parties.

(a) Contracts of Service – like apprenticeship or training are binding on both

the infant and the employer.

(b) Educational service: As long as the education he gets is beneficial to him, a

minor will be liable in such contract.

(c) Marriage: Where a minor promises marriage to a person, that contract may
be enforceable.

It should be noted that the other party in contract with a minor, particularly where
the minor misrepresented himself, has the equitable remedy to recover by way of
restitution.

Insane/Drunk Persons: A person in these states is deemed incapable of entering a

contract although they must be certified medically as insane or drunk and that
must be known to the party that enters a contract with them. That insanity must
exist at the time of contracting. But they may ratify the contract upon lucidity.

Illiterate Persons: The general rule is that an illiterate cannot enter into a contract
especially formal ones unless there is an illiterate jurat which is properly executed
with the deed as provided for by the Illiterate Protection Act (IPA).
Jurat is a special type of attestation clause stating that all the contents in the
document had been explained to the illiterate person and he appended his thumb
impression having understood the contents well.

Married Women
A married woman, under Marriage Act by virtue of the common law doctrine of
unity of personality, was rendered incapable of control. But the position has been
rectified by the Married Women’s Property Act 1882.

Corporations or Artificial Persons: These include companies, statutory bodies etc.

It should be noted that a purported corporation not registered is not in existence
and cannot enter a valid contract. The capacity of a company or corporation is
generally limited to its objects in its memorandum and article of association,
although with Section 39 of the Company and Allied Matters Act, 1990, that
restriction has been relaxed. Similarly, a statutory corporation is limited in
operations by the Act establishing it.

34
Unless otherwise provided by statute, be it expressly or impliedly, such as in the
case of certain trade unions, firms of partnerships, societies, unincorporated
associations do not have capacity to contract.

In similar vein, non-juristic, non-legal, non-existent persons cannot enter into a

contract. Such persons include the Vice-Chancellor of the University of …,
Managing Director of …, Mr & Mrs …., etc. (See Carlen Nigeria Ltd v. University
of Jos (1994) 1 NWLR (PT 323) 631; Lion of Africa v. Esan (1999) 8 NWLR (PT 614)
197 at 202.

3.4 (e) INTENTION TO CREATE LEGAL RELATIONS

For there to be an agreement that is legally binding there must be the clear
intention of the contracting parties to be bound. The intention may be inferred
from the conduct of the parties since it is not always stated expressly at the
inception of the agreement. In law, the elements of contract must be conducted in
such manner as to show that parties contemplate being bound by their promises.

In the case of Carllil v. Carbolic Smoke Ball (supra) the company backed up its
promise in the offer to the world not only by the fact that it placed a consideration
of ₤100 in a bank, but also by the fact that its conduct implied serious intention to
be bound. In SCOA (Nig) Plc v. Civil Design Const (Nig) Ltd (2001) 9 NWLR (Pt
719) 652 at 767 the CA stated per Oguntade JCA (then) that
“intention can only be ascertained from the terms of the contract into which the parties
freely subscribed their hands”.

The issue of intention to create legal relations is not really a problem as far as
commercial transactions are concerned. Generally, parties to a commercial
transaction are deemed to have the intention to be bound. However, the problem
areas here border on matters relating to social/domestic relationships.

Social/Relationships/Arrangements: The general principle of law relating to

arrangements between parties interacting through clubs, between friends or
neighbours will not amount to contracts even where a party made contributions
to the cost of getting the arrangement going. In the case of Amadi v. Pool House
Group (Nig) Ltd (1966) 2 ALL NLR 254, the exclusion clause at the back of the ship
was only “binding in honour”

Arrangements similar to social arrangements are domestic relationships/

arrangement. Here as in Balfour v. Balfour (1919) 2 RB 571, 578 where the
husband’s promise to pay an allowance of ₤30 to his wife monthly, was held not
to be legally binding apart from the fact that there was no consideration. The wife
wanted to enforce the purported contract after they had separated. But in Pettit v.
Pettit (1970) A C 777, 816 the Court was divided as to whether an intention to
create legal relations existed. A majority held there was no intention. In that case

35
a husband on having his wife promised her ₤15 weekly for as long as he could
manage it. Also, agreement between parent and child is presumed domestic See
Jones v. Padavatton (1967) 1 WLR 328, 383.

Note however that where husband and wife agree to separate and in the process
made separation agreements their agreements, are deemed to be with an intention
to be legally bound. This was the decision in Meritt v. Meritt (1970) 1 WLR 1211.
Equally, where a man before a marriage entered certain agreements with his
would be wife, it may be reckoned with as an intention to be bound. See Synge v.
Synge (1894) 1 QB 466.

NB: Note that each case is considered on its merit and circumstances. For instance
where adult members of a family decided to share a common household, the
financial terms may be legally binding. Also, a husband may make a binding
contract between himself and his wife as a tenant to her – See (Pearce v. Meniam
(1904) IKB 80

Collective relationships/agreements: These have to do with trade unions or workers’

unions/employees’ association on the one hand and their employers on the other
hand. The general rule is that they are not binding. But where they are
incorporated in individual workers’ contracts of employment, they become
binding. See the case of Ford Motor Co. Ltd v. Amalgamated Union of Engineering
Foundary Workers (1969) 2 QB 303.

In Nigeria, the Wages Boards and Industrial Council Act 1990 provides that the
agreement should be tendered to the Minister of Labour and if approved by him
becomes binding.

3.4 (f) Privity of Contract

Privity is the relationship that exists between parties to a contract. The rule states
that a person who is not a party to a contract cannot enjoy the benefits nor suffer
the burdens of that contract; that is, a stranger (non-party) to a contract cannot sue
or be sued on it.

The general rule is that only party to a contract may sue on it. In Dunlop Selfridge
(1915) A C 847. A sold tyres to B & Co. on terms that B & Co. could not resell, B &
Co. resold to Selfridge, S below stated prices. A (Dunlop) sued for a breach.

It was held that Dunlop was a stranger and could therefore not sue on it. Similar
decisions were reached in the following cases: Chuba Ikpeazu v. A.C.B. Ltd. (1965)
MMLR 374, R.T. Briscoe v. Universal Insurance Co. (1966) 2 A.L.R. Comm. 263,
and Tweedle v. Atkinson (1861) 1 B & S 393. In Chuba Ikpeazu v. A.C.B. Ltd.,
(supra) where the respondent sued a debtor and joined the appellant on the
assumption that he was a trading partner and a guarantor to the overdraft in
question, it was held by the Supreme Court (in reversing the Lower Court’s

36
Judgment) that a contract can not be enforced by a person who is not a party, even
if the contract is made for his benefit and purports to give him the right to sue
upon it.

Exceptions to the Rule

These mean situations where third parties may be allowed to sue or be sued.
Examples include:
(a) Cases of Insurance: A third party can sue by virtue of the Motor Vehicles
(Third Party Insurance) Act Cap. M22, 2004. The legislation states that
where a third party is entitled to claim against an insured in respect of a
risk, he shall have a right to join the insurer of that risk in an action against
the insured in respect of that claim subject however to 30 days notice being
given.
(b) Trust, A trustee can sue in respect of property in his care, being the legal
owner.
(c) Agency relationship as enunciated under the doctrine of undisclosed
principal. Duly executed Power of Attorney often include the power to the
donee to initiate and defend an action.
(d) Negotiable Instruments (Bills of Exchange)
(e) Assignment, when you sublet or assign your right to a third party, for
example, on land.
(f) Restrictive covenant especially in land law under the rule in Tulk v.
Moxhay (1842) 2 P. H. 774. This rule states that a covenant of restriction as
at the sale of a piece of land may be enforceable on a third-party purchaser
upon a resale. T sold land to E who promised to keep the land open and
uncovered with buildings. M bought the land with the notice of the
covenant. It was held that the covenant was still binding on Moxhay.

3.4 (g) Terms of Contract

In the of course negotiations which eventually culminate in the contract, parties
make certain statements which induce them to enter into the contract mutually.
Those statements may ultimately end up being i. important part of the contract
(terms), ii. mere puff (no legal effect), iii. representations (less important
statements but persuasive to the party to enter the contract) and others just a part
of a collateral contract. The important statements contained in the contract
constitute the terms of the contract. The purpose of this module is to discuss the
different terms recognised in Law of Contract and how they help in arriving at a
conclusion as to the benefits and obligations created by the contract. The student
is therefore at the end of this module expected to be able to place the degree of
importance of the terms and how they are discerned.

Whenever an agreement is made, certain terms are agreed to directly or indirectly.

These terms are the rights and obligations of parties that arise from the exchange
of promises in the contract. When the terms are direct, then they are said to be

37
express, where they are inferred, then they are implied, hence the term “express
terms” and “implied terms”.

Before arriving at the terms of contract, certain discussions or negotiations would

have passed. These negotiations are what pass for representations. The distilled
representation, that is, the agreed negotiations which parties arrived at, become
the terms.

Implied Terms are those not specifically stated but almost naturally implied. This
is where the problem frequently lies in contract especially when unwritten. The
courts invited to imply terms in a contract tend to consider the intention of the
parties in the contract as elicited from the words of the contract and the
circumstances surrounding them. The court would consider:
1) the custom or usage prevailing in the trade, profession or locality;
2) the provisions of statutes related to the transaction;
3) the decision of the court in previous similar cases; and
4) the terms the court itself could infer from the transaction if not earlier
pronounced upon. Examples include, terms that lead to efficacy to contract,
prevention of performance, landlord/tenant contract, etc.

Classification of Terms of Contract

Terms of contract are traditionally classified into condition and warranties. But a
third was added later called innominate (or intermediate) term. Another fourth
term later emerged as fundamental term.

Conditions These are considered very essential to a particular contract on footing

of which breach may empower the aggrieved party (i) to deem himself as
discharged from the contract otherwise called repudiation or (ii) to deem it as still
binding and seek damages as remedy.

It would be further classified to promissory (promise to be fulfilled) and

contingent.

Warranties unlike conditions, are subsidiary or collateral to the contract. A breach

of warranties can only entitle the party to damages and not repudiation of the
contract.

What terms would amount to conditions or warranties depend on the facts of each
contract.

Innominate: This is a term which ordinarily from the outset of the contract does
not appear as one that can entitle the other party to repudiate when one breached
the contract. It is subsequent events towards the performance of the obligations of

38
the parties that may render it as one which breach will entitle the aggrieved party
to repudiate.

Fundamental Terms: This term was evolved by the judiciary in order to provide
some remedy for wide exclusion clauses. In the case of L’Estrange v. Graucob
(1934) 2 KB 394, the court held that liability for a breach of condition could be
excluded through the insertion of an exemption clause in a contract. An exemption
clause is that clause in a contract which exonerates a party from certain liability.
The court, as a remedy to a situation whereby liability for a very important term
in a Contract may be exempted/excluded, decided to introduce the term
‘fundamental term’. See the case of Akinsanya v. UBA (1981) 4 NWLR 273;
Narumal Ltd v. Niger Benue Transport Corp. (1989) 2 NWLR 730.

Exemption Clauses in Contracts

These are clauses inserted in a contract in order to make a party avoid certain
obligations under some conditions. These clauses are otherwise referred to as
Exclusion or Limitation clauses. They are usually common features of standard
form contracts. (Standard form contracts are contracts in written form prepared by
one party to set out the terms of a contract to which the other party is invited to
accept. But the problem arises whereby the other party may not read carefully e.g.
receipt for goods deposited, railway or steamship tickets, but not a cheque, or
ticket for parking or public bath house etc). Those terms in a standard contract
must however be brought to the attention of the party before, not after the contract
is entered into. If the other party does not know it is written somewhere, he is not
bound; if he knows, he is bound; if the party giving the document notifies him, he
is bound. It will amount to insufficient notice if the conditions were printed behind
the document without appropriate reference to it. Personal disability is not
generally contemplated as long as there is sufficient demonstration of notice.

Exceptions to the Rule:

(a) The document bearing the exemption clause must form an integral part of
the contract between the parties. The implication is that the document must
be a contractual document. This is exemplified in the case of Olley v.
Marlborough Court Ltd (1949) 1 KB 532. A notice of exemption clause
pasted behind the door of a hotel room was held not valid. Likewise, a
receipt may not be considered a valid contractual document since it is
evidence of payment, unless the ticket is known to both parties as
containing part of the contract. See Chapelton v. Urban District Council
(1940) 1KB 532.

(b) An exemption clause must be clear and not ambiguous. If it is ambiguous,

the clause shall be resolved against the party relying on the clause. See
Karsales v. Wallis (1956) 1 WLR 936.

39
(c) Time of Notice: The conditions must be properly brought to the attention
of the other party to be bound on or before the contract is made. See Olley’s
case (supra).

(d) Signature: Where parties append their signature, they are bound unless
fraud could be proved, see Curtis v. Chemical Cleaning & Dyeing Co. (1951)
1KB 805.

(e) Statutory Requirement: Where a statute prevents a party from certain

exemption clauses, any contrary act will be void.

(f) Third Party: An exemption clause cannot apply to a third party in a contract
by virtue of privity of contract.

(g) Fundamental Breach: A fundamental term of contract may not be

concluded. See Niger Insurance Co. Ltd v. Abed Bros Ltd (1976) NNLR 88;
Ogwu v. Leventis Motors Ltd (1963) NNLR 115. But in Narumal & Sons
Ltd v. N. B. T. C Ltd (1989) 2 NWLR (Pt 106) 730, the Supreme Court held
that there is no rule of law that exception clause is nullified by a
fundamental breach of contract or breach of fundamental term; but in each
case, the question is one of the construction of the contract whether the
exception clause was intended to give exemption from the consequences of
fundamental breach.

(i) Summary of Module 3

The module extensively dealt with the elements of the validity of contract, the
performance thereof and the operations and the terms. The essential ingredients
like offer, acceptance, consideration, capacity, intention to create illegal relations
and formality were treated. Such other principles of contract as privity, exclusion
clauses and basic terms were also explained.

(j) Self-Assessment Questions

(1) Distinguish between an offer and an invitation to treat.
(2) Ojo owed Buki the sum of N100,000.00 but Buki agreed to accept N70,000.00
in full satisfaction of the debt. Ojo paid Buki the sum of N70,000.00 but Ojo
has insisted that the balance of N30,000.00 must be paid. Advice Ojo.
Would your answer be different if Buki had agreed to accept an old Toyota
Camry in lieu of payment and after Ojo had given out the car to him, Buki
still insisted on being paid the whole debt of N100,000.00?
3. Haruna, a caterer, employed Fanti as his manager for 5 years, from 2007 to
2012. in 2010, Fanti was called up for military service which lasted two

40
 years. Haruna sued Fati and sought damages for breach of contract, Advise
Fanti.
4. Eka offered to sell 10 cars to Ada for N5 million, and gave Ada until 21st
November, 2010 to consider the offer. On 5 th November 2010, Ada posted a
letter to Eka accepting the offer, but the letter reached Eka on 30 th
November, 2010. Is there a contract? Would your answer be different if Ada
made a phone call to Eka accepting the offer on the morning of 22 nd
November, 2010?
5. Omo goes into a shop and picks up a belt displayed on the shelf with a price
tag of N500. On getting to the Cashier’s desk, he was told that the correct
price is N1,500.00 Omo insists on paying N500. Advice the parties.
6. Ike, the secretary of a charitable organisation, promised Daisi that if Daisi
donated a sum of N50,000.00 to the charity, he would make sure that Daisi
was honoured with a National Award. Daisi paid the money, but did not
receive the National Award. Can he recover the money from the charitable
organisation?
7. “A person who is not a party to a contract can not benefit nor suffer on the
contract” Discuss.
8. Explain the rule in Carlill v. Carbolic Smoke Ball Co.
9. Advertisements are generally invitation to treat unless the advertisement
amounts to an …………….
(a) common offer (b) offer to the world
(c) offer for the contractors (d) offer to specific persons
(e) none of the above

10. The rule in Carlill v. Carbolic Smokeball typifies a ……….. offer

(a) summary (b) definite (c) mere proposal
(d) bilateral (e) Unilateral

11. Which case is seen as establishing the modern law of privity?

(a) Stilk v. Myrick (b) Atlas v. Kafco
(c) Tweddle v. Atkinson (d) Thompson v. Metropolitan Railway
(e) Harley v. Harley

12. A contract is ………. if from inception the law never recognizes the
existence of the contract.
(a) voidable (b) void (c) illegal (d) immoral
(e) arbitrary

13. A contract is …… where it can be repudiated at the instance of any of the

parties to it.
(a) voidable (b) void (c) illegal (d) immoral
(e) arbitrary

41
14. What constitutes a term of contract?
15. Enumerate and discuss the different types of terms of contract.
16. Distinguish between conditions and warranties.
17. Explain what you understand by exclusion clause. What are its exceptions?
18. Compare express and implied terms.

Solutions to the Questions

1. Offer is a clear, definite and final proposal accepted by the offeree whereas
invitation to treat is proposal under negotiation.

2. What Ojo did amounts to forbearance to sue or recover the full payment. He has
therefore waived his right to the debt. He will be estopped from asking for the
balance.
3. The conscription of Fanti has simply frustrated the contract of employment.
4. The question borders on lapse of offer and mode of offer. The offer made to Ada
appears oral and was open till November 21st. Her failure to accept the offer within
the time stipulated makes the offer lapse and so no offer for her to accept when
she did. Her posting the acceptance is not in conformity with the mode of offer
and so not acceptance. It would not have mattered if Eka received the acceptance
letter on November 22.
5. The issue is whether the display of the belt on the shelf amounts to an offer. The
rule in law of contract is that goods displayed on shelves amount to an invitation
to treat and not an offer. It is the cashier that can state the offer having checked the
price from her price list. My advise to Ono is that he cannot insist as it is only the
cashier that can make the offer in the circumstance. See the case of Pharmaceutical
Society of Great Britain v. Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401.
7. A person that is not a party to a contract cannot benefit or suffer from it by virtue
of the rule of privity of contract. See Tweddle v Atkinson
8. The rule in the case is that there can be unilateral contract where the offer is
made to the world.
9. C
10. E
11.C
12.B
13.A
14. Terms of contracts are representations made by parties in the course of
negotiation.

15. There are conditions, warranty and innominate terms and fundamental terms.

42
16. Conditions are terms of contract that go to the root of the contract for which a
party may repudiate the contract and get damages whereas warranties are those
terms that do not go to the root of the contract for which the party may only claim
damages.

17. These are clauses inserted in a contract in order to make a party avoid certain
obligations under some conditions. These clauses are otherwise referred to as
Exclusion or Limitation clauses. They are usually common features of standard
form contracts. (Standard form contracts are contracts in written form prepared by
one party to set out the terms of a contract to which the other party is invited to
accept.

Further Reading:
Achike, Okay Nigerian Law of Contract Enugu: Nwamife, 1972
Dada T.O. General Princples of Law. Lagos. T.O. D. & Co., 2006
Furmston, M.P. Cheshire, Fifoot and Fumston’s Law of Contract. 11th ed., London:
Butterworths, 1986
Olugasa, Olubukola. Law of Contract through Nigerian Cases, Lagos: BPrint, 2007

Should you require more explanation on this study session, please do not hesitate

to contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

43
MODULE 4: LAW OF CONTRACT: Vitiating Elements

4.1 Introduction
The Module essentially concentrates on the vitiating elements in contract. These
are the elements that could render any contract to be invalid and thereby
unenforceable.

In this module we intend to discuss those fundamental issues that may render an
otherwise valid contract ineffective, null and void. These issues constitute acts of
parties in the process of entering the contract which the law considers as unfair,
fraudulent or negate the fundamental requirement of consensus ad idem. They are
tagged by some school as vitiating elements of contract.

At the end of the module, the student is expected to be able to explain those
undertones in entering into a contract that the law will consider in case of
interpreting a contract or assessing whether or not there is indeed a contract.

4.2 Learning Objectives

Having learnt the basic requirements of a valid contract the student is meant by
this module to learn and be able to identify certain elements that may render a
seemingly well negotiated contract invalid.

4.3 Course Content of the Module

(a) Mistake
(b) Misrepresentation
(c) Undue influence and Duress
(e) Non est factum principle
(f) Summary of the Module
(g) Self-Assessment Questions
(h) Solutions to the Questions
(i) Further Readings

4.3
(a) Mistake:
It is possible for parties to operate under some mistaken assumption which is
fundamental to a contract like the subject matter or others. Where that occurs, the
contract may be avoided because of the mistake. This was developed originally in
Bell v. Lever Brothers Ltd (1932) AC 161, 218.

These species of mistake have been recognized:

44
1. Common Mistake: Where both parties have the same intention but share
the same mistake. For example where the subject matter no longer exists.
See Abraham v. Oluwa (1944) 17 NLR 123
2. Mutual Mistake: Parties here are found to have misunderstood each
other‘s intention as to certain fundamental terms e.g. the ownership or
quality of the subject matter, as in Bell v. Lever Brothers Supra.
3. Unilateral Mistake: As it suggests, only one party is under the mistaken
assumption whereas the other party is aware that his contracting friend is
under that mistake. See Lewis v. Averay (1973) 1 W.L.R 510.
4. Non est Factum: This is a case whereby a person was induced by a false
statement of another to sign a document containing terms fundamentally
different from what he thought he was signing. The deceived person can
plead non est factum – i.e. it is not my deed. This will be discussed in greater
details later.

(b) Misrepresentation
This involves a statement of fact which is false. The misrepresentation is calculated
to induce the other party to enter into a contract. Misrepresentation is therefore
good ground to avoid a contract in law.

Elements of Misrepresentation: For there to be a misrepresentation, the following

must exist:
1. There must be an actual statement of fact and usually not law
2. That statement must be false and known only to the maker. The
statement must relate to the present or past not a future event
3. It must therefore not be a statement of intention
4. The statement must be capable of a vital proof not mere puff.
5. Generally silence does not constitute misrepresentation.

Exceptions to the elements:

(i) Where an opinion is not actually held or is one of which the speaker is
ignorant, his claim will be a misrepresentation;
(ii) Where an opinion is stated as a fact e.g. a promoter using a publication of
another to induce subscribers;
(iii) Where misrepresentation contains both law and fact - to
misrepresentation of a fact.
(iv) A style word, nodding of head, smile may constitute misrepresentation if
it induced another.

Types of Misrepresentation: There are 3 types namely:

Negligent Misrepresentation: This is generally not actionable unless it can be

proved that there is a trust relationship between the parties. Examples include
where a party is misled by his solicitor or banker, doctor (professionals generally)

45
and thereby incurs loss. That person will be entitled to damages. Hedley Bryne v.
Hellers & Co. (1964) A.C 465.

Fraudulent Misrepresentation: Where the maker knows that the statement is

untrue, he is dishonest. If he does not know, whether stupid or credulous, be may
not be liable. (carelessness is not dishonesty).

Innocent Misrepresentation: Where the maker did not knowingly or dishonestly,

(though carelessly) make a false statement, he has no intention to deceive. See
Derry v. Peek (1889) 14 A.C. 337.

Remedies for Misrepresentation Generally, a misrepresentation makes the

contract voidable except in cases of unilateral contract.
• A party may repudiate or deem himself discharged
• The party may choose to rescind and rescission implies his being returned to
the original position.
• A party that loses may be entitled to damages.

(c) Undue Influence and Duress (Inequality of Parties)

Contract contemplates equality of status at negotiation and agreement. But where
one is made to contract by force or unequal relationship, that contract will be
voidable. For example, where a person is made to sign a document under gun
threat, this amounts to duress. The court has attempted to capture the ingredients
of undue influence in the following words:
“
1. That the other party to the transaction had capacity to influence the
complainant.
2. That the influence was exercised.
3. That the exercise was undue.
4. That the exercise brought about the transaction in question.
5. That the transaction was to the manifest disadvantage of the complainant.
Failure to prove any of the above stipulations would be fatal to the
complainant’s case.
See F.B.N. Plc v. Akinyosoye (2005) 5 NWLR (PT 918) 340 at 383. The case further
added a sixth requirement: “It is trite law that for the maintenance of a plea of
undue influence, the party concerned must apply timeously to avoid the contract
and must not be guilty of undue delay.”

(d) Non Est Factum Principle

A person who appends his signature to a document shall be bound by it whether
he has read it or not, as was held in L’Estrange v. Graudob Ltd (1934) 2 KB. 394
D.C. Where, however, a person is induced by fraud or coercion to sign a
document, he can claim that the action “was not his own doing” and this is the
principle of “Non Est Factum.” A mere mistake as to the contents of the document
signed will also not suffice to sustain the plea. Similarly, the person who signed

46
the document must not have been negligent. See also: Foster v. Mackinnon (1869)
L.R, 4 C. P. 704.

(e) Summary of Module 4

This module has shown that it is not enough to found a contract merely by the
presence of the necessary elements of a valid contract viz, offer, acceptance,
consideration, contractual capacity and intention to be bound. It reveals that
certain background circumstances may be considered as well to find out if indeed
the parties agreed without unlawful interference(s).

(f) Self-Assessment Questions

1. List those elements that may vitiate a contract.
2. Can inequality of parties position vitiate a contract? Explain.
3. When will mistake invalidate a contract?
4. Is it only natural disasters that frustrate contract? Discuss.
5. Explain the term “Non Est Factum” (it is not my doing) as applicable
to the law of contract.

(g) Solutions to the Questions

1. Elements that may vitiate a contract include mistake, misrepresentation, duress,

frustration and undue influence.

2. Inequality of parties may only vitiate a contract where it occasions undue

influence or duress as to remove the element of voluntariness in contract.

3. Fraudulent mistake.

4. No. Government legislation, war, etc may cause frustration.

5. It is a defence that a contract executed was not done by the person.

Further Readings:
Achike, Okay Nigerian Law of Contract Enugu: Nwamife, 1972
Dada T.O. General Principles of Law. Lagos. T.O. D. & Co., 2006
Furmston, M.P. Cheshire, Fifoot and Fumston’s Law of Contract. 11th ed., London:
Butterworths, 1986
Olugasa, Olubukola Law of Contract through Nigerian Cases, Lagos: BPrint,

2007Should you require more explanation on this study session, please do not

hesitate to contact your e-tutor via the LMS.

47
Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

48
MODULE 5: LAW OF CONTRACT: Discharge, Breach and Remedies in
Contracts

5.1 Introduction
The module periscopes those aspects of contract dealing with performance of
obligations, the discharge, the breach and remedies that are available.

5.2 Learning Objectives

At the end of the course, the students would be able to:
(a) Discuss the implications of the degree of parties’ performances in
contractual transaction.
(b) Explain and analyse the incidence of the breach of contract by parties to it
and the remedies thereof
(c) List and discuss the various manners in which a contract may be
discharged.

This module is meant to intimate the student with the various ways of measuring
performance in contract and/or the discharge of obligations under a contract. It
also teaches the student the different situations of breach of contract and the
remedies available to an aggrieved party.

Mutual performance of a contract automatically discharges the parties to the

contract. The general rule is that a contract entered into is binding on parties to
perform unless otherwise agreed by the parties. Unless a party has fulfilled his
promise in a contract, he is not discharged. It is not permissible for a party to
unilaterally withdraw from a contract or excuse himself from the contract to the
detriment of the other. See Beswick v. Beswick [1968] A.C. 58 at 92.

The promisor is under the obligation to carry out his promise according to the
agreement unless the parties mutually agreed to vary or waive the performance.
The court will usually consider the totality of the terms of a contract to ascertain
the extent of the obligations of the respective parties. In doing that, it is the duty
of the court to also identify the terms of the contract that will constitute the
fundamental terms of the contract.

A contract may be entire or divisible. This is determined by the consideration for

the contract. If the contract is one in which the consideration is one and entire, then
the contract is entire and indivisible. But where the contract is such that a number

49
of considerations are set out for a number of stages or acts to be done, then the
contract is divisible. The latter suggests instalmental performance.

5.3 Course Content of the Module

(a) Discharge of a Contract
(b) Performance of Contract
(c) Breach of Contract
(d) Frustration
(e) Remedies for Breach of contract
(f) Summary of Module 5
(g) Self-Assessment Questions
(h) Solutions to the Questions
(i) Further Readings

(a) DISCHARGE OF A CONTRACT

A contract can be discharged or determined in the following ways:

(a) By Performance
This releases the parties from further obligation. In Cutter v. Powell,
(supra) Plaintiff’s husband had contracted to receive certain amount after
voyage. He died before completing it. Wife sued. It was held that there was
no performance.

(b) By a Fundamental Breach

This may be due to a mistake of one party or of both parties. The breach
goes to the root of the contract and renders it void as held in Sussie
Atlantique’s case (Supra).

(c) By Agreement
This may be due to the operation of a condition subsequent. The condition
may already be in the contract. It is necessary to highlight some instances
where the issue of breach of contract cannot be grounded. These constitute
cases whereby certain actions of the parties to the contract discharged,
albeit impliedly, them from being bound to a contra:

i) Variation: Parties to a contract may mutually amend the terms of their

contract and thereby jettison those terms earlier agreed. When that
happens they are said to have varied the contract and thereby
discharged from the earlier agreement. See the case of Morris v. C. H.
Bailey Ltd [1969] 2 Llyod’s Rep 215.

ii) Rescission: It sometimes happens that parties to an executory contract

mutually decide to discharge each other from the obligations of the
contract. That is what is referred to as rescission. It may be expressly

50
 done or inferred from the conduct of the parties. See the case of Rose
Frank & Co v. J.R. Crompton Bros Ltd [1925] A.C. 445.

iii) Waiver: Where one of the contracting parties chooses to grant a

concession to the other party by a voluntary decision not to insist on the
mode of performance agreed in the contract, that party is reckoned to
have waived the performance and therefore discharged the other party.
The waiver may come before or after a breach of the term waived. See
Besseler Waechter Clover & Co v. South Derwent Coal Co Ltd [1938] 1
K.B. 408 at 417.

iv) Novation: In certain cases parties to a contract mutually agree to

substitute a new contract for an existing one and the latter discharged.
Such act amounts to what in contract is called novation. Here a new
party may be included in the new contract. The main issue here,
however, is the assignment of contractual right. See the case of Scarf v.
Jardine (1882) 7 App Cas 345 at 351.

It is a transfer of liability in contract such that the original is discharged.

The transfer is not an assignment of liability but a novation of the
contract. A typical illustration of novation is a situation whereby A owes
B and C owes A, and all the three parties mutually come to an agreement
whereby C shall become debtor in place of A. To make a valid novation,
the intermediate liability of A to B must be extinguished; the same or
larger amount should be due from C to A than from A to B; and a
defined and ascertained liability is transferred. This tripartite agreement
may take place before or after the liability is due.

Practical novation is found in cases of amalgamation of companies or

retirement of a partner from a partnership. When used in contract of
service, an employee or agent who agrees to serve a firm for a certain
period of years and who on the dissolution and reconstruction of that
firm, but before the expiration of that period sat down, agrees to serve
the reconstructed firm in place of the dissolved firm, no longer has right
of action against the dissolved firm. See Hobson v. Cowley (1858) 27 LJ
Ex. 205; Brace v. Calder [1825] 2 Q.B. 253.

v) Accord and Satisfaction

Accord and satisfaction is the release from an obligation arising from a
contract or tort by means of any valuable consideration which is the
actual performance of the obligation itself. The accord is the agreement
by which the obligation is discharged while the satisfaction is the
consideration which made the agreement operative. Accord and
satisfaction usually take the form of compromise. When parties

51
 abandon their original position there is a new situation created. The new
agreement is the accord while the concession is the satisfaction. Claims
can only be maintained and entertained within the compromise or new
agreement. See Adekunle v. A.C.B. (Unreported)

The general rule is that where there is a claim for some liquidated sum,
which is not in dispute, the acceptance of a smaller sum in satisfaction
does not free the debtor from liability because there is no consideration
for the debtor’s abandonment of the balance. This common law rule is
known as the rule in Pinnel’s case (supra).

The principles in the rule is that the payment of less than the sum which
is due to a creditor will not be a sufficient consideration to support his
promise not to sue for the full debt.
However, there are few exceptions to this general rule:

(a) where the payment is in form of something different, that is, in kind,
for example, a wrist watch, a gold pen or any other article,
(b) where payment is made in some other places or station than was
formerly agreed by the parties, and
(c) where payment is made by the third party.

See generally also N.E.R.D.C v. Gonze (Nig.) Ltd. and Owena Bank
(Nig.) Plc. v. Punjab National Bank.
The decision in the Pinnel’s case (supra) was accorded further
approbation in Foakes v. Beer (1884) 9 App. Cas. 205.

In this case, Mrs. Beer obtained judgment against Dr. Foakes in the suit
of #2,090. Beer agreed to accept #500 in cash and the balance by six
months instalments of #150 each until the whole debt was paid. Beer
undertook not to take any proceedings or the agreement. Foakes having
completed full payment, Beer demanded accrued interest on the
principal sum of #2,090 covering the payment period. It was held that
Mrs. Beer could still claim the interest as Dr. Foakes gave no
consideration upon which Beer could forgo the interest.

vi) Promissory Estoppel

This is a modification of the principles of the Rule in Pinnel’s case earlier
discussed. It involves a consideration of the principles of equity hence
the commonly used terms of Quasi, Promissory or Equitable Estoppel.
The principle of estoppel was enunciated in the celebrated case of
Central London Property Trusts Ltd. v. High Trees House Ltd. (1947) 1
K.B. 130, simply called the “High Tree’s case.”

52
 In this case, Plaintiff leased flats to defendants for 9 years on annual rent
of #2,500. In 1940 owing to the effect of economic depression arising
from World War II. Plaintiff agreed with Defendant to reduce the rent
to #1,250 per annum. Defendant duly paid the rent between 1940 and
1945.

After the War in 1945, Plaintiff demanded payment of full rent as well
as the arrears waived between 1940 and 1945. it was held that Plaintiff
could not renege on his promise to reduce the rent as at then.

The general principle is to the effect that if a person makes a promise to

another party to forgo, waive or suspend his contractual rights, wholly
or partly, and without consideration, though with the intent that it
should be acted upon, such a person would not be permitted in equity
to enforce his rights if doing so would not be permitted in equity to
enforce his rights if doing so would be inequitable more so when the
promise had altered his position consequent upon his relying on the
promise. See Ajayi v. R.T. Briscoe (1964) 1 WLR 1326 which involved a
hire purchase agreement for some lorries. The purchaser/defendant
had problems with the vehicles. The plaintiffs wrote him to stop
payment of instalments as long as the vehicles were off the road.
Plaintiffs later sued for arrears. It was held that the defendants were
liable to pay as the promise did not alter their position as regards the
agreement. See Major Oni v. Communications Associates (Nigeria Ltd)
H.C. Lagos Suit No. L/D 625.71. Also in Combe v. Combe, (1951) 1 A.E.R
767 where a husband upon divorce, promised to pay his wife
maintenance allowance and failed to do so, it was held that there was
no consideration for the promise to make it enforceable.

The doctrine of estoppel is simply a form of deviation from the rule in

Pinnel’s case (supra). The fact is that the court would hold that an
agreement made by two persons without consideration would be
recognised if it substantially motivated the promisee to shift his original
position as it relates to the performance of the contract.

vii) Contract Uberrimae Fidei (Utmost Good Faith)

Some types of contract are subject to the principles of Uberrimae fidei
(utmost good faith). In such contract, the disclosure of all material facts
and information must be made. Any failure to do so renders the contract
voidable at the option of the other party.

The main examples of such contract that are based on utmost good faith
are:

53
 (a) Contract of insurance: All material parts should be disclosed to
enable the insurance company take a decision.
(b) Contract of guarantee or suretyship and contract of partnership.
(c) Contract for the sale of land: The vendor must disclose all defects
in title to the purchaser.
(d) Contract for family settlement/arrangement, for example,
settlement of properties.
(e) Prospectus of company: Director and promoters of company must
give full disclosure of all material facts relating to the company;
failure makes the contract voidable.

The duty of disclosure begins from the negotiation until when the
binding contract is concluded. Duty of disclosure does not, however,
cover certain material facts, for example:

(a) facts not known to the insured,

(b) facts which diminish rather than increase risk,
(c) facts within knowledge of the insurer,
(d) facts where insurer waived the rules.

Failure of either side to disclose facts amounts to fraud which makes the
contract voidable. Examples are:

(a) Where a daily paid labourer described himself as a horticulturist and

greengrocer, it was held to be in breach of duty of disclosure. See
Bamidele v. Nigerian General Insurance Company, and Mansel v.
London Assurance (1973) 3 U.I.L.R. 418.

(b) It is a breach not to disclose that one had been refused insurance
somewhere before.

(c) It is a breach not to disclose that one had been convicted before.

The foregoing constitutes the various means by which parties to a contract may be
discharged without liability for breach.

(d) By Frustration
Frustration may be described as a situation whereby a contract could not be
performed due to no fault of either party. To arrive at what constitutes frustration,
the court does not consider the actual intention of parties but what they, from the
position of a reasonable man, would presumably have agreed upon if, having such
possibility in view, they had made express provision for it.

54
In the case of Mazin Engineering Ltd v. Tower Aluminium (1993) 5 NWLR (PT 295)
526 at 534, 537-538 the court held thus:
“Frustration may be defined as the premature determination of an
agreement between parties lawfully entered into and in course of operation
at the time of its premature determination, owing to the occurrence of an
intervening event or change of circumstances so fundamental as to be
regarded by law both as striking at the root of the agreement, and as entirely
beyond what was contemplated by the parties when they entered into the
agreement. If, therefore, the intervening circumstance is one which the law
would not regard as so fundamental as to destroy the basis of the
agreement, there is no frustration. Equally, if the terms of the agreement
show that the parties contemplated the possibility of such intervening
circumstance arising, frustration doe not occur. Neither of course, does it
arise where one of the parties had deliberately brought about the
supervening event by his own choice…. But where it does, frustration
operates to bring the agreement to an end as regards both parties forthwith
and quite apart from their violation … It must be emphasized that where
the contract is frustrated, further performance is excused only if: (i) it occurs
before the breach of contract, (ii) it is without the fault of either party, and
(iii) it is due to fundamental change of the circumstances beyond the control
and original contemplation of the parties.”

Frustration may be due to an Act of God which is called Force Majeure, that
is major force. A contract is discharged if through no fault of either parties
it becomes impossible for them to perform their contractual obligation
under the contract.

Frustration occurs in the following ways:

i. Destruction of the subject matter, for example by fire, earthquakes, volcanic
eruptions, rainstorm, floods or accident. See the case of Taylor v. Caldwell
(1863) 3 B & G 826, where a hall which was hired for a musical concert was
destroyed by fire and thus frustrated the contract. Neither party could claim
anything from the other.

ii. By death, especially in the case of personal contract of service. It may also
be due to sudden illness.

iii. Unavailability of materials for the completion of the subject matter of the
contract. This is applicable when caused by law such as the legislation
prohibiting the importation of specified goods by the government.

iv. Cancellation of an event, for example coronation cases, where contract for
the rentage of scaffold and stands for watching the coronation event was
frustrated by sudden cancellation.

55
 See also Chandler v. Webster (1904) 1 K.Bb 493. This case had been
overruled by the Fibrosa v. Fairburn (1943) A.C. 32, that is, Fibrosa’s case,
which made the amount earlier paid recoverable in the event of frustration.

v. Performance is rendered illegal: e.g where importation of a particular set of

goods into Nigeria has been prohibited by law.

Effects of Frustration
(a) Under the Common Law
i. The contract is automatically terminated and both parties are
consequently discharged from further performance.
ii. All rights that have already accrued prior to the frustration shall not
be affected.
iii. However, where a person has paid some money in advance and
nothing was forthcoming before the frustration, he is entitled to
recover such money for failure of consideration.

(b) Law Reform (Frustrated Contracts) Act (1943) UK

The provisions of this statute have substantially modified the doctrine of
frustration in contracts. Essentially, the Act is not all that applicable to
contracts of insurance, contracts for the carriage of goods by sea, certain
charter parties and certain contracts for the sale of goods.

Some of the notable statutory changes in the law of frustration include the
fact that:

i. on frustration all sums payable before the time of the discharge shall
cease to be payable, and all sums paid shall be recoverable, but a
party entitled to such payment may retain or recover the whole or
part of such sum not in excess of the expenses that has been incurred;

ii. if a party obtains a valuable benefit before the discharge of the

contract, the court may award the other party any sum it thinks fit
not exceeding the value of the benefit.

The question of breach does not arise therefore where indeed there is frustration.
Some of the common circumstances that may bring about frustration of a contract
will include:
• Death – in cases of personal service, death discharges a contract.
• Destruction/Disaster: This is referred to as an act of God or force majaure.
• Illegality – a situation whereby performance is rendered illegal by some
unexpected legislation.
• Cancellation of event

56
• Unnavailability of materials for completion of the contract. e.g., ban on
importation.

(b) Performance of Contract

There are different degrees of performance. For easy appreciation they may be
classified as:
1. Full performance (de minimis doctrine): the law requires full or entire
performance of a contract. That is the doctrine of de minimis doctrine;

2. Substantial performance: When quite a portion of the contract has been

carried out it may be considered a substantial performance. It is a doctrine
in contrast to (1) above which the court developed to mitigate the
requirement of de minimis doctrine;

3. Part-performance: In actual fact this is a doctrine peculiar to certain contracts

which are required to be in writing by statute, for example, lease,
assignment, etc. Where one of the contracting parties has partly performed
an oral contract, which indeed the statute required to be in writing, in
expectation that the other party would perform the rest of the contract, the
court will not allow that other party to excuse himself from the contract on
the strength of the statute. See Paye v. Gaji (1996) 5 NWLR (PT 450) 589 at
605;

4. Total non-performance: This occurs where parties to the contract have failed
to fulfil their obligations in the contract.

The essence of the above classification is to set forth a platform for the proper
understanding of the remedies available for the breach of a contract. Where parties
perform their obligations they are discharged from the contract. But where they
do otherwise there is a breach of contract.

(b) Breach of Contract

A contract is said to have been breached where a party unilaterally refuses to fulfil
his obligation in the contract. In other words, he unilaterally purports to have
discharged himself from the contract. A breach, depending on its gravity, attracts
different remedies open to the aggrieved party. The law presumes that every
reasonable person who enters into a contract knows the ordinary course of things
and consequently the loss that will likely arise from a breach of the contract. So,
two kinds of knowledge are identified. One is imputed as stated (based on
presumption of contemplation of parties) and the second is actual. See C.A.P. plc
v. Vital Inv. Ltd (2006) 6 NWLR (PT 976) 220 at 259, 251.

Anticipatory Breach: In certain situations a party may indicate that he will not be
able to continue with the contract thereby insinuating rescission from the contract

57
before the time at which he is bound to perform. Such a breach is known as
anticipatory breach. It occurs when the party expresses an intention to break the
contract or when he acts in manner as to lead a reasonable person to conclude that
he intends to renege on his obligation in that contract. See the case of F.G.N. v.
Zebra Energy Ltd (2002) 18 NWLR (PT 798) 162 at 215. The other party may from
that act of the party in such anticipatory breach either unequivocally accept the
breach completely and sue for damages, or, reject the breach and retain the right
to enforce the breaching party’s primary obligation. See Johnstone v. Milling
(1886) 16 Q.B.D. 460 and F.G.N. v. Zebra Energy Ltd supra.
(d) Remedies for Breach of Contract
Remedies for breaches of contracts can be either preventive or redemptive. The
aggrieved party has remedies of either rescinding/repudiation of the contract and
recovering the loss suffered so far or insisting on the contract being fully
performed and recovering damages. This principle was rested in the case of
Odusoga v. Ricketts (1997) 7 NWLR (PT 511)1 at 16-17 this way:
“… If one party to a contract commits a breach then if that breach is
something that goes to the root of the contract, the other party has
his option. He may still treat the contract as existing and sue for
specific performance; or he may elect to hold the contract as an end
– i.e., no longer binding on him while retaining the right to sue for
damages in respect of the breach committed…”

On remedies open to the party, there is part performance of the contract. The
Supreme Court in Olaopa v. O.A.U., Ile-Ife (1997) 7 NWLR (PT 512) 204 at 220
held:
“The principle is that, a party to an entire contract partly performed
by him and was, by the act of the other party, prevented from
proceeding further with performance, is by law entitles him to be
paid for the fruits of the labour he has already rendered. In situation
like this, two alternative remedies are open to him: (a) damages for
breach of contract; (b) reasonable remuneration in quantum meruit
for the work already done.”

Whereras the foregoing are the common and broadly recognized remedies of
breach of contract, the Osborne Concise Dictionary (9th edn) identified four,
including one extra-judicial means viz:

“(1) By act of the injured party, e.g. defence, reception, distress, abatement and
seizure.
(2) By operation of law. e.g. retainer and remitter.
(3) By agreement between the parties, e.g. accord and satisfaction, arbitration.
(4) By judicial process, e.g. damages, injunctions.”

58
Indeed these are practical remedies at the disposal of the aggrieved party to a
contract for breach of the contract:

The following are the main remedies or redresses available for a breach of
contract.

(c) Damages
A person can claim damages/monetary compensation for a breach of
contract. The object of awarding damages is to put the injured party, so far
as money can do it, in the same position as if the contract had been
performed as was held in
Univeral Vulcanising (Nig.) Ltd. v. Ijesha United Trading and Transport
Co. Ltd. and 6 Others (1992) 9 NWLR (pt 266). Such damages may be
nominal or substantial as the case may be. To be entitled to substantial
damage, the plaintiff needs to show that he has suffered ‘loss,’ that is harm
or injury to his person or property. However, the plaintiff cannot recover
damages for any loss which he could have avoided but which he has failed
by act of omission or commission or through unreasonable action or
inaction to avoid. The principles of causation of loss and the remoteness of
loss (like in tort) are as enunciated in Hadley v. Baxendale (1854) 9 Exch.
341). Plaintiffs were haulers and the defendants were common carriers. The
defendants delayed in carrying a vital spare parts ordered by the plaintiffs
thereby causing them great losses. It was held that the loss of profits by the
plaintiffs could not reasonably be deemed to have been a natural
consequence of the breach of contract.

(d) Rescission
This is an equitable remedy available to an injured party for a breach of
condition or where there is a mistake or misrepresentation. Rescission
terminates the contract. In London Assurance v. Mansel (1879) 11 Ch. D 363,
where a man did not disclose the material facts on his life on a proposal
form by concealing that he had been refused insurance by other companies,
it was held that the company could rescind the contract. See generally
Dantata v. Mohammed (2000) 7 NWLR (Pt. 687) 396.

(e) Specific Performance

This is also an equitable remedy. It is an order issued by the court, ordering
a defendant to perform the promise he had made. The granting of the
request for specific performance by the court is discretionary and is not
available in the case of contract of personal service. The court will grant an
order of specific performance where an order of monetary compensation
will not be a remedy to the injured party. In the case of Fakoya v. St. Paul’s
Church (1966) 1 All NLR 68, appellant sold land to the respondent. He took

59
 the price but refused to execute the conveyance. The respondents sued for
specific performance. It was granted. See generally Balogun v. Alli-Owe
(2000) 3 NWLR (Pt. 649) 477 C.A.

(f) Injunction
This is also an equitable remedy. It is an order by the court ordering a
person not to do certain act. It is used for restraining a person from
committing a breach of contract. In Akenzua II v. Benin Divisional Councils
(1959) WRNLR 1, Plaintiff had sought damages, injunction or specific
performance from defendant Council for withdrawing the concession given
him to exploit timber; it was held that since he offered no consideration, the
remedies sought could not be granted. See further, Gbadamosi v. A-G
Lagos State (2001) 6 NWLR (Pt 709) 437 C.A. Injunction may be prohibitive
where it is to stop the doing or repetition of some acts or mandatory where
it compels the performance of an act.

(g) Quantum Meruit

This is a sort of part-performance in which a party claims “as much as he
deserves” Quantum meruit is a claim where work done is in partial
performance especially where the contract is severable or divisible or can
be separated. In Ekpe v. Mid-Western Nigerian Development Corporation,
the plaintiff sued for the payment of his salary for the period he worked for
the defendant, it was held that even where a contract was void, the party
who worked can sue on a quantum meruit (that is, for work done). See also
Cutter v. Powell (1795) 6 Ter,/ Re[ 826 and Warner & Warner v. Federal
Housing Authority (1993) 6 NWLR (Pt. 298) 148 S.C.

(h) Repudiation: An injured party to a contract may be allowed to regard

himself as not being bound by the contract in consequence of its breach. In
other words, the law in that circumstance permits him to reckon the
contract no longer binds him since the other party has breached the
contract. But the other party also has the option of accepting or refusing
the repudiation. See the case of Okongwu v. NNPC (1989) 4 NWLR (PT
115) 296.

(i) Restitution: This involves the return to the injured party his goods or
property or its monetary equivalent in order to restore him to his former
position. See Hyun Sung Hydraulic Machinery Co. Ltd v. Hassan Jaffer
(2004) 15 NWLR (PT 896) 343 at 361.

(j) Rectification: There are cases whereby the terms of the contract may be
rewritten to reflect the true intentions of the parties and thereby ordering
them to proceed with the amended terms. It would appear that this remedy
is limited to cases of mistake. The Supreme Court illuminated this remedy

60
 in the case of The Vessel “Leona II” v. First Fuels Ltd (2002) 18 NWLR (PT
799) 439 at 470-471.

(e) Summary of Module 5

This module has explained the various circumstances by which the performance
of a contract may be measured. It also discussed the modes of breach of contract
and the remedies available to the aggrieved party.

(f) Self-Assessment Questions

1. Write short notes on the following:
a. full performance,
b. partial performance,
c. substantial performance and
d. total performance of contract.

2. Explain the basis for assessing the quantum of damages available to an

injured party to a contract.

3. What is breach of contract?

4. Enumerate the remedies at the disposal of an injured party and explain four
of them.

5. What is anticipatory breach?

6. In what ways may a contract be discharged?

7. What are the available remedies for a breach of contract?

(g) Solutions to the Questions

1. Performance in contract is of four folds:

Full performance requires that the entire obligations are discharged;
Substantial performance where quite a portion of the obligation has been carried
out;
Part performance where though the law stipulates the contract must be written
parties made oral agreement of which one party has taken steps by performing
part of the obligation; Total non-performance where parties have failed to fulfil
their obligations.

2. Quantum of damages a party may be entitled to in contract is determined by the

kind of breach which may entitle the party to repudiation of the contract and

61
damages or mere rescission and no damages. This is determined by the type of
term of contract involved.

3. Breach of contract occurs where a party fails to fulfil his obligation under a
contract.

4. Frustration in contract involves a situation whereby a party or parties to a

contract fail to meet his obligation because of some unforeseen interference
beyond his control.

5. Remedies at the disposal of the injured party include rescission, repudiation;

damages; injunction; quantum meruit; specific performance; etc.

6. It occurs when the party expresses an intention to break the contract or when he
acts in manner as to lead a reasonable person to conclude that he intends to renege
on his obligation in that contract. See the case of F.G.N. v. Zebra Energy Ltd (2002)
18 NWLR (PT 798) 162 at 215.

7. Contracts may be discharged by performance, fundamental breach, agreement,

and frustration.

8. Some of the remedies available to a party for breach of contract include

damages, rescission, injunction, quantum meruit, specific performance, restitution,
repudiation, rectification.

Further Readings:
Achike, Okay Nigerian Law of Contract. Enugu: Nwamife, 1972
Dada T.O. General Principles of Law. Lagos. T.O. D. & Co., 2006
Furmston, M.P. Cheshire, Fifoot and Fumston’s Law of Contract. 11th ed., London:
Butterworths, 1986
Olugasa, Olubukola Law of Contract through Nigerian Cases. Lagos: BPrint,

2007Should you require more explanation on this study session, please do not

hesitate to contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

62
iag@dli.unilag.edu.ng
08033366677

63
MODULE 6: LAW OF AGENCY: DEFINITION, CLASSIFICATION AND
CREATION

6.1 Introduction
The module deals with the basic principles of agency relationship as it affects the
definitions, classification and the modalities for the creation of agency.

The purpose of this module is to present to the student a brief background of the
evolution of the law of agency, its nature, formation, types, termination and
remedies.

Agency is an aspect of law of contract which also has its mode of operation in law.
It arose out of the exceptions to privity of contract whereby a person not a party to
a contract is not permitted to enforce or claim under the contract. That doctrine is,
however, sensible only to the extent that the parties to the contract have not overtly
or covertly transferred or delegated their contractual authority in the contract to
other persons such that the acts of those other person in the contract are deemed
as the acts of the real parties (being their representatives).

6.2 Learning Objectives

At the end of the course the students should be able to:
(a) Discuss the nature of the law of agency and the modalities for its creation.
(b) Identify and Explain the various types of agency and the modes of
termination.

6.3 Outlines of the Module

(a) What is agency?
(b) Agency distinguished
(c) Creation of agency
(d) Types of agency
(e) Principals and Agents
(f) Termination of agency
(g) Summary of Module 6
(h) Self-Assessment Questions
(i) Solutions to the Questions
(j) Further Readings

6.3.
(a) What is Agency?

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It is a known fact that a person cannot be at different places at the same time or do
all things he wishes to accomplish at the same time, in different places and in
different areas of specialisation. It therefore becomes needful to delegate some
aspects of one’s commercial transactions to some other people.

A party in a contract who has delegated his authority/capacity, whether expressly

or impliedly, to another person is called the Principal. The person to whom the
authority/capacity is donated is known as the Agent. The agent represents the
principal in all areas expressly authorised and in areas impliedly authorised to
represent the principal. A contract consummated by the agent on behalf of the
principal is deemed in law to have been consummated by the principal. By
implication, the principal has both the benefits and detriments (liabilities) in the
contract. This principle of law is couched in the Latin maxim as qui facit per alium
facit per se, i.e., he who acts by another acts for himself. The Supreme Court in the
case of Okwejiminor v. Gbakeji (2008) 5 NWLR (Pt. 1079) 172 at Pp. 223-224, paras.
G-A described the concept thus:
"Agency is the relationship which exists or arises where one person
called the agent, has the authority or capacity to create legal
relations by acting on behalf of another person called the principal,
whereby the latter undertakes to be answerable for the lawful acts
of the former provided it was done within the scope of the former's
authority, or ratified by the latter. .. [James v. Midmotors (Nig.) Co.
Ltd. (1978) 11 - 12 SC 31; Olufosoye v. Fakorede (1993) 1 NWLR (Pt.
272) 747; Royal Exchange Ass. (Nig.) Ltd. v. Aswani Textile Ind. Ltd.
(1991) 12 NWLR (Pt.176) 639.]" Per Muhammad, JSC

Note that agency is not concerned with the contract consummated by the agent on
behalf of his principal but it is concerned with the contractual relationship
between the principal and the agent.

(b) Agency Distinguished

There are a number of other legal devices that have some similarities of agency but
which technically are not considered in law as agency. These similar concepts are
equally exceptions to privity of contract. They include trust, guaranteeship,
bailment, servant, etc.

a) Trust: Agency is not a trust. A trust is an arrangement whereby property is

managed by one person(s) for the benefit of another. The person who
creates the arrangement is called a settlor while the person appointed to
manage the property is the trustee and the person for whose benefit it is
created is called the beneficiary i.e., cetui que trust (use). Trust is more of
property matter but it transcends agency.
b) Guaranteeship/Sureteeship: This is an arrangement whereby a person binds
himself usually by deed to satisfy the obligation of another person (e.g.
debtor) where the latter fails to discharge the obligation. Where the

65
 guarantor satisfies the obligation of the other person, he is entitled to
recover the loss from the principal (debtor) or from co-sureties. He is
entitled to the benefits accruing from all the securities the creditor has
against the principal. Unless the creditor reserves the right against the
surety, where he releases the debtor, then the surety also is released.
c) Bailment: The Court of Appeal in the case of Wema Bank Plc v Osilaru
(2008) 10 NWLR (Pt. 1094) 150 at 181 paras. F - G (CA) defined bailment as
follows: "A bailment is the transfer of possession of goods to a bailee, not
the ownership of it, by the bailor the owner of the goods on condition,
expressed or implied, that the goods shall be returned by the bailee to the
bailor, or according to his bailor's directions as soon as the purpose for
which they are bailed has been fulfilled. A bailment includes hire or lease
of goods, like a vehicle delivered for repair to a repairer or under a pledge."
Per Awala JCA
d) Servant: This used to be domestic but now part of labour law and
integrated into agency.

Forms of Authority
Authority proceeds from the principal to the agent, who conveys it to the third
party; therefore authority is sometimes synonymous with power. There are
various types:

(a) Actual or Express Authority

This may be oral or in writing. However, an authority to execute a deed that
is under seal should be by a power of attorney.
(b) Implied Authority
This is usually shown by the conduct of the parties especially the principal.
An agent may also have implied authority to do acts that are reasonably
incidential to the performance of his express authority.
(c) Apparent Authority
This is shown by the conduct of the principal. Under this, an agent who as
a matter of fact has no authority to contract for the principal may appear to
the third party to have such authority. The principal may then be liable on
the contract.
(d) Ostensible Authority
This can be seen, inferred or observed from the words and speeches of the
principal. The agent shall have acted within the ambit of such authority and
consequently not liable.
(e) Usual Authority
This goes with the position or status of the agent. Such authority should not
be ambiguous. It is similar to implied or apparent authority. An agent shall
not be liable if he exercised such authority that is normally associated with
the business transacted on behalf of his principal.

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 Implied Warranty of Authority
The agent would be liable even without proof of fraud for a breach of implied
warranty of authority. This liability exists whether the agent is acting negligently
or in good faith. Under the rule in Collen v. Wright, it was held that any one who
professes to be an agent of somebody and has an implied warrant to make the
contract which had been made, no matter how innocent, the self styled agent
would be personlly liable to the third party except and unless the agent expressly
disclaims such authority or where the third party knows that the agent lacks such
authority. The absence of such authority constitutes a breach of implied
warranty of authority and the liability is strict at law.

Exceptions to the Rule

(a) where the agent expressly disclaims lack of authority to act for the
principal.
(b) where the third party is aware or knows or ought to have known of the
agent’s lack of authority.
(c) where the third party did not act on the consideration of the agent but on
entirely different considerations.
(d) where there is a breach of formality, for instance, where a contract is
supposed to be in writing but is not so.

Classification of Agency
(a) Special Agent
This is someone who has authority to do some particular act on behalf of
his principal, though not on a continuous basis. For instance, a special order
to pruchase a house or a vehicle.

(b) General Agent

This is someone who has power to act for his principal in all matters
involving business or trade, for example a solicitor or legal practitioner.

(c) Factor Agent

He is an agent who sells or disposes of goods that are entrusted to him. His
activities are governed by the Factors Act of 1889 (U.K.)

(d) Broker Agent

He negotiates and makes contract for the sale and purchase of rights,
services or goods. However, unlke a factor he is not left in possession of the
goods. Typical examples are insurance brokers and stock brokers.

(e) Universal Agent

This is someone who represents various principals in many aspects of trade.
He is appointed by a deed under power of attorney and has wide powers.

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(f) Mercantile Agent
He represents someone in commercial and certain aspects of trade. Their
duties are more or less similar to those of the factor agents.

(g) Auctioneer
He represents a principal in the disposal of goods or properties by auction.
They are usually licensed to sell properties of mortgators who have
defaulted in payment. Auctioneer acts between the vendor and the
purchaser. He receives commission and invariably sells to the highest
bidder.

(h) Estate Agents

These deal in the acquisition of, valuation of and disposal of properties.
(i) Del-Credere Agent
This is a mercantile agent who, in consideration of extra pay, that is del-
credere Commission, guarantees to his principal that the 3rd party with
whom he enters into contract on behalf of the principal shall duly pay the
sum becoming due under the contract. In effect a “del credere” agent is a
surety of the person with whom he deals.
This is just a form of guarantee which may not necessarily be in writing in
order to be enforceable at law.

(c) CREATION OF AGENCY

Agency may be created in two broad ways namely:

Express Creation
(i) By deed – this involves issuing an authority in writing with the
necessary instruction and attestation clauses, that is signed, sealed
and delivered. This process is known as the granting of a power of
attorney.
(ii) Oral Instruction

(b) Implied Creation

(i) Agency of Necessity – This is created by act of person who normally
had no authority but was compelled to reasonably act to protect the
interest of the 3rd party, especially during an emergency situation.
(ii) Agency by Estoppel: This is a type of agency that can be inferred
from the conduct of the parties. If the situation that exists suggests
that parties want to create an agency relationship, either of the
parties is estopped from denying the existence of such a relationship.
See Orji v. Anyaso.
(iii) Apparent Agency: This occurs where a principal has not taken due
precaution to prevent a situation where somebody portrays himself
as having power to act as his agent.

68
 (vi) Agency by Ratification – This occurs where the principal, having full
knowledge of the facts, accepts the benefits of the contract entered
into by his agent. Any act whether lawful or unlawful may be ratified
provided it is not void. If it is voidable, it is still capable of being
ratified as long as it is valid. In Brook v. Nook where an agent forged
his principal’s signature on a promissory note, it was held that the
attempt at ratification was void. The principal must have capacity as
at the date of the contract. In Kelner v. Baxter where a promoter tried
to ratify some pre-incorporation contracts, it was held that he could
not succeed as the contracts predated the company.

AGENCY OF NECESSITY
This is an aspect of an impliedly created agency. There are some circumstances in
which although no relationship of principal and agent exists, the law regards what
has been done by the authority of the person as having been lawfully done, in
which case such action will attract liability. This is known as an Agency of
Necessity of which there are various types, namely:
(a) True Agency of Necessity
(b) Negotioum Gestor
(c) The Deserted Wife

True Agency of Necessity

This is actually necessitated by circumstances which enable the agent to bring his
principal in to a contractual relationship with the third party. The best example is
the Ship master as well as the Acceptor of a Bill of Exchange who does it on behalf
of the drawer. In the case of the ship master, he may borrow money on behalf of
the ship owner and may even sell part of the cargo to defray any expenses as was
held in Nolara v. Henderson. An agency of necessity will arise under the folowing
conditions.

(i) It must be impossible for the ship master to communicate with the owner
of the ship or cargo for instructions. In Springer v. Great Western Railway,
where a consignment of tomatoes was found to be going bad as a result of
strike by Railway men which delayed the off loading, it was held that the
Railway company was liable as it had the opportunity to communicate with
Springer but failed to do so.

(ii) The action taken by the agent must be for the benefit of the principal. There
is no necessity where the action is selfish.

(iii) The ship master must have acted in good faith.

Nogotiorum Gestor

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This refers to where anyone who without authority (expressed or implied) comes
into possession of another person’s property and has to take steps to preserve such
property.
The question that arises here is whether such a person entitled to reimbursement
or commission from the actual owner who did not authorize him to act for him.
As a general rule, “the law regards such a person as a volunteer who cannot claim
any reward or commission. The general rule is that no liability may be imposed
upon any person without hi consent.

Exceptions to the general rule

(i) Acceptor of Bill of Exchange
If the drawee of a bill does not accept it, the bill may be protested for
dishonour or non-acceptance.
(ii) Salvage of a Ship
Where a person gives assistance in saving a cargo ship that is in distress
though without authority, the law recognises reward for such a person as
was held in “The Goring.”
(iii) Funeral Expenses
Anybody who undertakes the payment of funeral expenses on behalf of a
deceased’s person could recover the money from the person who should
actually be responsible.

Deserted Wife
When a wife is separated from her husband, under certain circumstances, she may
pledge her bushand’s credit during that period.
There are two different situations:

(i) Separation by Agreement – This entails being separated by mutual consent

without court order. There is usually an agreement on the subject of
maintenance, and as such the wife cannot pledge the husband’s credit.

(ii) The Truly Deserted Wife – A wife who is forced out of her matrimonial
home can pledge her husband’s credit for necessaries (food, clothing and
education for the children). In such a situation, she is a true agent of
necessity and can therefore bring the third party into contractual
relationship with the husband, notwithstanding the fact that it was for her
personal benefit. However, where there is no maintenance agreement and
the wife has adequate means of support, she cannot pledge her husband’s
credit.

RATIFICATION
Ratification is the authority given to an agent subsequent to the performace of an
act. It is the affirmation by the principal of an act done by the agent on behalf of
that principal without his authority. Any act, lawful or unlawful, may be ratified

70
althouth a void act can not be ratified, unlike a voidable act. Ratification relates
back to the contract which was made by the agent and accepted by the principal
without questions.
The nature and extent of ratification are well enunciated in the decision of the
Supreme Court in Imona-Russel v. Niger Construction Ltd. The contract must have
been made by the agent on behalf of a principal and should not be in the agent’s
own name or selfish interest.

Conditions for Ratification

(a) The contract must have been made on behalf of a named or ascertainable
principal. A contract made by a person in his own name which is intended
to be made on behalf of an undisclosed principal cannot be ratified.
(b) The principal must be in existence and must have full contractual capacity
as at the time of the contract, as was held in Kelner v. Baxter (supra). The
principal must have capacity to enter into the alleged unauthorised contract
when it was made. A company for instance, can therefore not ratify a
contract that is “ultra vires” its Memorandumof Association as was held in
Ashbury Rly. Carriage and Iron Co. v. Riche (supra).
(c) Ratification must not be futuristic in nature, as was held in Caligara v.
Giovanni & Co. (1961) (supra).
(d) Ratification must take palce within a reasonable time, that is at the period
fixed for performance.
(e) The principal must have full knowledge of the material circumstances
involved in the transaction. See generally Vulcan Gases Ltd. v. G. F. Irid. A G.

Efffect of Ratification
(a) The general rule is that ratification produces the same effects as if the agent
had acted under due authority, as was held in Bolton Partners v. Lambert.
(b) The agent who may have been liable for a breach of implied warranty of
authority to the third party ceases to be liable.
(c) Ratification may turn an otherwise unauthorised act into an authorised act.
(d) By ratification, both the principal and the third party are now in direct
relationship with each other.
(e) Without ratification, any act done in excess of the agent’s authority may not
be binding on the principal. See generally Vulcan Gases Ltd. v. G.F. Ind. A.G.
(2001) (supra)

(g) Summary of Module 6

This module essentially concentrated on the definition, classification and
the modalities for creating agency relationship. It harped on the forms of
authority that exist which are the most vital links between the principal, the
agent and the third party.

71
72
 (h) Self-Assessment Questions
(1) What do you understand by the term “Agency”?
(2) Outline the various ways in which agency may be created
(3) Distinguish between agency and master servant relationship?
(4) Write explanatory notes on any of one of the following:
(a) Agency of Necessity
(b) Negotiorum Gestor
(c) Deserted Wife
(5) Which of these is not an Agent’s duty under the Law of Agency …
(a) he should obey principals’ instructions
(b) he should avoid conflict of interest
(c) he should arrogate the principal’s property after a while
(d) he should exercise due care and skill
(e) he should not make secret profits
(6) Where a third party deals with an agent, but not aware that he is
dealing with an agent, the principal is …
(a) an undisclosed principal and will be contractually bound
(b) a disclosed principal and will not be contractually bound
(c) an undisclosed principal and will not be contractually bound
(d) a disclosed principal and will be contractually bound
(e) none of the above

(k) Solutions to the Questions

1. Agency is that contract between a principal and an agent. It involves the
regulation of the relationship between the principal and the agent. Here
the principal delegate his authority to the agent expressly or impliedly.

2. The creation of agency may be express, e.g., By deed or by oral

instruction or implied, e.g., by necessity, by estoppel, by ratification if by
failure to correct some representation over time.

3. The three fall under agency by necessity. Agency by necessity occurs

where though the parties did not plan so find themselves as such by certain
circumstances.

5. C 6. C

Further Readings:
Dada T.O. General Principles of Law. Lagos. T.O. D. & Co., 2006
Fridman, G.H.L. Law of Agency 6th ed. London Butterworths, 1990

73
Hamblin, C. Banking Law. London Sweet and Maxwell, 1985Should you require

more explanation on this study session, please do not hesitate to contact your e-

tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

74
MODULE 7: LAW OF AGENCY PRINCIPAL, AGENT AND THIRD PARTY
RELATIONSHIP AND TERMINATION OF AGENCY

7.1 Introduction
The module discusses the specifics of the agency relationship by highlighting
keywords such as the Principal, the Agent and the Third Party. It also highlights
how an agency can be terminated.

7.2 Learning Objectives

At the end of the cause, the students should be able to:
(a) Generally discuss the relationships amongst the Principal, the Agent and
the Third Party
(b) Analyse and distinguish the various rights and duties existing in an agency
situation
(c) Define the various technical terms, as are prevalent in an agency
relationship
(d) Identify the various ways in which agency relationship may be terminated.

7.3 Course Content of the Module

(a) Disclosed and Undisclosed Principal
(b) Agency Coupled with an Interest
(c) Delegation of Authority
(d) Rights and Duties of the Principal
(e) Rights and Duties of the Agent
(f) Relationship between the Agent, the Principal and Third Party
(g) Termination of Agency
(h) Summary of Module 7
(i) Self-Assessment Questions
(j) Solutions to the Questions

7.3
(a) Disclosed and Undisclosed Principal
Where an agent is acting for a disclosed principal, the contract is the contract of
the principal, not that of the agent, and prima facie, in common law, the only
person who can sue and be sued is the principal, as it was held in University of
Calabar v. Ephraim & Ors. (1993) 1 NWLR (Pt. 271) 551 C. A. A disclosed principal
may also sue or be sued on any contract made on his behalf and in respect of any
money paid or received on his behalf by his agent acting within the scope of his
actual authority – as was held in Niger Progress Ltd. v. North East Line
Corporation (1989) 3 NWLR (Pt. 107) 68 S.C.

75
A disclosed principal may be a named principal if the third party knows his name,
or an unnamed principal where the third party only knows of his existence and
not his name. In both cases, the agent is not personally liable on the contract and
it is only the principal that can sue or be sued on the contract. See generally M.S.L.
Ltd. v. N.M.A (2000) 9 NWLR (Pt 672) 391 C.A.

An undisclosed principal is someone whose existence a third party is unaware of.

This follows that the third party does not know that the person with whom he is
dealing is anybody’s agent. Here the 3rd party can enforce the contract against the
agent or the principal.

The third party simply thinks that the agent is really the principal dealing on his
own personal behalf and in his own name. In Humble v. Hunter (1848) Q. B. 310
where an agent described himself as an “owner,” it was held that it could not be
suggested that there existed a principal who could sue or be sued. Furthermore,
where a person conveys or contracts as “owner” or “beneficial owner,” he cannot
be shown as contracting for another person, as was held in Alli v. Ikusebiala (1985)
1 NWLR (Pt. 4) 630 S.C.

At law, it is not the duty of the third party to inquire whether there is an
undisclosed principal. Under this doctrine, a person who is not directly a party to
a contract may acquire rights and be subjected to liabilities under it (an exception
to the rule under privity of contract). An undisclosed principal can sue or be sued
in his own name on any contract duly made on his behalf as long as the agent acted
within the scope of his authority. However, there could be an instance by way of
exception where the contract made between the agent and the third party is too
personal to allow an undisclosed principal to intervene. For example, in Said v.
Butt (1920) 3 K. B 497, Said wanted a ticket to watch a play. He had personal
differences with the manager of the Theatre, Butt, and could therefore not get a
ticket. He begged a friend A to obtain the ticket. A bought the ticket in his own
name and gave it to Said. Said was not allowed a seat at the theatre and he
subsequently sued. It was held that the personal identity of the ticket holder was
vital to the theatre. Owing to the fact that Butt, the Managing Director of the
Company owning the theatre, is a person with whom Said could not have
contracted directly, he could not contact with his company indirectly by acting
through an agent personified by A. Furthermore, where the principal was non-
existent as at the time of the contract, the agent will be personally liable as was
decided by the Supreme Court in Ogidan v. Aloha. Such a contract, where done
on behalf of a company cannot be adopted nor ratified, as was held in Kelner v.
Baxter (1866-67) LR, 2 CP 174 and Caligara v. Giovanni (1961) 2 All NLR 534 .

(b) Agency Coupled with an Interest

76
The principal may revoke an agency relationship while an agent can renounce it.
In certain circumstances however, agency may not be revocable by the principal.
This is the situation where the agent is said to have “authority coupled with an
interest.” This occurs where, for instance, a debt due from the principal to the
agent and authority has been given by the principal for the agent to act on the
principal’s behalf as security for that debt. The principal will not be able to revoke
such an agency until that debt is discharged. In similar vein, an agency coupled
with an interest can also not be terminated by notice neither can it be affected by
the principal’s bankruptcy, death nor insanity. In Raleigh v. Atkinson (1840) 6 M
& W 670 P entrusted goods to A for sale. Frequently made advances to P and
obtained authority to dispose of the goods at the market value and to repay
himself the advances out of these proceeds. It was held that: A’s authority was
coupled with an interest and was therefore irrevocable.

(c) Delegation of Authority

As a general rule, the agent should not delegate his authority, hence the maxim,
“delegatus non potest delegare.” In McCann v. Pow (1974) 1 W.L.R 1643. An agent
was appointed as “Sole Agent” to sell a land. He passed the work to other agents
who subsequently demanded payment of commission; it was held that the
delegation was unauthorised.

Exceptions to the Rule

There are, however, circumstances under which an agent may exceptionally
delegate his authority, namely:
(i) where custom and usage in a trade allows such delegation;
(ii) where a necessity or emergency situation compels the agent to adopt
a substitute;
(iii) where there is an express or implied authority by the principal to
delegate;
(iv) where delegation is pertinent to the attainment of the agency’s goals;
(v) where statutory provision empowers delegation.

(d) Rights and Duties of the Principal

(a) He should pay the reward or the commission of the agent.
(b) He should indemnify the agent for all expenses lawfully incurred by
the agent in carrying out the principal’s instructions.
(c) He should be prepared to ratify the acts of the agent as the case may
be.
(d) Where the principal is disclosed, he should assume responsibility
and liability for the authorised acts of the agent, as in Niger Progress
Ltd. v. N.E.L. Corp (supra).
(e) He could always enforce the contract against the third party.
(f) As a general rule also, the principal is liable to the third party under
the contract whether or not the principal was disclosed.

77
(e) Rights and Duties of the Agent
(a) He should obey principal’s orders and instructions.
(b) He should not delegate his authority except in certain circumstances
as aforementioned. See McCann v. Pow (supra). An agent was
appointed as “Sole Agent” to sell a land. He passed the work to other
agents who subsequently demanded payment of commission, it was
held that the delegation was unauthorised.
(c) He should act in good faith and avoid conflict of interest. In
Armstrong v. Jackson (1917) 2 L. B. 822, Armstrong employed
Jackson, a stock broker, to buy shares for him. Jackson sent a contract
note to A showing that the shares had been bought whereas it was a
ruse or sham. J in fact sold his personal shares to A. It was held that
Armstrong could rescind the contract.
(d) He should exercise due care and skill.
(e) He should not make secret profit. Such secret profit made by an
agent can be recovered – Reading v. Attorney-General (1951) A.C.
507.
British Army Sergeant on duty in Egypt and not in uniform
accompanied lorries carrying illicit spirits across the border. He was
paid #20,000 as gratification. He was bound to account to his
employers, the Crown.
(f) He should not disclose confidential information.
(g) He should render accounts as and when due.
(h) Lien: This is a right to detain somebody’s goods until a given debt is
paid. An agent has a right of lien to retain the principal’s goods or
property though not to sell it. This is a general lien not a special lien.
(i) Remuneration should be paid by the principal to the agent at the
agreed rate. Where no rate is fixed, the agent is entitled to a
reasonable commission.

(f) The Relationship between the Agent, the Principal and Third Party
Where an agent has contracted as an agent, he cannot be made liable personally
on that contract. However, if he had no authority to contract, he would be liable.
Also if the agent knew that he had no authority and went on to act, he would be
liable for the tort of deceit. See Adeyemi v. Larix Baker (Nig.) Ltd (2000) 7 NWLR
(Pt 663) 33.

The Relationship between Principal and Third Party: This is controversial

especially in the area of payment made to the agent. As a rule, payment made to
the agent is not very relevant to the issue. However, there are instances where
liability will exist on the transaction. For example, if the third party had so
conducted himself as to make the principal believe that the agent has discharged
his responsibility where-upon the principal pays the agent, the third party will not

78
be able to make the principal liable to pay him. Everything depends on the conduct
of the third party.

Where the principal sues the third party or vice versa, the question arises as to
whether either of them could make use of defence available to the agent. Another
question is whether the third party can set off the debt owed to him by the agent
in action against the principal by the third party. The legal position is that when
the principal is disclosed, the third party cannot set off the debt. But where the
principal is undisclosed, the third party has the right to regard the agent as the
principal.

(g) Termination of Agency

This can occur in two ways
a. By conduct of the parties: This may be through mutual agreement. It
may also be by giving necessary notice as contained in the
contractual agreement. The principal may exercise his right to
revoke or renounce the authority.
b. By operation of the law:
i. through death of one party or both,
ii. through insanity of one party or both,
iii. through bankruptcy of one party or both ,
iv. by frustration,
v. through illegality of the subject matter,
vi. where subject matter no longer exists, and/or
vii. expiration or lapse of time

a. Summary of Module 7
This module mainly treated the central theme in the study and operation of agency
to missing on the rights and duties of the principal and the agent as they both
relate to the third party. It enunciates the two ways in which agency relationship
may be terminated.

(h) Self-Assessment Questions

1. Briefly distinguish an agency from trust, bailment master and
servant and guaranteeship.
2. In what ways may an agency relationship be created?
3. Outline and briefly describe the various types of agents.
4. Write explanatory notes on the following:

79
 (a) Agency by Ratification
(b) Del Credere Agency
(c) Delegatus non Protest Delegare
(d) Negotiorum Gestor
5. In what ways may an agency relationship be terminated?

6. Where an agent is expressly appointed to perform certain specified acts that

agent is said to have ……………….
a. usual authority b. actual authority c. fade authority
d. implied authority e. agency authority

7. Where an agent does an act which is not expressly authorised that agent can be
said to have ………………...
a. usual authority b. actual authority c. fade authority
d. implied authority e. agency authority

8. Where a third party has notice of the principal’s restriction on an agent with
usual authority ……………
(a) the principal will not be liable
(b) the principal will be liable
(c) the third party will be liable
(d) the third party will not be liable
(e) none of the options

9. …………… arises where a third party relies on a representation made by a

principal to the effect that the principal holds out someone as his agent
a. Agency by actual authority b. Agency by necessity
c. Agency by ratification d. Agency by estoppel
e. Agency by record

10. ………………. occurs where an act done without authority or in excess of

authority by an agent is adopted as binding by the principal
a. Agency by actual authority b. Agency by necessity
c. Agency by ratification d. Agency by estoppel
e. Agency by record

(l) Solutions to the Questions:

1. Agency involves authorisation as others but whereas trustee can conclude a
contract as principal an agent cannot; whereas a bailee is merely in custody of the
owner's goods he cannot deal with it.

2. Types of agents include special agent authorised for specific purpose; general
agent as the name suggests; auctioneer; factor agent, etc

4. Agency by ratification occurs where the agent acted for the principal without
authority but his action on behalf of the principal was later ratified by the

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principal. Negotiorum Gestor is an agent of necessity which occurs where a person
comes into possession of another, he becomes an agent for the owner and is duty
bound to account.
Delegatus non protest delegare means an agent or person authorised to carry out
some duty ought not to delegate the authority

5. Agency may be terminated by performance, by revocation, by agreement, by

operation of law, etc.
6. B
7. D
8. A
9. D
10. C

Further Reading:
Dada T.O. General, Princples of Law. Lagos. T.O. D. & Co., 2006
Hicks, Andrew, Introduction to Nigerian Law of Hire Purchase, Zaria A.B.U.Z., 1997
Uvieghara, E. Sale of Goods (and Hire and Purchase) Law in Nigeria, Ikeja Malthouse

1996

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

81
MODULE 8: LAW OF HIRE PURCHASE: DEFINITION AND PRE –
1965 APPLICATIONS

8.1 Introduction
The module introduces basic principles of hire purchase in its rudimentary stages.

The Law of Contract is the basis of all contractual agreements of which hire
purchase is one. Human wants are indeed insatiable and so cannot be ever
satisfied. There are certain things needed by man which may be necessary to have
at some point in life. However, the usual limitation to meeting the needs is
purchasing power. There are different legitimate ways to meet these needs
through certain contractual transactions. A person could obtain a loan from the
bank, or from any other source to meet his need with the obligation to repay the
loan or satisfy it one way or the other. The person may opt to buy on credit and
put down some collateral to secure it until he repays the loan. Another mode is to
enter into an agreement whereby he is permitted to pay for the needed article or
thing by instalments over some period of time with some interest. Hire purchase
is different from this owing to the possibility of ‘optio’ to buy after payment of
instalments.

The law applicable to hire purchase agreements in Nigeria today is the Hire
Purchase Act of 1965 which came into effect in 1968. The Act is derived from the
English Common Law.

8.2 Learning Objectives

At the end of the course, the students should be able to:
(a) Define and describe appropriately what hire purchase really is.
(b) Discuss the historical evolution of the practice especially at Common Law.
(c) Understand the reported case of Atere v. Dada which is the “locus
classicus” for the Nigerian practice of hire purchase.

8.3 Course Content of the Module

(a) What Hire Purchase is?
(b) Hire Purchase Practice at Common Law
(c) Summary of Module 8
(d) Self-Assessment Questions
(e) Solutions to the Questions

8.3

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(a) What Hire Purchase is?
According to Tarun Jain,

“The term, 'hire-purchase' symbolizes a business transaction which

originates from a written agreement under which goods are let on hire, and
the hirer has an option to purchase those hired goods in accordance with the
terms of such agreement. These terms include the provision of delivering
the possession of the goods by the owner to the hirer who pays the agreed
amount towards the cost of the goods in periodical installment. The
agreement also provides that on the payment of the last installment, the
property in the goods is to pass to the hirer who has entered into agreement
and paid the cost of the goods in installments.”

This description of hire purchase is widely accepted because it captures the

essence of this type of contract. It is however instructive to note that hire purchase
must be distinguished from sale. The reason for this distinction was aptly stated
by Akanki (2005) when he noted that hire purchase contract was “devised to avoid
the pitfalls which neither the Factors Act nor Sale of Goods Act could
circumvent...” In these acts, property passes to a buyer even when he has not
satisfied his obligation by paying fully for it and he is therefore capable of
transferring good title to a third party.

Hire purchase was actually established in law by the House of Lords in the case of
Helby v Matthews & Ors (1895) A.C. 471. In the course of deciding the action, one
major issue arising was the position of the law regarding a buyer who has taken
possession of a piano by an agreement to hire for his use and to pay instalmentally
and with an option to buy at the end of the instalments. The owner of the piano by
the agreement however retains the title in the piano until the hirer pays the full
instalment. That position was hitherto unknown to existing laws governing sales
especially the Factors Act and the Sale of Goods Act.

Hire purchase is by its nature distinguished from other forms of sale such as
agreement to sell, credit sale, conditional sale, contract of sale, purchase
agreement, mortgage, or sale of goods. In these types of sale, the agreement
between the seller and the buyer from the outset is that the buyer ultimately buys
the product. Here the hirer is taken in law to have hired the goods he takes
possession of with an undertaking to make instalmental payments towards the full
value of the goods and at the end of the payment he has the option to buy or not
to buy the goods. In addition during, the period of the hire either party is free to
terminate the agreement.

Hicks (1977) gave insight to the basis of the hire purchase contract in the following
illustration:
‘A person entering into a hire-purchase agreement for the acquisition of a
car may imagine that he is buying the car and that it becomes his as soon

83
 as he takes delivery and begins to pay instalments. The legal nature of the
agreement is very difficult, however, as he is in law not purchasing the
car but is only hiring it while the instalments are being paid.
Furthermore, he does not become the owner of the car until payment is
complete. In one type of hire-purchase agreement, the car becomes his
when, having paid off the instalments, he exercises an “option to
purchase” contained in the agreement, by paying a small option fee. In
the other type of agreement, he may at any time terminate the hiring, but
if he does not do so, the car becomes his when he actually completes the
instalmental payments. If the option to purchase is not genuinely optional
or if there is no right to terminate prematurely the hiring and repayment,
the transaction is not a hire-purchase as there is effectively an obligation
to buy.’

In a nutshell, hire purchase is basically distinguished from sales by the fact that
the parties to the agreement are not legally intending to buy but to hire. Either of
the two types of hire purchase agreements highlighted in the above illustration
requires making a choice to buy at the end of the payment of instalments; one by
paying option fee and the other by paying the final instalment, not having
terminated the agreement before the last instalment. The incident of purchase only
comes at the end of payment of instalments if the hirer opts to buy. That accounts
for why the parties are exclusively referred to as owner and hirer and not seller and
buyer.

(b) Hire Purchase Practice at Common Law

Hire purchase law has been attributed to the contribution of lawyers who by their
ingenuity sought solutions to certain needs of traders and customers who could
not be adequately covered by the existing laws in certain transactions. It arose as
a common law device. At inception, it gave the owner (trader) unlimited powers
to recover his goods at any time the hirer (customer) defaulted outrightly or
inadvertently in paying an instalment. The owner would dictate the terms of the
agreement which the helpless hirer must follow and the courts would enforce to
the letter. The common law general rule that a non-owner of goods cannot validly
pass title in the goods to a third party except where sold at a market overt is very
much applied in Hire Purchase Law. The hirer cannot validly sell the goods in his
custody as hirer to another. This principle which is provided for in section 25(2) of
the Sale of Goods Act and section 9 of the Factors Act states that a credit purchaser
can sell the goods in his custody before they become fully his and thereby validly
transfer the title therein to a third party. Not so with the hirer. Traders were
therefore more attracted to hire purchase agreement since they could recover their
goods from the hirer at any time they wished when he defaulted without recourse
to the Court. Owners, however, at some time over-used these powers to the
detriment of hirers, inserting unrealistic and harsh terms and exclusion clauses in
the agreement such as rights to seizure of the goods at any stage of the transaction,
stating the particular insurance the hirer must insure the goods with, and the

84
garage he must patronise for repairs, etc. Sometimes the owner charged interest;
inserted unrealistic exclusion clauses.

Repossession power of the owner was so abused that the owner could recover the
goods even when a large proportion of the instalments had been paid by the hirer
as obtained in the case of Atere v Dada Amao (1957) WRNLR 176. In that case the
hirer failed to pay the last 5 pounds out of 1,000 pounds and the Court had to grant
the repossession of the vehicle to the owner without him accounting for the excess
profit as done in mortgages. With time the Common Law attempted to remedy the
hardship faced by the hirer by providing that where the hirer had paid up to 60%
of the value of the goods, then the owner could not recover unless by application
to the Court.

(c) Summary of Module 8

So far we have attempted to explain the genesis of hire purchase law and its
fundamentals. One notable thing about it is its distinction from other methods of
purchase such as contract of sale, sale of goods, consumer credit transaction,
agency, mortgage and agreement to sell. It is not to be taken as a method of sale as
it has been clearly distinguished from sale. The rationale for this is that unlike a
sale property, the goods in hire purchase does not pass until the option to buy is
exercised by the hirer at the end of payment of instalments.

(d) Self-Assessment Questions

(1) What do you understand by the term “hire purchase”.
(2) Briefly outline the operative modalities of hire purchase under the
Common Law rules.
(3) The decision in Atere v. Dada was the turning point in the Nigerian
hire purchase practice. Discuss.
(4) The hirer in a hire-purchase contract has all of the following rights
except the right to:
a. assign his right, title and interest without the consent of the
owner.
b. be supplied relevant documents and information.
c. appropriate payment.
d. complete the purchase earlier than the due date.
e. none of the above

(5) The ultimate difference between hire purchase agreement and sale
agreement is that
a. the former is contractual while the latter is obligatory
b. the former is sale while the latter is hiring

85
 c. the former is full payment while the latter is instalmental
payment
d. the former is easy while the latter is difficult
e. the former is with an option to buy while the latter is not

(6) The Hire Purchase contract was devised to avoid hardships to….
a. sellers of goods
b. buyers of goods
c. third parties
d. consumers of goods
e. market owners

(7) The Hire Purchase Act of 1965 was enacted to protect principally
the …
a. sellers of goods
b. buyers of goods
c. hirers of goods
d. owners of goods
e. consumers of goods

(8) A Hirer or Bailee of goods under the Hire Purchase Act, 1965 has…
a. agreed to buy goods
b. has bought the goods
c. has an option to purchase goods
d. has title to the goods
e. possession of the goods

(e) Solutions to the Questions

1. Hire purchase is a contract between an owner and a hirer which contract is for
instalmental payment in with an option to purchase at the end of the contract. It is
different from sale or contract to sell. The option to purchase at the completion of
instalmental payment makes it a unique commercial transaction.

2. The modalities of hire purchase transaction under common law was very harsh.
The owner was so powerful that he could recover the possession of the good on
hirer having paid substantial part of the cost of the good. Owners, however, at
some time over-used these powers to the detriment of hirers, inserting unrealistic
and harsh terms and exclusion clauses in the agreement such as rights to seizure
of the goods at any stage of the transaction, stating the particular insurance the
hirer must insure the goods with, and the garage he must patronise for repairs,
etc.

3. Repossession power of the owner was so abused that the owner could recover
the goods even when a large proportion of the instalments had been paid by the

86
hirer as obtained in the case of Atere v Dada Amao (1957) WRNLR 176. In that
case the hirer failed to pay the last 5 pounds out of 1,000 pounds and the Court
had to grant the repossession of the vehicle to the owner without him accounting
for the excess profit as done in mortgages. With time the Common Law attempted
to remedy the hardship faced by the hirer by providing that where the hirer had
paid up to 60% of the value of the goods, then the owner could not recover unless
by application to the Court.

4. A
5. E
6. A
7. C
8. C

Further Reading:
Dada T.O., General Princples of Law. Lagos. T.O. D. & Co., 2006
Hicks, Andrew, Introduction to the Nigerian Law of Hire Purchase, Zaria A.B.
U.Z., 1997 p.127.
Uvieghara, E., Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse

1996. Should you require more explanation on this study session, please do not

hesitate to contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

87
MODULE 9: HIRE PURCHASE LAW: POST – 1965 REFORMS AND
OPERATIONS

9.1 Introduction
The module is designed to introduce students the understanding of the main
principles in hire purchase transactions.

The module gives an outline of the innovations which the Act brought into the
hire purchase transaction. It also explains the modality for the passing of property
in goods and the relevant proportion principle.

9.2 Learning Objectives

At the end of the Course, students should be able to:
(a) Discuss the historical antecedents of the hire purchase transactions in
Nigeria
(b) Explain the Pre-1965 practices and the Post-1965 Reforms
(c) Analyse and articulate on the important concept of the passing of
ownership in goods and the Relevant Proportion Principle.

9.3 Course Content of the Module

(a) Elements of the Post 1965 Reforms
(b) Passing of property
(c) Relevant Proportion Principle
(d) Summary of Module 9
(e) Self-Assessment Questions
(f) Solutions to the Questions

9.3
(a) Elements of the Post – 1965 Reforms
The Hire Purchase Act 1965 has further remedied a number of hardships caused
the hirer under Common Law hire purchase agreement. The law which repealed
the earlier act commenced in 1968.
The most essential reforms the Act brought are as follows:
a) Section 20 defines hire purchase as “the bailment of goods in pursuance of
an agreement under which the bailee may buy the goods or under which
the property in the goods will or may pass to the bailee”. This sums up the
fundamentals of hire purchase. It is instructive to note that the Hire
Purchase Act 1965 actually covers hire purchase and credit sale as provided
in section 2 of the Act. The inclusion of credit sale may sometimes cause
confusion for a reader to misapply the hire purchase principles contained

88
 therein. But essentially, the Act made profound provisions for the
formation of a valid hire purchase agreement as discussed below:

b) Although not specifically provided for in the Act, it makes it mandatory to

have a hire purchase agreement in writing, be it partly or wholly, because
of certain terms the Act specifically requires to be in written form. So,
section2(2)(a), (b) and (c) in detailing the contents of such agreements made
mention of the required contents of the memorandum that must be in place
before a valid hire purchase agreement can take effect. The law does not
however exclude oral agreement once same can be proved.

c) Section 2(1) of the Act provides that the owner must state in writing to the
prospective hirer ... a price at which the goods may be purchased by him
for cash. This is so mandatory that failure to comply will rob the owner the
right to enforce the agreement. Failure to comply renders the agreement
void.

d) The amount of instalments must, according to the Act in section 2, be stated

as well.

e) Further, section 2(2) requires mandatorily that the memorandum

containing the cash price must be signed by the hirer and the owner or his
representative.

f) Section 3 of the Act provides that any term in the agreement that entitles
the owner to enter hirer’s premises to repossess the goods renders the
agreement void.

g) Section 4 provides for (1) an implied warranty that the hirer shall have and
enjoy quiet possession of the goods, (2) implied condition that the owner
has title, (3) implied warranty that the goods are free from any
encumbrance except for second hand goods notwithstanding anything
stated in the agreement to the contrary.

h) Section 7 of the Act imposes the duty to furnish information when required
under the agreement on the parties to the agreement.

i) Section 8 endows the hirer the right to determine the hire purchase
agreement any time before the final instalment and return the goods
otherwise the owner can recover by court action. Hirer that opts to
determine must pay at least half the purchase price of the goods or less if
specified in the agreement. Hirer’s right to determine cannot be excluded.

89
j) Sections 9 and 10 of the Act restrict recovery of the goods by owner to
recovery by action in case relevant proportion has been paid by the hirer.
The relevant proportion as provided by the Act is: for goods other than
motor vehicles ½ of the value of the goods; and 3/5 for motor vehicles.

k) On the restriction of re-possession by the owner, there is an amendment of

the Act by Hire-purchase Act Cap H4, LFN 2004 which has somehow
restored the power of re-possession to the owner only for agreements
relating to motor vehicles. The Supreme Court in the case of Andrew
Ebohimi Omoijuanfo v Nigerian Technical Company Limited (1976) All
NLR 294 upheld the decision of the High Court as follows:
“We will deal with the above argument and submissions of learned
counsel for the appellant later, but for the moment we think it is
desirable to set out the relevant sections of the Hire-Purchase Act
involved in the above submissions: and these are Sec. 9 of the Hire-
Purchase Act 1965 (hereinafter called "the Principal Act") and sub-
section (5) of the said section which was introduced by Decree No.23
of 1970 (hereinafter called "the Amending Act"). Section 9(1) of the
Principal Act reads:

"(1) where goods have been let under a hire purchase agreement and
the relevant portion of the hire purchase price has been paid
(whether in pursuance of a judgment or otherwise) or tendered by or
on behalf of the hirer or any guarantor, the owner shall not enforce
any right to recover possession of the goods from the hirer otherwise
than by action.

(2) If an owner recovers possession of goods in contravention of the

foregoing sub-section, the hire-purchase agreement, if not previously
determined, shall determine and

(a) the hirer shall be released from all liability under the agreement
and shall be entitled to recover from the owner in an action for
money had and received all sums paid by the hirer under the
agreement or under any security given by him in respect of the
agreement; and

(b) any guarantor shall be entitled to recover from the owner in an

action for money had and received all sums paid by him under the
contract of guarantee or under any security given by him in respect
of that contract.

(3) The foregoing provisions of this section shall not apply in any
case in which the hirer has determined the agreement or the bailment
by virtue of any right vested in him.

90
(4) In this section and elsewhere in this Act the relevant proportion,
where the reference is to the relevant proportion of the hire-purchase
price of any goods or to the relevant proportion of a part (however
described) of that price means

(a) in the case of goods other than motor-vehicles, one-half; and (b)
in the case of motor vehicles, three-fifths."

and section 2 of the Amending Act provides as follows:

"(2) Section 9 of the Principal Act (which relates to restriction on

recovery of goods otherwise than by action) shall be amended as
follows:

(a) at the end of subsection (1) thereof, there shall be inserted the
following and except as provided by subsection (5) below."

(b) immediately after subsection (4) thereof, there shall be inserted a

new subsection:

'(5) In the application of the foregoing provisions to motor vehicles,

where three or more instalments of the hire-purchase price of a
motor vehicle under the agreement are due and unpaid, the owner
may remove the motor vehicle to any premises under his control for
the purpose of protecting it from damage or depreciation and retain
it there pending the determination of any action, and the owner shall
be liable to the hirer for any damage or loss which may be caused by
the removal'. "

We endorse the learned trial judge's interpretation of the

provisions of sub-section (5) of section 9 of the Principal Act as
contained in his observations in portions of his judgement quoted
above. There is, in our view, no doubt that prior to the amendment
introduced by the Amending Act, the provisions of section 9 of the
Principal Act worked considerable hardship on the owner of a hired
vehicle who, as the law then stood, was unable to repossess the same
from a mischievous hirer who having contrived to pay three-fifths
of the hire-purchase price, albeit with considerable difficulty and by
irregular instalments even if in breach of the provisions of the hire
agreement, deliberately embarks upon complete abuse and misuse of
the hired vehicle, until he could bring an application to court
pursuant to the provisions of the subsection (1) of that section. It is
undoubtedly the intendment of the Legislature, by promulgating
Decree No.23 of 1970, to remedy this situation and give the owner of
the hired vehicle the necessary power to repossess and keep the same

91
 in a state of repair pending the intervention of the court under the
provisions of Section 9(1), of the Principal Act. This, we think, is the
raison d’être of sub-section (5) of s.9 of the Principal Act.
On the view that we hold of the Amending Act (Decree No.23 of
1970) it is patent from the facts in this case-and learned counsel for
the appellant, in the end, conceded the point albeit with some
measure of reluctance-that there is, indeed, no merit in this appeal.
He had laboured under a misapprehension that it was the payment
of N80.00 on the 25th of September, 1973, that brought the total
instalment payments made by the appellant, as of that date, to
three-fifths of the hire-purchase price whereupon he argued that
notwithstanding the provisions of sub-section (5) of section 9 of the
Principal Act the respondent had not on 4th October, 1973, "the
power to repossess the hired vehicle" until the appellant defaulted
by three or more consecutive instalments "due subsequent to the
25th September, 1975".

Note that not all vehicles fall under motor vehicle. See section 20(1) of the Act and the
case of CIVIL DESIGN CONSTRUCTION NIG. LTD. v. SCOA NIGERIA LIMITED (2007)
VOL. 30 WRN 81 at 126 line.15-20 (SC)

(b) Passing of Ownership

One fundamental principle that underlies the hire purchase contract is the issue of
passing of ownership. Passing of ownership in law refers to the event when the
title in a property or goods moves away from the owner to the purchaser. Such
incident is actually a feature of sale. Since hire purchase, as has been consistently
stated, does not come within the ambit of sale technically speaking in law, the issue
of passing of property may appear strange.

(c) Relevant Proportion Principle

The Act totally embargoes the seizure of goods by the owner without the consent
of the court if it can be ascertained that a ‘relevant proportion’ of the price had
been paid. Relevant proportion means three-fifths (3/5) in the case of vehicles and
one half (1/2) in the case of other goods. The overall effect of this provision in
section 9 of the Act is to forbid resorting to arbitrary action and perpetration of
injustice by the owner.

Under the Act, the hirer now has the right to terminate the hire-purchase
agreement at any time before the final payment (section 8). The hirer shall notify
the owner of the goods in writing. He shall take proper care of the goods, return
the goods to the owner and settle all outstanding liabilities. Of particular note is
the provision of section 9(5) of the Act which allows the owner to remove goods
or motor vehicle to any premises under his control for the purposes of protecting
it from damage or depreciation. This provision was designed to prevent a possible
abuse of the provisions relating to “relevant proportion” as aforementioned.

92
(d) Summary of Module 9
This module enunciates the various reforms introduced by the Hire Purchase Act
of 1965. The legislative enactment was quite revolutionary indeed as it drastically
transformed the hire purchase practices by introducing innovations. The relevant
proportion principle was one of such fundamental initiatives.

(e) Self-Assessment Questions

(1) Outline the various reforms introduced by the Hire Purchase Act, 1965 into
the practice of hire purchase transactions in Nigeria.

(2) Attempt a comparison of the pre – 1965 hire purchase practices under the
common law with the post 1965 practices based on the Act.

(3) What do you understand by the term “Relevant Proportion” under the Hire
Purchase Law?

(4) A friend of your wants to go into hire purchase transaction. Advice him on
the “dos and donts” of the business.

(5) Under the Hire purchase Act, 1965 the owner of goods cannot seize them
without the consent of the court if it can be ascertained that a “Relevant
Proportion” of the price has been paid by the Hirer. In the case of vehicles
and other goods, “Relevant proportion” respectively means.
(a) ½ and (b) 2/5 and 3/5 (c) 1½ and 2½
(d) 3 /5 and ½ (e) 1½ and /5
3

(6) The Hire Purchase Act of 1965 does not impose restrictions on the owner’s
rights to
a. inflate the price of the goods
b. sue for damages
c. recover possession of the goods
d. deliver the goods to third parties for repairs
e. insure the goods

(7) Under the Hire Purchase Act, 1965 the owner of goods cannot seize them
without the consent of the court if it can be ascertained that a “Relevant
Proportion” of the price has been paid by the Hirer. In the case of vehicles
and other goods, “Relevant Proportion” respectively means.
a. ½ and 2
b. ½ and 3/5
c. 1½ and 2½
d. 3/5 and ½

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 e. 1½ and 3/5

(8) If the Hirer sells the goods in a market overt, the purchaser who buys in
good faith and without notice of any defect or want of title on part of the
seller acquires a:
a. void title
b. viodable title
c. valuable title
d. reasonable title
e. good title

(9) A Contract of Hire Purchase is a means by which a person who cannot

afford to pay cash for some goods can legally obtain the by:
a. borrowing the goods
b. purchasing them conditionally and paying by installments
c. hiring the goods for a while
d. taking temporary possession of the goods
e. hiring the goods and paying by installment with an option to purchase
the goods

(g) Solutions to the Questions

1. The reform redefined the hire purchase and virtually made it compulsory that
the agreement be in writing which must evidence the price of the good, the
instalments to be paid, the signature of the parties, . warranty for quiet possession
of the hirer, prohibition of a clause for repossession by owner, repudiation allowed
by either party at any time but owner can only recover by court permission,
introduction of the doctrine of relevant proportion, and full information to be
made available by parties, implied condition that the owner has title and there is
no encumberance, etc.

3. The Act totally embargoes the seizure of goods by the owner without the consent
of the court if it can be ascertained that a ‘relevant proportion’ of the price had
been paid. Relevant proportion means three-fifths (3/5) in the case of vehicles and
one half (1/2) in the case of other goods. The overall effect of this provision in
section 9 of the Act is to forbid resorting to arbitrary action and perpetration of
injustice by the owner.

Under the Act, the hirer now has the right to terminate the hire-purchase
agreement at any time before the final payment (section 8). The hirer shall notify
the owner of the goods in writing. He shall take proper care of the goods, return
the goods to the owner and settle all outstanding liabilities. Of particular note is
the provision of section 9(5) of the Act which allows the owner to remove goods
or motor vehicle to any premises under his control for the purposes of protecting

94
it from damage or depreciation. This provision was designed to prevent a possible
abuse of the provisions relating to “relevant proportion” as aforementioned.

5. D
6. B
7. B
8. E
9. E

Further Readings
Dada T.O., General Principles of Law. Lagos T.O. Dada & Co. 2006.
Hicks, Andrew, Introduction to the Nigerian Law of Hire Purchase, Zaria A.B. U.Z.,
1997 p.127.
Ezejiofor, Gaius, C.O. Okonkwo and C.U. Ilegbune, Nigerian Business Law London,
Sweet & Maxwell, 1982 p.531.
Uvieghara, E., Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse

1996.

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

95
MODULE 10: HIRE PURCHASE LAW: OBLIGATIONS OF PARTIES AND
TERMINATION

10.1 Introduction
The module attempts to teach the various obligations of parties in the hire
purchase transaction as well as the modalities for the termination of hire purchase
contracts.

This module is designed to assist the student in the understanding of the various
obligations of the parties, principal, agent and the third party under the hire
purchase transaction.

10.2 Learning Objectives

At the end of the course students should be able to:
(a) Discuss various obligations, rights and duties of parties
(b) Identify the specific rights and duties as a related to the parties
(c) Explain the modalities for the termination of hire purchase contracts.

10.3Course Contents of the Module

(a) Terms for inclusion in standard Hire Purchase Contracts
(b) Duties and Rights of Parties
(c) Position of a Third Party under Hire Purchase Contract
(d) Right of the owner and Hirer against Third Party
(e) Termination of Hire Purchase Contract
(f) Available Remedies
(g) Summary of Module 10
(h) Self-Assessment Questions

10.3
(a) Terms for Inclusion into a Standard Hire Purchase Contract
For an Hire Purchase Contract to have been edjudged as having been validly
entered into, the following terms must complied with:
i) It must be in writing.
ii. It must state the cash price of the value of the goods.
iii. It must state the value of each instalment.
iv. It must state the period over which the instalments will be paid.
v. It must include the hirer’s right to terminate the contract anytime before
completion of instalment payments.
vi. It may restrict re-possession by owner if mutually agreed by parties, as the
statutory restrictions have been relaxed by the 1970 Amendment.

96
 vii. It must include the doctrine of relevant proportion.
viii. It may include remedies available to parties.
A clause or provision outside of these would be declare null, void and
unenforceable.
(b) Duties and Rights of Parties
Duties of Owner:
The duties of owner under the Act as implied in the elements of the hire
purchase contract are as follows:
i. To disclose the cash price (value) of the goods to the hirer right
from the inception of the contract (see C.D.C (Nig.) Ltd. v. SCOA
(Nig.) Ltd. (2007) 6 NWLR (Pt. 1030);
ii. He must have valid title in the goods (see S. 4 of the Act),
iii. the goods he offers to the hirer must be in good condition and fit
for purpose (see S. 4 of the Act).
iv. He must allow the hirer quiet enjoyment of the goods (see S. 4 of
the Act).
v. He must hand over the goods to the hirer.
vi. Permit the hirer to choose his insurer and garage for maintenance
(see S. 3 of the Act).
vii. He must accept instalments.
viii. He must deliver the exact quantity of goods stipulated (see Ogwu
v. Leventis Motors Ltd (1963) NLR 115)
ix. For goods other than motor vehicles, he cannot repossess goods
after payment of relevant proportion.
Duties of Hirer
The Hirer has the following obligations:
i. to accept the goods,
ii. to take reasonable care of the goods while in his custody,
iii. to pay the instalments at the right time,
iv. to deliver the goods to the owner where he determines the agreement,
and
v. to disclose information about the goods whenever required by the owner

Rights of Owner
Flowing from the duties of the hirer the owner has the following rights:
i. right to information about the goods from the hirer,
ii. right to receive instalments,
iii. right to re-possess the goods where agreement is determined by hirer after
recourse to court, and
iv. right to re-possess the goods, if motor vehicle, for safety even when relevant
proportion has been paid without recourse to court.

Rights of Hirer
Flowing from the duties of the owner, the hirer has the following rights:

97
 i. right to quiet possession and enjoyment,
ii. right to use the goods,
iii. right to know the cash price of the goods and the exact instalments required,
iv. right to choose insurance and the garage to maintain the goods, and
v. right to determine the agreement any time before the final instalment.

(c) Position of a Third Party under Hire Purchase

The general rule is that the hirer cannot part with the goods to the third party until
he has exercised the option to purchase. Barring this, such a disposition shall be
void as was held in Olamitan v. CFAO (Ghana) (1959) L.L.R 42 and Helby v.
Mathews (1895) A.C. 471. Exceptions to this rule, however, include:

i. where the owner is by his conduct estopped from denying the seller’s
authority to sell, especially under the provisions of the Sale of Goods Act.
It shall therefore constitute a good title being through estoppel;

ii. where the purchase was made in a “market overt,” it shall be good against
the whole world. A “market overt” is an open, public and legally
constituted market e.g. Trade Fair, Bazaar or Supermarket;

iii. where the sale is by court order, through a bailiff in execution of a writ of
“fieri-facias” (fi-fa);

iv. where the hirer sold the goods and immediately paid the outstanding
balance to the owner in apparent exercise of his option to purchase. This is
known as the “doctrine of feeding the title” as it goes a long way to validate
what could have become a defective title on the part of the buyer.

(d) Rights of the Owner and the Hirer against Third Party
Where a third party has acquried no good title to the goods, the owner shall
exercise the following rights against him:

i. damages for conversion, that is, wrongfully arrogating another person’s

goods for his own use;

ii. the owner has the right to recover his goods through peaceful means or by
an action in detinue, that is, a demand for its return and the subsequent
refusal to do so by the third party;

iii. Where there has been loss or damage to the goods occasioned by the act or
omission of the third party, the owner has the right to bring an action for
negligence against him and he can subsequently recover damages; and

98
iv. similarly, where the rights of a hirer of goods have been unnecessarily
interfered with in a manner that is inconsistent with his possession, he may
also exercise the rights of recovery or sue for conversion or damages as the
case may be.

a)

(e) Termination of Hire Purchase Agreement

This may take the form of:
i. performance of obligations by parties under the agreement;
ii. by mutual agreement between parties to rescind;
iii. repudiation by an aggrieved party. He may use for damages for a breach
of an express or implied term and may in addition repudiate such
agreement;
iv. the provision in the agreement which enables the hirer to terminate any
point in time in exercise of his option to purchase the goods or not. The
owner too has right to terminate for breach of certain terms by the Hirer;
v. the Statutory notice prescribed in the Hirer Purchase Act: Notice shall be
given in writing and any provision in the agreement excluding such notice
shall be void;
vi. frustrating events like fire, destruction, Act of God may lead to termination.
Such an event is usually outside the control of both parties; and
vii. court judgment or order in an action by a party for conversion or detinue
may occasion the termination of the agreement.

(f) Available Remedies

Hire purchase contract is governed by Common Law and the Act in Nigeria. There
are certain cases that will only be remedied under Common Law, especially those
aspects that fall outside the purview of the Act. Usually, remedies to a party under
hire purchase agreement is determined by their agreement except where the terms
are inconsistent with the provisions of the Act.

Remedies available to Owner

i. Where the hirer fails to take possession of the goods after the agreement,
the owner can sue and get remedy under Common Law for damages. On
the authority of Charter v Sullivan (1957) 2 Q.B. 117 and Thomson v.
Robinson (1953) CL 117, the quantum of the damages available to the owner
will be based on whether the supply exceeds demand for the goods at the
time of breach.
ii. Where the hirer determines the agreement after taking delivery of the
goods, the owner can sue for damages which is usually a minimum
payment previously agreed upon by the parties, although under the Act,
that is no longer the case. Section 8 provides that the hirer will be liable in

99
 the circumstance to pay what will bring his total payment to one-half of the
price.
iii. Where the hirer commits a breach of the agreement and the owner retakes
the goods, his claim can only be the true arrears of rental. If there is a
minimum payment clause in the agreement, the balance will have to be paid
by the hirer. However under the Act, if the relevant proportion has been
paid, there seems to be no further payment to be made by the hirer other
than damges for other breaches. For motor vehicle, the owner can seize the
goods in order to keep it safe until he goes to court to seek proper order to
re-possess the vehicle.

Remedies available to Hirer

For the hirer, the remedies available for breach by the owner include the following:
i. Where the terms of the agreement breach any rule under the Act, especially
the implied conditions, then the hirer may repudiate the contract.
ii. Where the owner has no title in the goods, the hirer can sue for damages
and recover his deposit.

(g) Summary of Module 10

This module attempted an outline of the many obligations, rights and duties which
various parties in the hire purchase transactions are entitled to. It also examined
the various remedies that are available. The standard terms that should be looked
for in any hire purchase agreement are also analysed. The mdoes for terminating
Hire Purchase contracts are also dwelt upon.

(h) Self-Assessment Questions

(1) Outline the rights and duties of the owner, the hirer and the third party in
hire purchase transaction.

(2) A friend of yours wants to enter into hire purchase transaction and has
sought your opinion on the terms and clauses that should be or should not
be inserted in the document. Advise him.

(3) In what ways and manner may a hire purchase contract be terminated?

(4) A hirer takes goods on hire purchase from a dealer for N500,000.00, paying
a deposit of one third and agreeing to pay the balance by monthly
instalments over two years. After two months, the hirer defaults in paying
the instalments. Advise the dealer as to his rights, if any, to recover
possession of the goods.

100
 (5) Laitan comes home from work to find her husband, Lope, in her absence,
has entered into a hire purchase contract with a door-to-door salesman for
a cooker for N25,000.00. She wants to know;
(a) Whether he can aviod the contract, and
(b) The main differences between a hire-purchase contract and a
credit sale agreement.
Adverse her.

(g) Solutions to the Questions

1. Duties of Owner:
The duties of owner under the Act as implied in the elements of the hire purchase
contract are as follows:
To disclose the cash price (value) of the goods to the hirer right from the
inception of the contract (see C.D.C (Nig.) Ltd. v. SCOA (Nig.) Ltd. (2007) 6
NWLR (Pt. 1030);
He must have valid title in the goods (see S. 4 of the Act),
the goods he offers to the hirer must be in good condition and fit for
purpose (see S. 4 of the Act).
He must allow the hirer quiet enjoyment of the goods (see S. 4 of the Act).
He must hand over the goods to the hirer.
Permit the hirer to choose his insurer and garage for maintenance (see S. 3
of the Act).
He must accept instalments.
He must deliver the exact quantity of goods stipulated (see Ogwu v.
Leventis Motors Ltd (1963) NLR 115)
For goods other than motor vehicles, he cannot repossess goods after
payment of relevant proportion.
Duties of Hirer
The Hirer has the following obligations:
vi. to accept the goods,
vii. to take reasonable care of the goods while in his custody,
viii. to pay the instalments at the right time,
ix. to deliver the goods to the owner where he determines the agreement,
and
x. to disclose information about the goods whenever required by the owner

Rights of Owner
Flowing from the duties of the hirer the owner has the following rights:
v. right to information about the goods from the hirer,
vi. right to receive instalments,
vii. right to re-possess the goods where agreement is determined by hirer after
recourse to court, and

101
viii. right to re-possess the goods, if motor vehicle, for safety even when relevant
proportion has been paid without recourse to court.

Rights of Hirer
Flowing from the duties of the owner, the hirer has the following rights:
vi. right to quiet possession and enjoyment,
vii. right to use the goods,
viii. right to know the cash price of the goods and the exact instalments required,
ix. right to choose insurance and the garage to maintain the goods, and
x. right to determine the agreement any time before the final instalment.

(b) Position of a Third Party under Hire Purchase

The general rule is that the hirer cannot part with the goods to the third party until
he has exercised the option to purchase. Barring this, such a disposition shall be
void as was held in Olamitan v. CFAO (Ghana) (1959) L.L.R 42 and Helby v.
Mathews (1895) A.C. 471. Exceptions to this rule, however, include:
i. where the owner is by his conduct estopped from denying the seller’s
authority to sell, especially under the provisions of the Sale of Goods Act.
It shall therefore constitute a good title being through estoppel;
ii. where the purchase was made in a “market overt,” it shall be good against
the whole world. A “market overt” is an open, public and legally
constituted market e.g. Trade Fair, Bazaar or Supermarket;
iii. where the sale is by court order, through a bailiff in execution of a writ of
“fieri-facias” (fi-fa);
iv. where the hirer sold the goods and immediately paid the outstanding
balance to the owner in apparent exercise of his option to purchase. This is
known as the “doctrine of feeding the title” as it goes a long way to validate
what could have become a defective title on the part of the buyer.

(c) Rights of the Owner and the Hirer against Third Party
Where a third party has acquried no good title to the goods, the owner shall
exercise the following rights against him:
i. damages for conversion, that is, wrongfully arrogating another person’s
goods for his own use;
ii. the owner has the right to recover his goods through peaceful means or by
an action in detinue, that is, a demand for its return and the subsequent
refusal to do so by the third party;
iii. Where there has been loss or damage to the goods occasioned by the act or
omission of the third party, the owner has the right to bring an action for
negligence against him and he can subsequently recover damages; and
iv. similarly, where the rights of a hirer of goods have been unnecessarily
interfered with in a manner that is inconsistent with his possession, he may
also exercise the rights of recovery or sue for conversion or damages as the
case may be.

102
3. Termination of Hire Purchase may take any of these forms:
This may take the form of:
i. performance of obligations by parties under the agreement;
ii. by mutual agreement between parties to rescind;
iii. repudiation by an aggrieved party. He may use for damages for a breach
of an express or implied term and may in addition repudiate such
agreement;
iv. the provision in the agreement which enables the hirer to terminate any
point in time in exercise of his option to purchase the goods or not. The
owner too has right to terminate for breach of certain terms by the Hirer;
v. the Statutory notice prescribed in the Hirer Purchase Act: Notice shall be
given in writing and any provision in the agreement excluding such notice
shall be void;
vi. frustrating events like fire, destruction, Act of God may lead to termination.
Such an event is usually outside the control of both parties; and
vii. court judgment or order in an action by a party for conversion or detinue
may occasion the termination of the agreement.

Further Readings:
Dada T.O., General Principles of Law. Lagos T.O. Dada & Co. 2006.
Hicks, Andrew, Introduction to the Nigerian Law of Hire Purchase Zaria A.B. U.Z.,
1997 p.127.
Ezejiofor, Gaius, C.O. Okonkwo and C.U. Ilegbune, Nigerian Business Law London,
Sweet & Maxwell, 1982 p.531.
Uvieghara, E. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse

1996.

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

103
iag@dli.unilag.edu.ng
08033366677

104
MODULE 11: SALE OF GOODS: DEFINITION, FORMATION AND
OPERATIONS

11.1 Introduction
The module is designed to teach the students the rudimentary aspects of sale of
goods transactions.

The purpose of this module is to present to the student a brief background of the
law of sale of goods, definition of terms and operations of sale of goods contract
and their distinction from the Law of Contract.
Law of Contract generally is .non-statutory. It is law made by parties to it. The
court merely interprets the agreement of the parties based on the terms of the
contract and as proved by the parties. Sale of goods law is an exception to the non-
statutory nature of the law of contract. Over time there came the need to regulate
the activities of merchants, especially in the area of sale of goods. This necessitated
the promulgation of the Sale of Goods Act 1893. Indeed, many of the cases we
studied as part of contract course involve sale contracts as well. There are,
however, some special features of sale contracts. The most significant are the terms
implied into the sale contract by the Sale of Goods Act 1893 which has been
adopted in Nigeria and the component states.

The law dealing with the sale of goods is mainly the Sale of Goods Act of 1893
(U.K.). It is a statute of general application. However, in the former Western
Nigeria where the statute of general application had no effect, attempts have been
made by the various states to enact their own local equivalents of the Sale of Goods
legislation. The Western Region enacted its own Sale of Goods Law of 1959 and
the law subsequently became applicable in the states created therefrom. As a
matter of fact, virtually all the sale of goods statutes in the various regions or states
are similar in content and resemble the English Sale of Goods Act. The only
difference is in the outline and numbering of the sections.

11.2 Learning Objectives

At the end of the course, students should be able to:
(a) Distinguish between the Law of Contract properly so-called from the sale
of goods contract which is essentially statutory in format.
(b) Discuss generally the definition, formation and operations of sale of goods
transactions.

11.3Course Content of the Module

(a) What is the Scope of Sale of Goods Act?

105
(b) Meaning of Sale of Goods Contract
(c) Meaning of “Goods”
(d) Sale of Goods and other Forms of Contracts Distinguished
(e) Elements of Sale of Goods Law and Conditions and Warranties
(f) Summary of Module 11
(g) Self-Assessment Questions
(h) Solutions to Questions
(i) Further Readings.

(a) SCOPE OF THE SALE OF GOODS ACT

The main objective of the Sale of Goods Act is to regulate the sale of goods by the
buyer to the seller. The law is based on the contract of sale of goods and the first
part deals with formalities, the formation and the subject matter of the sale
contract. The Act also deals with ownership and enunciates the principles
governing the passing of title from the seller to the buyer. The Act further deals
with the consequences of passing an invalid title, the rights of goods and remedies
or damages that are available.

(b) THE MEANING OF SALE OF GOODS CONTRACT

According to Section 1(1) of the Sale of Goods Act, a contract for the sale of goods
is that “whereby the seller transfers or agrees to transfer the property in goods to
the buyer for a money consideration called “the price.” This type of contract is
definitely different from the contract of employment or the rendering of service or
labour since it involves the transfer of the property in the goods from the seller to
the buyer. For instance, in Lee v. Griffin where the defendant employed an artist
to paint the portrait of a lady and orally promised to pay for it, it was held that
since the contract involved the use of skill and labour, it was a contract for work
and labour and not a contract for sale. See generally, Afrotech Services (Nig.) Ltd .
v. M. I. A. & Sons Ltd. (2000) 15 NWLR Pt.692.

Sale of goods contract by the definition in section 1(1) involves two distinct modes.
One is actual sale and the other is agreement to sell. A sale is a contract where the
property in the goods is transferred from the seller to the buyer upon a money
consideration called price. So, a sale here cannot be by barter. Where the transfer
of the property (ownership or title) in the goods is to take place at a future
date/time, or subject to certain conditions to be fulfilled thereafter, it is an
agreement to sell. When the time elapses or the conditions are fulfilled subject to
which the title in the goods is to be transferred, the agreement to sell becomes a
sale. It is imperative that the seller at the time of sale, expressly or impliedly, has
good title to sell.

Note that sale of goods contract is different from bailment, agency, hire purchase,
mortgage, pledge and exchange by barter.

106
(c) THE MEANING OF “GOODS”
According to Section 62 of the Sale of Goods Act, “Goods” refer to “all chattels
personal other than things in action and money.” The term also includes things
attached to or forming part of the land which are agreed to be severed before sale
or under the contract of sale. The Act also distinguished between “specific goods,”
“future goods” and “unascertained goods.”

In the case of contracts for the sale of unascertained goods, the property does not
pass to the purchaser, unless and until the goods are ascertained (Section 16 of the
Act). As per Section 5(1) of the Act, the goods which form the subject of the contract
of sale may be either existing goods owned and possessed by the seller or goods
to be manufactured after the making of the contract of sale and these are called
“Future Goods.

For the purpose of clarity Section 62 of the Sale of Goods act defines “Goods” as
“... all chattels persona other than things in action and money ... [it] includes
emblements (growing crops which are of annual results of agricultural labour e.g.,
vegetables, maize, yam, etc.) industrial growing crops (cash crops) and things
forming part of the land which are agreed to be severed before sale or under a
contract of sale. There are different types of goods:

a) Specific goods: Section 62 says they are goods identified and agreed upon
at the time the contract of sale was made (plus undivided share, specific
fraction, or percentage of goods identified).
b) Ascertained goods: Though not specifically provided for in the Act, yet it is
impliedly recognised. These are goods that are identified and agreed upon
after the contract of sale of goods is made.
c) Unascertained goods: Also implied, these are goods not identified and
agreed upon at the time of contract. They may be purely generic goods
described from an identified bulk or source. They are in short goods sold/
bought by description.
d) Existing goods: They are goods owned and in possession of the seller. See
Section 5(1) of the Act.
e) Future goods: goods to be manufactured, also classified as unascertained.

The import of this classification is to show which types will pass the test of
property passing from the owner to the buyer. The passing of property is
connected with the way the Act categorises goods as existing or future and as
specific or unascertained. This categorisation occurs at the time of the contract.
Unascertained goods are by provisions of section 16 of the Act not subject of sale
of goods contact, i.e., property in such goods cannot pass until ascertained. Future
goods also do not come under sale of goods but under agreement to sell, which is
a different contract since the goods are unascertained.

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(d) SALE OF GOODS AND OTHER FORMS OF CONTRACTS
DISTINGUISHED
Contract of Sale and Bailment
There is also the need to differentiate a contract of sale from a bailment. Bailment
is mere transfer of possession whereas sale is both transfer of possession and
property (ownership). A bailment is a transaction under which possession of
goods is delivered by a bailor to a bailee on terms requesting the bailee to hold
on to the goods and later on re-deliver them as the bailor may direct. In a contract
of sale, there is always a transfer of ownership of the goods from the buyer to the
seller for valuable consideration.

Contract of Sale and Hire Purchase

These resemble each other because the ultimate objective of a hire purchase
transaction is to effect a sale. In a contract of sale, there is a transfer of the property
in the goods from the seller to the buyer while a hire purchase contract is a
bailment of the goods with an option to purchase the goods. Until the final
instalment is paid and the bailee has exercised the option, there will be no contract
of sale. Also, where there is a default in the terms of payment, the owner may take
possession of the goods.

Contract of Sale and Mortgage

A mortgage is the transfer of property in the goods from the mortgagor to the
mortgagee to secure a debt. Its main characteristic is the equity of redemption to
which the mortgagor is entitled. He could redeem his property upon the payment
of the loan or by exercising his equitable right to redeem.

Contract of Sale and Pledge

A pledge is the delivery of goods by a person to another to secure the payment of
a debt. It is different from a mortgage in that a mortgagee obtains the general
property in the goods while a pledgee only obtains a special property necessary to
secure his rights, that is, only possession of the goods passes (coupled with a
power to sell).

Sale and Agreement to Sell

Contract of sale also includes actual sale as well as an agreement to sell. Where the
property has passed from the seller to the buyer, it is called “sale.” However,
where the transaction is to take place in the future time or subject to certain
conditions, it is called an “agreement to sell” and may in time and space become a
‘sale.’ The distinction of these two terms facilitates the understanding of the actual
point in time when property and the risk in goods could be said to have passed
from the seller to the buyer as was held in Emphil v. Odili (1987) 4 NWLR (Pt.67)
915.

108
(e) ELEMENTS OF SALE OF GOODS LAW AND CONDITIONS AND
WARRANTIES
Contract
Certain elements must be present for there to be sale of goods contract. First there
must be a contract between the parties. This takes us back to the elements or
formation of contract. Section 3(1) of the Act provides that a sale of goods contract
may be formed in writing or by word of mouth or partially in writing and partly
in word or impliedly from the conduct of parties.

The Price
According to section 8(1) of the Act, “the price” in a contract of sale may be fixed
by the contract or may be left to be fixed in a manner thereby agreed or may be
determined by the cause of dealing between the parties. “However, where the
price is not determined as per the above provision, the buyer must pay reasonable
price” (Section 8(2).

Capacity
This is quite similar to the usual standards required in a general contract.
However, where “necessaries” are sold and delivered to an infant or a mentally
deranged person or a drunkard, who should normally not have capacity, such a
person, as per Section 3 of the Act must pay reasonable price for them.
‘Necessaries’ are goods which are suitable for the condition of life of the infant or
incompetent person.

CONDITIONS AND WARRANTIES

The question as to whether a term in the contract of sale is a condition or a
warrnaty will largely depend on the construction of the contract document. In
certain cases, a condition is used interchangeably with a warranty. However, a
condition is a fundamental term which goes to the root of the contrac,t the breach
of which enables the offended party to rescind the contract and claim damages. A
warranty, on the other hand, is a subsidiary term which is merely auxilliary to the
main term. The breach of a warranty only entitles the innocent party to claim
damages. It does not involve the right to reject the goods and treat the contract as
repudiated.

Furthermore, under the Sale of Goods Act, conditions and warranties could be
expressed or implied. A buyer may waive a condition and treat it as a warranty
as was held in Hartley v. Hymans. Also, stipulations as to time are not conditions
nor an essence of the terms of the contract. Above all, what the intention of the
parties is, must be made clear and where time is to be made the essence of the
arrangement, reasonable notice must be given to the other party.

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(f) SUMMARY OF MODULE II
The module mainly dealt with the nature, the scope and the meaning the contract
and the goods. It distinguished Sale of Goods Contract from other forms of
contracts while also proceeding to explain some basic elements in the Sale of
Goods Contract such as the price, capacity of parties and conditions and
warranties.

(e) SELF ASSESSMENT QUESTIONS

(1) What do you understand by the term “Goods” under the Sale of Goods Act,
1893 (UK)?
(2) Attempt a distinction between Sale of Goods and the following subjects:
(a) Bailment
(b) Hire Purchase
(c) Mortgage

(f) Solutions to the Questions

1. According to Section 1(1) of the Sale of Goods Act, a contract for the sale of goods
is that “whereby the seller transfers or agrees to transfer the property in goods to
the buyer for a money consideration called “the price.” This type of contract is
definitely different from the contract of employment or the rendering of service or
labour since it involves the transfer of the property in the goods from the seller to
the buyer. For instance, in Lee v. Griffin where the defendant employed an artist
to paint the portrait of a lady and orally promised to pay for it, it was held that
since the contract involved the use of skill and labour, it was a contract for work
and labour and not a contract for sale.

2. Bailment is the mere possession of good for the owner to take back anytime; hire
purchase is an agreement between an owner and a hirer whereby the hirer enjoys
the benefit of a good by paying some instalments and with an option to buy at the
end of payment of the instalments; whereas mortgage involves a mortgagor
transferring his title in a property to a mortgagee as collateral for a loan and which
title is reversionary upon his repayment of the loan.

Further Readings:
Achike, Okay: Commercial Law in Nigeria. Enugu, Fourth Dimension, 1985.
Atiyah, P.S: The Sale of Goods, 8th ed. London, Pitman, (1990) 570p.
Dada T.O. General Principles of Law. Lagos T.O. Dada Co.2006. 564p.
Ezejiofor, Gaius Okonkwo and C.U. Ilegbune: Nigerian Business Law, London
Sweet & Maxwell, 1982.

110
Uvieghara, E.F. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse,

1996. Should you require more explanation on this study session, please do not

hesitate to contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

111
MODULE 12 – IMPLIED CONDITIONS AND WARRANTIES

12.1 Introduction
The module materially treats aspects of sale of goods contracts dealing with
implied conditions and warranties. These are very essential for the validity of any
transactions between parties in the sale of goods contract.

This Module aims at introducing students to the understanding of those

conditions and warranties that are quite fundamental in any Sale of Goods
transaction. Implied conditions and warranties and strict adherence to them are
very crucial to the validity of any transactions between parties in a Sale of Goods
contract.

12.2 Learning Objectives

At the end of the course, students should be able to:

(a) Discuss the essential ingredients of a valid sale of goods transaction

(b) Explain and analyse the distinction between conditions and warranties in a
sale of goods contract.

12.3Course Content of the Module

(a) Implied condition as to title
(b) Goods must correspond with the Description
(c) Sale by Sample
(d) Quality of Goods
(e) Customs and Usage
(f) Summary of Module 12
(h) Self – Assessment Questions
(i) Solutions to the Questions
(j) Further Readings

12.4
(a) Implied condition as to title, description, etc
Implied condition of tile
i. According to Section 12 (c) of the Sale of Goods Act, there is an
implied condition that the seller has the right to sell the goods and
pass good title to the buyer. The right is the ability to pass ownership
in the goods to the buyer. In Niblett v. Confectioners, Materials Co.
Ltd (1921) 3 K. B. 387, where cans of condensed milk were labelled
in a way that infringed the trade mark of a third party, it was held

112
 that the defendants were in breach of the implied condition that they
had the right to sell the labelled cans.

Where the seller has no right to pass good title as prescribed in

Section 12(1) of the Act, there will be total failure of consideration
and the buyer will be entitled to recover the full money paid. In
Rowland v. Dival (1923) 3 K.B. 500, which involved a transaction for
the sale of a car and which was apparently made in good faith as the
parties did not realize it was stolen; it was held that the innocent
buyer was entitled to be repaid his money in full. Similarlly, in
Akoshile v. Ogidan (1950) 19 N.L.R 87, where the facts were on all
fours with Rowland v. Dival (supra), the interest of the innocent and
unsuspecting buyer was protected.

ii. Implied warranty of quiet enjoymnet

By Section 12 (2) of the Act, there is an implied warranty that the
goods are free from any incumbrance and that the buyer will enjoy
quiet possession of goods.

(b) Goods Must Correspond with the Description

According to Section 13 of the Sale of Goods Act, “where there is a contract
of sale of goods by description, there is an implied condition that the goods
shall correspond with the description and the sample (Section 13(2) of the
sale is by sample). The true meaning of “description” was given in Grant v.
Australian Knitting Mills Ltd. (1936) A. C 85. In this case, the buyer of
clothes made by the manufacturer contracted skin disease arising from
defects in the production process. It was held that in a sale by description
which the buyer relied heavily upon, such material should conform with
that description. In this case, the manufacturers were in breach of Section
13 of the Sale of Goods Act.

(c) Sale by Sample

As per Section 15(2), there is also an implied condition that where there is
a sale by sample the bulk shall correspond with the samle in quality. In
Boshali v. Allied Commercial Exporters Ltd. (1961) N.L.R. 917, it was held
that a sale can be regarded as a sample if the contract contains the items,
expressed or implied to that effect. Also where the sample is sent by the
seller to the buyer, such sample must reflect the true description of the
goods and the buyer should be able to compare before aceptance. Where
sale is by sample and description, the goods supplied must correspond with
both the sample and description (Section 15 generally). Also, the court in
the case of Godley v Perry [1960] 1 All ER 36 held that when the goods do
not comply with the sample the seller is in breach of section 15.

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(d) Quality of the Goods (Section 14)
This hcan be discussed unde the following headings:
i. Merchantable Quality
Merchantable quality, otherwise known as satisfactory quality, is a
requirement that the goods are, to a reasonable man, okay for use, i.e., being
good enough to be offered for sale. According to Section 14(2) of the Act,
where goods are sold in the course of business, there is an implied condition
that the goods are of merchantable quality, unless the defects are brought
to the notice of the seller or through the buyer’s examination before the
contract. In Thornett v. Beers & Son (1919) 1 K.B. 486, glue was bought
without the purchaser preinspecting the contents and barrels as to its
defects. It was held that the seller was not liable and that the buyer could
not avail himself of the provision in Section 14(2) of the Act. See further the
Supreme Court decision in Henry Stephens Eng. Ltd. v. Complete Home
Ent. Ltd. (1987) 1 NWLR (Pt. 47) 40 S.C.

(b) Fitness for Purpose

According to Section 14(3) of the Act, where goods are sold in the course of
business and the buyer makes known to the seller the purpose for which
the goods are being purchased, there is an implied condition that the goods
are reasonably fit for that purpose, except where the buyer does not rely on
the skill and judgment of the seller. In Ashington Piggeries Ltd. v.
Christopher Hill Ltd (1972) A. C. 441. where a herring meal contaminated
with a substance which made it unsuitable for feeding to Minks, was sold
to the buyers, it was held that reliance on the company’s skill and judgment
was partial because it was the buyer that provided the formula.

Where the purpose for which the goods are required are known and
incontrovertible, it needs not be expressly stated. In Godley v. Perry (1960)
1 All ER 36, an infant purchased a toy plastic catapult. While using it, it
broke and the boy lost an eye. It was held that his action against the seller
will be successful as the purpose for which the catapult was to be put was
obvious by implication.

Also, in Priest v. Last (1903) 1 K. B. 148, the plaintiff specifically requested

to purchase a hot water bottle. He was supplied with one that exploded and
caused him injury. It was held that plaintiff would succeed in his action as
he relied on the skill and jugement of the seller.
A breach of implied warranty as to fitness gives the buyer a right to sue. All
that the plaintiff need do is to plead that the commodity was defective as
was held in Nigerian Bottling Co. Ltd. v. Ngonadi (1985) 1 NWLR (Pt. 4)
739 S.C.

(e) Customs and Usage

114
 Under the Sale of Goods Act where there are prescribed customs and usage
that should be complied within the transation, parties should strictly
adhere to then. Any deviation from such prescription would amount to a
breach of implied condition and warranty.

(f) Summary of Module 12

Module 12 attempted an explanation of some terms connected with
contract. These are broadly known as implied conditions and warranties.
These include title, description, sample and quality including
merchantability and fitness for purpose. A breach of these implied terms is
a ground for repudiation and damage in the case of condition or damage
only in the case of warranty.

(g) Self-Assessment Questions

1. Explain what is meant by the term “Implied Condition and Warranties”
under the sale of goods transaction

2. Jones bought a used car from Titus. During a police “stop and search
operations” in Lagos, it was discovered that the particular car was one of
those which the police authorities have been looking for. Advise the parties.

3. Write short explanatory notes on these:

(a) Merchantable Quality
(b) Fitness for Purpose
(c) Sale by Sample

4. Okon, an auditor, purchased some steel shelving from a firm specialsing in

the provision of office equipment. He explained that the shelves were
needed for the storage of heavy files and he was supplied with a brand
known as “Heavy Duty Storage”. The shelves bulked under the weight of
the files. Advise Okon

5(a) A company operating a chain of retail wine shops sells large quantities of
wine which is imported in bottles. Shina bought 10 cartons of red wine from
one of the wine shops for his 40th birthday party. On opening two of the of
the cartons, he discovered white wine in some of the bottles, although
labelled “red wine” and some of the bottles contained chalky deposits.
Advise Shina. Would your answer be different if Shina bought the wine
after the shop had closed.

5(b) Mami has 6 children under ten. She bought 10 packets of a new brand of
washing powder from Sule’s shop at N25 a packet. Two of Mami’s children
developed a severe rash after wearing clothes washed in the powder. Tests
showed that the powder would cause similar rashed to 30% of children.

115
 Mami wants to return the remaining 6 packets and claim compensation
from Sule for her children’s injuries. Advise Mami.

(h) Solutions to the Questions

1. Implied conditions and warranties in Sale of Goods contract came about to
ensure that parties to a contract of sale meet certain basic standards in order to
avoid a party from providing goods that do not meet up to the reasonable
standard. Therefore the Act has made provisions for what will be considered
conditions and what would be warranty whether stated in a sale of goods
agreement or not.

2. Where the seller has no right to pass goods title as prescribed in Section 12(1) of
the Act, there will be total failure of consideration and then buyer will be entitled
to recover the full money paid. In Rowland v. Dival (1923) 3 K.B. 500, which
involved a transaction for the sale of a car and which was apparently made in good
faith as the parties did not realize it was stolen; it was held that the innocent buyer
was entitled to be repaid his money in full. Similarlly, in Akoshile v. Ogidan (1950)
19 N.L.R 87, where the facts were on all fours with Rowland v. Dival (supra), the
interest of the innocent and unsuspecting buyer was protected. Jones is entitled to
recover his money from Titus.

3. (a) Merchantable Quality

According to Section 14(2) of the Act, where goods are sold in the course of
business, there is an implied condition that the goods are in merchantable quality
unless the defects are brought to the notice of the seller or through the buyer’s
examination before the contract. In Thornett v. Beers & Son (1919) 1 K.B. 486, glue
was bought without the purchaser preinspecting the contents and barrels as to its
defects. It was held that the seller was not liable and that the buyer could not avail
himself of the provision in Section 14(2) of the Act. See further the Supreme Court
decision in Henry Stephens Eng. Ltd. v. Complete Home Ent. Ltd. (1987) 1 NWLR
(Pt. 47) 40 S.C.

(b) Fitness for Purpose

According to Section 14(3) of the Act, where goods are sold in the course of
business and the buyer makes known to the seller the purpose for which the goods
are being purchased, there is an implied condition that the goods are reasonably
fit for that purpose, except where the buyer does not rely on the skill and judgment
of the seller. In Ashington Piggeries Ltd. v. Christopher Hill Ltd (1972) A. C. 441.
where a herring meal contaminated with a substance which made it unsuitable for
feeding to Minks, was sold to the buyers, it was held that reliance on the
company’s skill and judgment was partial because it was the buyer that provided
the formula.

116
Also, where the purpose for which the goods are required are known and
incontrovertible, it needs not be expressly stated. In Godley v. Perry (1960) 1 All
ER 36, an infant purchased a toy plastic catapult. While using it, it broke and the
boy lost an eye. It was held that his action against the seller will be successful as
the purpose for which the catapult was to be put was obvious by implication.
Also, in Priest v. Last (1903) 1 K. B. 148, the plaintiff specifically requested to
purchase a hot water bottle. He was supplied with one that exploded and caused
him injury. It was held that plaintiff would succeed in his action as he relied on
the skill and jugement of the seller. A breach of implied warranty as to fitness gives
the buyer a right to sue. All that the plaintiff need do is to plead that the
commodity was defective as was held in Nigerian Bottling Co. Ltd. v. Ngonadi
(1985) 1 NWLR (Pt. 4) 739 S.C.

(c) Sale by Sample

As per Section 13(2), there is also an implied condition whre there is a sale by
sample. In Boshali v. Allied Commercial Exporters Ltd. (1961) N.L.R. 917, it was
held that a sale can e regarded as a sample if the contract contains the items,
expressed or implied. Also where the sample is sent by the seller to the buyer, such
sample must reflect the true description of the good and the buyer should be able
to compare before aceptance. Where sale is by sample and description, the goods
supplied must correspond with both the sample and description (Section 15
generally)

Further Readings:
Achike, Okay: Commercial Law in Nigeria. Enugu, Fourth Dimension, 1985.
Atiyah, P.S: The Sale of Goods, 8th ed. London, Pitman, (1990) 570p.
Dada T.O. General Principles of Law. Lagos T.O. Dada Co.2006. 564p.
Ezejiofor, Gaius Okonkwo and C.U. Ilegbune: Nigerian Business Law, London
Sweet & Maxwell, 1982.
Uvieghara, E.F. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja,

Malthouse, 1996. Should you require more explanation on this study session,

please do not hesitate to contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

117
iag@dli.unilag.edu.ng
08033366677

118
MODULE 13 – PASSING OF PROPERTY AND DELIVERY OF
GOODS

13.1 Introduction
The module deals with aspects of sale of goods contracts relating to the passing of
property and delivery of goods.
This module aims at explaning the modalities for the passing of property in goods
and the delivery thereof. The risk also passes with the property. There are five
principal rules governing the passing of property in a deliverable state which must
be strictly complied with by the parties to a sale of goods contract.

13.2 Learning Objectives

At the end of the course, students should be able to:
(a) Discuss the basic principles involved in the passing of property in goods in
a sale of goods transaction.
(b) Define the delivery of goods and the risk that accompanies the exercise.
(c) List those established rules that govern the passing of goods and the
delivery thereof.

13.3 Course Content of the Module

(a) Time for Passing of Property
(b) Rules Governing Passing of Property
(c) Consequences of Passing of Property
(d) Transfer of Risk and Perishable Goods
(e) Summary of Module 13
(f) Self Assessment Question
(g) Solutions to the Questions
(h) Further Readings

13.3
(A) Time for Passing of Property
The actual time at which property will pass shall depend on whether the goods
are specific goods or unscertained goods according to Section 16 of the Act. In the
case of unascertained goods, there will be no transfer to the buyer unless and until
the goods are ascertained. In the case of specific goods and as per Section 17(1) of
the Act, property shall pass to the buyer at the time the parties intend for it to be
transferred. In Re-Peachadart (1983) 3 All E. R. 204, leather was sold on reservation
of title terms with the intention of using it to manufacture handbags. It was held
that the title will pass on to the buyer when the leather has been made into the
handbag.

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(B) Rules Governing Passing of Property
Section 18 of the Sale of Goods Act outlines rules for ascertaining the intention of
the parties to the contract of sale as follows:

(a) Rule 1
Where there is an unconditional contract for the sale of specific goods in a
deliverable state, the property passes when the contract is made,
irrespecitve of the time of payment. For instance, in Tarling v. Boxter (1827)
6 B. & C. 360, where a buyer purchased a haystock which was destroyed
by fire at the seller’s premises before he could remove it, it was held that
buyer was liable to pay for the haystock because the property passed when
the contract was made.
The operative words in Rule 1 are ‘unconditional contract’ and “deliverable
state.” The implication of the former is that it may be difficult to reject the
goods for a breach of condition where the property has passed to the buyer.
The latter, ‘deliverable state’ is defined in Section 62 of the Act as meaning
the situation when goods are in such a state that the buyer would under the
contract be bound to take delivery of them. See further: Dennant v. Skinner
and Collom (1948) 2 K.B. 164.

(b) Rule 2
Where the contract is for specific goods and the seller is bound to do
something to the goods to put them into a deliverable state, the property
does not pass until this has been done and the buyer has notice thereof.
In Underwood v. Burgh Castel Brick and Cement Syndicate (1922) 1 K.B. 343,
there was a contract for the sale of an engine. In the process of detaching it
from the concrete floor and loading it into a railway, it got damaged. The
seller sued for the price. It was held that the goods were not in a deliverable
state under Rule 1 and that it could not pass under Rule 2 until it has been
safely loaded.

(c) Rule 3
Where specific goods are in a deliverable state but the seller still has to do
something, such as weighing, measuring or testing the goods, the property
does not pass until such an act has been done and the buyer has notice
thereof.

Rule 3 is self-explanatory. The Rule 1 and Rule 2 apparently place additonal

responsibility on the seller. However, if it were the buyer that was beset
with the task, the property would have passed upon making the contract.

(d) Rule 4

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 Where the goods are delivered on approval or on sale or return, the
property passes:

(i) when the buyer signifies his approval or acceptance to the seller, or;
(ii) does any other act adopting the transaction; or
(iii) if he does not signify approval or acceptance, property passes when
he retains the goods beyond the agreed time or beyond a reasonable
time.

In Poole v. Smith’s Car Sales Ltd. (1962) 2 All E.R. 482, the plaintiff left his car
with defendant on “sale or return” terms. The defendant returned the car
after three months seriously damaged and in a state of disrepair. It was held
that the defendants were liable since the car was not returned, after many
requests, within a reasonable time.

(e) Rule 5(1)

Where there is a contract for the sale of unascertained or future goods by
description, the property passes when the goods of that description and in
a deliverable state are unconditionally appropriated to the contract by one
party with the express or implied assent of the other; the property on the
goods therefore passes to the buyer.

In Pignatoro v Gilroy (1919) 1 K.B. 459, a seller sold 140 bags of rice to a buyer.
The seller appropriated 15 bags for the contract and informed the buyer.
The 15 bags were stolen before the buyer could collect them. It was held
that the consent of the buyer constituted transfer of title to the buyer.

(f) Rule 5(2)

A seller who delivers goods to the buyer or to a carrier for transmission,
without reserving a right of disposal, is deemed to have unconditionally
appropriated the goods to the contract.

In Carlos v. Twigg and Co. Ltd. (1951) 1 Lloyd Rep. 240, the sellers
manufactured bicycles to the buyers’ orders. The bicycles were made and
packed in containers bearing the buyers’ name and address. Before
shipment, the seller became insolvent. It was held that the property had not
passed to the buyer.

(C) Consequences of Passing of Property

i. The risk in the goods, on the face value of it, passess on with the property,
that is the risk follows the property as per Section 20 of the Act.

ii. This is governed by Section 11(1)(c) of the Act which stipulates that where
the property in specific goods has passed to the buyer, the breach of any

121
 condition therein shall be constructed as breach of warranty and this
enables the buyer to sue for damages only rather than repudiating the
contract.

iii. The seller can only sue for the price of the goods sold not until the property
has passed to the buyer.

(D) Transfer of Risk and Perishable Goods

According to Section 20, the general rule is that the risk is transferred with the
property. However, the rule may be varied by trade usage.

(E) Summary of Module 13

The module dealt with the passing of property in goods and the consequences
thereof. The five different rules are outlined and explained using relevant
decisions to drive home the points. The rule to be used in a particular situation
will only depend on the nature ot the goods, whether specific ascertainable or
unasertained. Risk passes with the property.

(F) Self-Assessment Questions

(1) Outline and discuss the main consequences of the passing of property in a
sale of goods transaction.
(2) Write short not explanatory notes on these:
(a) Specific Goods
(b) Ascertained Goods
(c) Unascertained Goods

(3) Ojo bought 200 Bags of Animal Feeds from James. All the receipts and
contract papers were completed. There was a fire outbreak that destroyed
the goods in James’s premises before Ojo could pack them away. Advise
the parties.

(G) Solutions to the Questions

1. The purpose of sale of goods is to transfer the title in the goods to the buyer
upon the payment of price which is money. When that title is transferred
upon payment and fulfillment of other conditions depending on the type
of goods, the seller’s title in the property passes to the buyer. The risk in the
property and the rights all pass to the buyer.
2.
a) Specific goods: Section 62 says they are goods identified and agreed upon
at the time the contract of sale was made plus undivided share, specific
fraction, or percentage of goods identified.

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 b) Ascertained goods: Though not specifically provided for in the Act, yet it is
impliedly recognised. These are goods that are identified and agreed upon
after the contract of sale of goods is made.
c) Unascertained goods: Also implied, these are goods not identified and
agreed upon at the time of contract. They may be purely generic goods
described from an identified bulk or source. They are in short goods sold/
bought by description.

Further Readings:
Achike, Okay: Commercial Law in Nigeria. Enugu, Fourth Dimension, 1985.
Atiyah, P.S: The Sale of Goods, 8th ed. London, Pitman, (1990) 570p.
Dada T.O. General Principles of Law. Lagos T.O. Dada Co.2006. 564p.
Ezejiofor, Gaius Okonkwo and C.U. Ilegbune: Nigerian Business Law, London
Sweet & Maxwell, 1982.
Uvieghara, E.F. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse,

1996.

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

123
MODULE 14: SALE BY NON-OWNER OF GOODS AND CONTRACT
PERFORMANCE

14.1 Introduction
The module teaches the students about the consequences of a sale of goods by a
person that is a non-owner, that is, who has no right to do so. The fact is that
without a valid title, no one can transfer any goods though there are exceptions to
the general rule.

The module introduces students to the basic principles involved in the event of a
sale of goods by a person that has no right to do so. The general rule is that a person
who has no valid title to goods cannot be heard to be transferring same. There are
however, exceptions to the rule which the module also enunciates. Principles of
acceptance and the rules of delivery are discussed.

14.2 Learning Objectives

At the end of the course, students should be able to:

(a) Discuss the basic principles involved in the event of a sale of goods by a
non-owner.
(b) Identify and analyse the exceptions to the main rule
(c) Define and explain the maxim “Nemo dat quod non habet” – “No one can pass
a better title than that which he has.”

14.3Course Content of the Module

(a) “Nemo dat quod non habet” and Exceptions
(b) Duty to Deliver and Rules of Delivery
(c) Acceptance and payment
(d) Summary of Module 14
(e) Self-Assessment Questions
(f) Solutions to the Question
(g) Further Readings

SALE BY NON-OWNER OF GOODS

(A) Nemo dat quod non habet and exceptions

The basic Common Law rule is that “No man gives away that which is not his own
– “Nemo dat quod non habet.” This principle is provided for in Section 21 of the Sale
of Goods Act to the effect that where goods are sold by a person who is not the
owner, the buyer acquires no better title than the seller had unless;

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i. the seller had authority or consent of the owner, or
ii. the owner is estopped from denying the seller’s authority to sell.

The essence of the rule is to protect the rights of the owner on his property on the
one hand, and safeguarding the interest of the purchaser who buys for a valuable
consideration in good faith. See generally, Olohunde v. Adeyanju (2000) 10 NWlR
(Pt. 676) 562 S.C.

Other exceptions to the provision in Section 21 of the Act are as follows:

(a) Sale in Market Overt

According to Section 22, where goods are sold in market per the usage of
the market, the buyer acquires a good title to the goods, provided he buys
them in good faith and without notice of the defect or want of title on the
part of the seller. Market overt means an open public and legally
constituted market which may be held under a charter or a statute. The
goods must be such as are usually sold and must be open and between the
hours of sunrise and sunset. Typical examples include trade fairs,
supermarkets, malls or grand bazaars.

In Bishopgate Motor Finance v. Transport Brakes Ltd (1949) 1 K.B. 322, the
hirer of a car under hire purchase agreement attempted to sell it by auction.
He failed but later sold it to the defendants who purchased in good faith. It
was held that the defendants, Transport Brakes Limited, got a good title
because that particular market where the car was sold was a market overt,
having been created by Royal Charter.

(b) Sale under a Voidable Title

According to Section 23 of the Act, where a seller of goods has a voidable
title, the buyer acquires a good title provided he buys in good faith and
without notice of the seller’s defect in title. This does not apply to void title.
Examples of contract of sale that are voidable include those induced by
misrepresentation, mistake, duress, undue influence, mental incapacity,
etc.

(c) Sale by Agent under the Factors Act

By Section 2(i) of the Factors Act, 1889, where a mercantile agent is with the
consent of the owner in possession of the goods or of the documents of title
to goods, any sale, pledge or other disposition of the goods, made by him
when acting in the ordinary course of business as a mercantile agent shall,
subject to the provision of the Act, be as valid as if he were expressly
conferred with the authority of the owner of the goods to make the same;
provided the person who is taking under the disposition acted in good

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 faith. A mercantile agent, as per Section 1(1) of the Factors Act is an agent
having, in the customary course of his business, authority to sell goods, or
raise money on the security of goods. This definition includes an auctioneer
or a broker, but not a clerk, warehouse man, workshop assistant or a bailee.

(d) Seller in Possession after a Sale

The exception is contained in Sections 8 and 9 of the Factors Act of 1885 and
is reflected in the provisions of Sections 24 and 25 of the Sale of Goods Act.
By Section 24, where a person having sold goods continues to be in
possession of the goods or documents of title, the delivery or transfer by
him or by a mercantile agent acting for him of the goods or the documents
under any sale, pledge or other disposition thereof to any person receiving
the same in good faith and without notice of the previous sale shall have
the same effect as if the person making the delivery or transfer were
expressly authorised by the owner of the goods to make the same. But the
first buyer shall be able to hold the seller in possession liable for breach of
contract. Note, however, that the second buyer will acquire good title if he
had no notice, buys in good faith and possession is transferred to him
alongside the title. See the case of Michael Gearson (Leasing) Ltd v.
Wilkinson (2001) QB 514.

(e) Buyer in Possession after Sale

Section 9 of the Factors Act and Section 25 of the Sale of Goods Act deal
with this exception. According to Section 25, where a person having bought
or agreed to buy goods obtain possession of the goods or documents of title
with the seller’s consent, the delivery or transfer by that person or by a
mercantile agent acting for his possession of the goods or documents under
any sale, pledge or other disposition to a person receiving them in good
faith and without notice of any or other right of the original seller has the
same effect as if the person making the delivery or transfer were a
mercantile agent in possession of the goods or documents with the owner’s
consent.

This section applies only to where a person has bought or agreed to buy
goods, meaning that there must be a contract of sale. It does not apply to a
person who has an option to purchase as in a hire-purchase agreement. The
third party is also only protected if he had actually obtained possession of
the goods and not if he had merely bought or agreed to buy them.

(f) Disposition under Common Law or statutory power of sale or under a court
are other categories of exceptions to the protection afforded by a sale by a
person who is not the owner.

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(B) Duty to Deliver
According to Section 27 of the Sale of Goods Act, it is the duty of the seller to
deliver the goods and the buyer to accept and pay for them in accordance with the
terms of the contract of sale. Section 62 of the Act defines “delivery” as a voluntary
transfer of property.

Delivery may be:

i. by physical transfer of the actual goods;
ii. by the seller handing over to the buyer the means of control over the goods,
e.g the keys to the warehouse;
iii. by atonement as per Section 29(3) of the Act which stipulates that where the
goods are in possession of a third party as at the time of sale, there is no
delivery by the seller to the buyer unless and until such a third person
acknowledges to the buyer that he holds the goods on his behalf;
iv. by the delivery of the documents of title e.g., the bill of lading. The
possession of the bill of lading gives the buyer control over the goods;
v. by delivery to the buyer’s agents. As per Section 32(1) of the Act, delivery
to carriers is assured to be a delivery to Section 32(1) of the Act, delivery to
a carrier is assumed to be a delivery to the buyer.

The place of delivery is the seller’s place of business as per Section 29 of the
Act, in the absence of any terms to the contrary. For specific goods, the place
of delivery is the place where the goods are known to be at the time of sale.
It is the duty of the buyer to collect the goods at the seller’s place of business
or his residence and not so much of the duty of the seller to send them;
where the goods are however, to be sent, the seller must send them within
reasonable time and delivery made within reasonable time.

Also, as per Section 28 of the Act, payment and delivery of the goods are
concurrent conditions unless otherwise agreed. If the seller delivers a
wrong quantity which is larger than the goods ordered, the buyer may
either reject the whole or accept the whole or accept the quantity ordered
and reject the rest. This is similarly applicable to where the goods ordered
are mixed with other goods (Section 30).

As for instalmental deliveries, the buyer is not bound to accept delivery

except it was agreed upon. Section 11(4) of the Act deals with severable and
non-severable contracts. Consequently, if a buyer in a non-severable
contract accepts the first instalment, he is precluded from rejecting the
subsequent deliveries.

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(C) Duty of, Principles and Acceptance in Sale of Goods
Section 34 of the Act relates to examination of the goods before acceptance. There
may be no acceptance before an examination is made and the seller is expected to
facilitate the examination process. However, by Section 35, the buyer accepts the
goods when he communicates his acceptance to the seller or when he does any act
that is inconsistent with the ownership of the seller or he retains the goods after
lapse of reasonable time. In Hardy v. Hillerns & Fowler (1923) 2 K.B. 490, the buyer
purchased some wheat from seller. Buyer later sold part to a third party. Two days
later the original buyer discovered defects in the wheat and wanted to reject the
whole. It was held that although, as at the time of the rejection, a reasonable time
for examination had not lapsed, the sale and delivery of part of the wheat to a third
party was an act that was under Section 35 of S.G.A. It was deemed to be
inconsistent with the seller’s ownership and indicative of buyer’s acceptance.

(D) Summary of Module 14

Module 14 dealt with defective title in the event of sale of goods by a person who
is not the rightful owner. It expatiate-on the maxim “Nemo dat quod non habet “No
one can pass a better title than that which he ha”) with the various exceptions. It
also discussed the rules of delivery and the factor of acceptance in the sale of goods
transaction.

(E) Self-Assessment Questions

(1) Explain the maxim “Nemo dat quod non habet” and outline the main
exceptions.

(2) Explain the place of “delivery” in the sale of goods transaction.

(3) Advise Odion in the following cases, explaining the relevant principles of
law.
(a) Efe sold 300 kg of fruits to Odion, to be delivered in 5kg tins. Efe
delivered the total quantity in 10kg tins.
(b) Efe sold 5000 cartons of biscuits to Odion, Efe delivered 5,500 cartons,
(c) Efe sold 200 green and white T-shirts to Odion. Efe delivered 100 green
white T-shirts, 50 green T-shirts and 50 white T-shirts.

5. A Sale of Goods contract may include…………………………………..

a. trade by barter
b. exchange of goods
c. exchange of goods and money
d. exercise of skills
e. exchange of money

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6. A reasonable price is………………………………………………………
a. the market price
b. a question of fact dependent on the circumstances of each particular
case
c. a question of law dependent on the circumstances of each particular
case
d. the price fixed by the valuation of a third party
e. the price agreed by both parties

7. The Sale of Goods Act classifies terms into two categories namely
a. warranties and conditions
b. implied and express terms
c. rights and obligations
d. representations and warranty
e. guarantees and warranties

8. Risk passes with……………………………………………………..

a. possession
b. possession and ownership
c. delivery
d. property
e. the contract

9. Exceptions to the nemo dat rule does not include………………

a. sale by an agent
b. sale by a person with a void title
c. sale by a person with a viodable title
d. sale by Buyer in possession
e. sale by a seller in possession

(F) Solutions to the Questions

1. The term nemo dat non quod habeat is a latin expression for saying you cannot give
what you do not have. The seller is expected to have title in the first place for him
to be able to sell to a buyer. There are however some exceptions to the rule i.e., the
seller had authority or consent of the owner, or the owner is estopped from
denying the seller’s authority to sell.

2. The place of delivery is the seller’s place of business as per Section 29 of the Act,
in the absence of any terms to the contrary. For specific goods, the place of delivery
is the place where the goods are known to be at the time of sale. It is the duty of
the buyer to collect the goods at the seller’s place of business or his residence and
not so much of the duty of the seller to send them; where the goods are however,
to be sent, the seller must send them within reasonable time and delivery made

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within reasonable time. Also, as per Section 28 of the Act, payment and delivery
of the goods are convenient conditions unless otherwise agreed. If the seller
delivers a wrong quantity which is larger than the goods ordered, the buyer may
either reject the whole or accept the whole or accept the quantity ordered and reject
the rest. This is similarly applicable to where the goods ordered are mixed with
other goods (Section 30). As for instalmental deliveries, the buyer is not bound to
accept delivery except it was agreed upon. Section 11(4) of the Act deals with
severable and non-severable contracts. Consequently, if a buyer in a non-severable
contract accepts the first instalment, he is precluded from rejecting the subsequent
deliveries.

4. B
5. A
6. D
7. B

Further Readings:
Achike, Okay: Commercial Law in Nigeria. Enugu, Fourth Dimension, 1985.
Atiyah, P.S: The Sale of Goods, 8th ed. London, Pitman, (1990) 570p.
Dada T.O. General Principles of Law. Lagos T.O. Dada Co.2006. 564p.
Ezejiofor, Gaius Okonkwo and C.U. Ilegbune: Nigerian Business Law, London
Sweet & Maxwell, 1982.
Uvieghara, E.F. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse,

1996.

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

130
MODULE 15: REMEDIES IN SALE OF GOODS TRANSACTIONS

15.1 Introduction
The module takes a general look at the various remedies that are available to the
parties under the sale of goods transaction.

The module takes a general look at the various remedies that are available to
parties under the sale of goods transaction. It aims at making the students
understand the maze of rights and duties to which parties are entitled.

15.2 Learning Objectives

At the end of the course, students should be able to:
(a) Discuss the different types of remedies that parties can resort to
(b) Identify the remedies that a seller or a buyer way be entitled to
(c) Explain these remedies and rights which are peculiar to an unpaid seller in
a sale of goods contract.

15.3Course Content of the Module

(a) Remedies of the Seller
(b) Rights of the Unpaid Seller
(c) Remedies of the Buyer
(d) Summary of Module 15
(e) Self-Assessment Questions
(f) Solutions to the Questions
(g) Further Readings

(A) Remedies of the Seller

The main obligation of the buyer under the contract of sale is to effect payment
upon delivery or soon after the transactions have been concluded. Where the
buyer defaults in this duty, the seller has a right of action on the contract. He then
assumes the status of an “unpaid seller.”
Section 38(1) of the Act defines an unpaid seller as:
i. when the whole of the price has not been paid, or tendered; or
ii. when a bill of exchange or other negotiable instrument has been
received as conditional payment and the condition has been
satisfied. Section 38(2) further defines a “seller” as a person who is
in the position of a seller, as for instance, an agent or the seller to
whom the bill of lading has been endorsed or the consignor or agent
who has himself paid or is directly responsible for the price. The
implication of Section 38 is that the whole price must be paid.

131
(B) The Remedies of the Buyer
The buyer is also entitled to some remedies under the Sale of Goods Act where the
seller defaults:
i. He can sue for damages for non-delivery of the goods under Section
51 of the Act.
ii. He can sue to recover any money paid in advance to the seller.
iii. He can repudiate the contract for the breach of a condition by the
seller unless he has waived the breach and elected to treat it as a
warranty, or the contract is non-severable and he has accepted the
goods or part of them as provided for in Section 11(4) of the Sale of
Goods Act.
iv. The buyer can set up the loss in diminution of the price or sue for
damages in the event of a breach of warranty.
v. The buyer, in addition to his right to remedy in contract, may
institute an action in tort for detinue and conversion. This could be
sustained only where the property and the immediate right to
possession have passed to him.
vi. The buyer may also sue for specific performance. This is an equitable
remedy which may be granted at the court’s discretion.

However, as per Section 52 of the Act, the court will always consider
whether the goods involved are specific or ascertained goods.
Section 52 shall apply whether or not the property in the goods has
passed or not.

(C) Rights of the Unpaid Seller

An unpaid seller is entitled to the following rights:
i. Right of Lien
A lien is the right to retain possession of goods but not to resell them
until the contract price has been paid. The seller must be an unpaid
seller within the meaning of Section 38 of the Act. Also, the seller is
not entitled to a lien if the goods were sold on credit. See generally,
Aro Tech Services (Nig.) Ltd. v. M.I.A. & Sons Ltd.
ii. Right of Stoppage “in Transitu”
When the goods have been consigned by the seller, he can still stop
the goods while in transit-especially where the buyer become
insolvent (section 44 of the Act). The following conditions must be
fulfilled before the right of stoppage” in transitu” may be exercised:

(1) the seller must be an unpaid seller,

(2) the buyer must be insolvent and,

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(3) the goods must be in the course of transit, that is when they have
passed out of the possession of the seller into the possession of the
carrier, but before it enters the buyer’s possession.

Where the carrier is the seller’s agent, the right of stoppage may not
arise as the goods are still within the seller’s reach. Also repossession
from a private buyer would arise due to bankruptcy or where it was
obvious that the goods will not be paid for as was held in Aluminum
Industries BN v. Romalpa (1976) 1 Q. B. 534.

(c) Right of Resale of Goods

The rights of lien and stoppage do not entitle the unpaid seller to re-
sell the goods. However, certain exceptions are provided in Section
48 of the Act as follows:
(i) where the goods are of a perishable nature;
(ii) where the buyer, after being given due notice of intention to resell,
does not pay within reasonable time, and
(iii) where the seller has expressly reserved the right to resell if the buyer
defaults in payment.

The right of resale, if exercised, will amount to a rescission of the

contract of sale. The property reverts to the seller and the buyer is
free from further liability. However, where there is a restriction
arising from the breach by the buyer, the buyer can recover any part
of the price paid in advance while the seller also has to sue for
damages for the breach of contract (Section 49 of the Act). In Ward
v. Bignal (1976) 1 WLR 676, it was held that the unpaid seller’s right
of resale rescinds the original contract and he can keep the profit
made on it.

(d) Personal Remedy against the Buyer

Apart from the remedies that are available against the goods, certain
other remedies exist against the person of the buyer himself. They
could be an action for the contract price so far the property in goods
has passed to the buyer.

Furthermore, under Section 50(1) of the Sale of Goods Act, an action

for damages for non-acceptance may be maintained by the seller.
This is the seller’s only remedy where the property in goods has not
passed. The method of assessing damages is outlined in Section 50(2)
of the Act to the effect that where there is an available market, the
measure of damages is the difference between the contract price on
the date fixed for acceptance, or if no date was fixed, at the time of
refusal to accept, and the market price.

133
 (e) The Right of Repossession of Goods
Where the terms of the contract expressly reserved the title to the
goods in the seller until the price is paid, then he may repossess the
goods. The basis of calculation is the difference between the contract
price and the market price on the date fixed for delivery. For
instance, in Williams Brokers v. Agui (1914) A.C. 510, which
involved the supply of a cargo of coal, it was held that the buyer was
entitled to damages up to the sum necessary to enable him buy coal
on the market and comply with the resale remedy. See generally,
Muhammed S.M.D. v. Kpelai (2001) 6 NWLR (Pt 710) 700 C.A. and
Akwa Rubbers Estate Lt. v. Iju Ind. Ltd. (2001) 5 NWLR (Pt 706) 408
C.A.

(D) Summary of Module 15

The module examined the many remedies that parties to a sale of goods
transaction are entitled to. It explained that both the sellers and the buyer
are entitled to certain modicum of remedies.

(E) Self-Assessment Questions

1. What do you understand by sale of goods contract? What distinguishes it
from a simple contractual agreement?
2. Distinguish sale of goods transaction from bailment, hire purchase,
mortgage, pledge and agreement to sell.
3. Explain the term “goods” under the sale of goods transaction drawing out
the different meanings of “specific goods,” “ascertained goods,”
unascertained goods,” “existing goods” and “future goods.”
4. Outline and briefly describe implied conditions and warranties under sale
of goods transactions.
5. Write brief explanatory notes on the following
(a) Passing of property and the rules thereto
(b) Nemo dat quod non habet and the exceptions
(c) The unpaid seller and his rights
(d) Remedies of the buyer

(F) Solutions to the Questions

1. Sale of goods contract has its peculiar features particularly in the main purpose
of transfer of property in goods to the buyer which is determined by the kinds of
goods involved whether specific, ascertained or unascertained. It is governed by
statutory regulations. Unlike for simple contract which terms are set by the parties,
the terms are regulated by statute.

134
2. See solutions to modules 12 and 13 assessment questions..

3. See solutions to module 13 assessment questions.

4. and 5. See solutions to modules 12 and 13 assessment questions.

Further Readings:
Achike, Okay: Commercial Law in Nigeria. Enugu, Fourth Dimension, 1985.
Atiyah, P.S: The Sale of Goods, 8th ed. London, Pitman, (1990) 570p.
Dada T.O. General Principles of Law. Lagos T.O. Dada Co.2006. 564p.
Ezejiofor, Gaius Okonkwo and C.U. Ilegbune: Nigerian Business Law, London
Sweet & Maxwell, 1982.
Uvieghara, E.F. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse,

1996.

Should you require more explanation on this study session, please do not hesitate to

contact your e-tutor via the LMS.

Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:

iag@dli.unilag.edu.ng
08033366677

135
 GENERAL REFERENCES FOR FURTHER READINGS

CONTRACT

Achike, Okay Nigerian Law of Contract Enugu: Nwamife, 1972, 356p.

Alabi, Bolaji Business Law in Nigeria. Lagos: BRA & Associates, 2003, 276p.
Dada T.O. General Principles of Law. Lagos. T.O. D. & Co., 2006. 564p.
Furmston, M.P. Cheshire, Fifoot and Fumston’s Law of Contract. 11th ed., London:
Butterworths, 1986, 693p.
Ijalana, Sam O. Fundamentals of Business Law. Lagos: Justeris Ltd. 1999, 180p.
Kachikwu, E. Ibe and Mike A.A. Ozekhome Nigerian Law of Contract. Ijebu Ife:
Kazoz, 1988, 302p.
Olugasa, Olubukola Law of Contract through Nigerian Cases, Lagos: BPrint, 2007,
100p.
Reiter, Barry J. et al Studies in the Law of Contract. London: Butterworths, 1980, 467p.
Sagay I. E. Nigeiran Law of Contract. London: Sweet & Maxwell, 1985, 518p.
Sanni, Abiola An Introduction to Business Law without Tears. Lagos, Faculty of Law
Unilag, 2002, 150p (Mimeograh).
Tobi, Niki Law of Contract. Lagos: Mabrochi International Ltd, 1992, 227p (Justice
Tobi’s Law Students’ Companion No.1).
Treitel, G.H. An Outline of the Law of Contract. 4th ed, London: Butterworths, 1989,
381p.

AGENCY
Ezejiofor, Gaius, C.L. Okonkwo and C.U. Ilegbune, Nigerian Business Law London
Sweet and Maxwell, 1982.
Dada T.O. General Principles of Law. Lagos T.O.Dada & Co. 2006. 564p.
Fridman, G.H.L. The Law of Agency. 6th ed. London, Butterworths, 1990, 400p.
Hamblin, Clive, Banking Law. London, Sweet and Maxwell, 1985.
Kuchhal, M.C. Merchantile Law New Delhi Vikas, 1978.
Treitel, G.H., An Outline of the Law of Contract 4th edition, London: Butterworths,
1989.

SALE OF GOODS
Achike, Okay: Commercial Law in Nigeria. Enugu, Fourth Dimension, 1985.
Atiyah, P.S: The Sale of Goods, 8th ed. London, Pitman, (1990) 570p.
Dada T.O. General Principles of Law. Lagos T.O. Dada Co.2006. 564p.
Ezejiofor, Gaius Okonkwo and C.U. Ilegbune: Nigerian Business Law, London
Sweet & Maxwell, 1982.
Uvieghara, E.F. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse,
1996.

HIRE PURCHASE
BOOKS
Dada T.O. General Principles of Law. Lagos T.O. Dada & Co. 2006.

136
Hicks, Andrew: Introduction to the Nigerian Law of Hire Purchase Zaria A.B. U.Z.,
1997 p.127.
Ezejiofor, Gaius, C.O. Okonkwo and C.U. Ilegbune, Nigerian Business Law London,
Sweet & Maxwell, 1982 p.531.
Uvieghara, E. Sale of Goods (and Hire Purchase) Law in Nigeria. Ikeja, Malthouse 1996.

ARTICLES
Akanki, Oladeji: “Hire Purchase Law and Practice in Nigeria” Nigerian Law Journal
Vol. 8, pp.16-41 (1974).
Akpamgbo, C. Obi: “The Owner of Goods let on Hire-Purchase and the ‘Relevant
Proportion’ (based on Omoijuanfo v. Nigerian Technical Company Ltd.)”
The Nigeria Bar Journal. Vol. 145 No. 2pp. 207-213 (1979).
Idye, Cosmas Aondo. “The Hirer’s protection under the Hire Purchase Act 1965”
The Lawyer (UNILAG) Vol. 15 June 1985. pp. 25-29.
Oloyede, Ephraim: “A Review of Hire Purchase Law in Nigeria.” Nigeria Lawyers
Quarterly Vol. 4. No. 1-4 p.42-49.
Uvieghara, E.E.: “Review of the Hire Purchase Act 1965.” In the Nigerian Journal of
Contemporary Law. Vol. 1 No. 2 pp. 264-286 (1970).

137