Authority of Sale and Privity of Contract:
The Proprietary Basis of the Right to the Proceeds of Sale
at Common Law
Benjamin Geva*
Introduction
Upon an authorized sale of goods, the owner’s ability to recover
the price from the buyer can be explained either by his property in
the goods or by a contractual relationship. This article deals with
the right to recover the price in the context of an historical and
theoretical analysis of the right to the proceeds of a sale at common
law. It is suggested that property is the basis of this right, rather
than a contractual nexus. Part I presents the sale of goods by an
agent of an undisclosed principal as a model situation in which the
right of the owner is better explained by a property analysis than
by means of the contractual relationship. Part II deals with debt
both as an old remedy based on property and as a modern substan-
tive legal relation, and shows how it underlies the owner’s right
to recover the price. Part III analyzes the eighteenth-century factor
cases that are said to lay down the doctrine of the undisclosed prin-
cipal; the -discussion is designed to demonstrate the proprietary
basis of these cases and to show that they are not governed by a con-
tract analysis. Finally, Part IV presents the right of an owner to the
cash proceeds of a sale as a continuation of his right against the
buyer. The discussion presents the proprietary basis of the right as
an explanation of its scope and limits, and illustrates the different
effects of sale by factor, by consignee on “sale or return”, and by an
agent extending credit to the buyer.
I. The remedy of the undisclosed principal
If an agent makes a contract in his own name, the principal may sue
and be sued upon it; for it is a general rule, that whenever an express
contract is made, an action is maintained upon it, either in the name of
‘Assistant Professor, Osgoode Hall Law School, York University, Toronto.
LL.B. Hebrew University of Jerusalem, 1970; LL.M. Harvard University, 1975;
Visiting Lecturer in Law, University of ‘Chicago Law School, 1976/77. The
author wishes to thank Professor Reuben Hasson and Mr. Philip Abramson,
both of the Osgoode Hall Law School, for their comments on a draft of this
article.
19791
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
33
the person with whom it was actually made, or in the name of the person
with whom in point of law it was made.’
This is .the doctrine of the undisclosed principalY In addition to the
actual contract established between the third party and the agent
contracting in his own name, a contractual relationship is said to
exist s between the undisclosed principal and the third party.4 The
doctrine is clearly inconsistent with fundamental principles of
privity, under which only a party to the contractual promise can
sue and be sued on it0 As such, it has been criticized as anomalous.8
In the words of Holmes, “common sense is opposed to allowing a
stranger to my overt acts and to my intentions, a man of whom I
have never heard, to set up a contract against me which I had ‘up-
posed I was making with my personal friend”:’ It was further in-
dicated by Bowstead that “[e]ven as an exception to the rules of
privity of contract the doctrine is unusual, since the tertius is not
1 Cothay v. Fennel (1830) 10 B. & C. 671, 109 E.R. 599, 600 (K.B.) per curiam
[emphasis added].
2 1t has been said that this doctrine is “unknown to every legal system
except that of England and America”: Pollock, (1887) 3 L.Q.R. 358, 359. For
other legal systems, see in general Miiller-Freienfels, Comparative Aspects of
Undisclosed Agency (1955) 18 M.L.R. 33. For the doctrine of the undisclosed
principal in general, see Stoljar, The Law of Agency (1961), 203; Bowstead,
Bowstead on Agency 14th ed. (1976), Reynolds & Davenport (eds.), 256; Powell,
The Law of Agency 2d ed. (1961), 151.
3 Exceptions exist in certain contracts which either “identify” the agent
or else are “personal” to him. See in general Fridman, The Law of Agency
4th ed. (1976), 193-96.
4With respect to the doctrine of the third party’s election of defendant
(the undisclosed principal or the contracting party), see Stoljar, supra, note
2, 216-20.
S For privity of contract, see in general Treitel, The Law of Contract 4th
ed. (1975), 416 et seq.; Anson, Law of Contract 24th ed. (1975), Guest (ed.),
396 et seq.
0 See Keighley, Maxted & Co. v. Durant [19011 A.C. 240, 261 (H.L.) per
Lord Lindley; Armstrong v. Stokes (1872) L.R. 7 Q.B. 598, 603-4, 610 per Black-
burn J.; Street, The Foundations of Legal Liability (1906), vol. 2, 478; Ames,
Undisclosed Principal – His Rights and Liabilities (1909) 18 Yale L.. 443;
Goodhart & Hamson, Undisclosed Principals in Contract (1932) 4 Cambridge
L.J. 320; Holmes, “The History of Agency” in A.A.L.S., Select Essays in Anglo-
American Legal History (1909), vol. 3, 368 (first published in (1891) 4 Harv.
L. Rev. 345) and 390 (first published in (1891) 5 Harv. L. Rev. 1); Pollock,
(1898) 14 L.Q.R. 5; Pollock, supra, note 2.
Besides “anomalous”, the doctrine of the undisclosed principal has been
called “unsound”, “inconsistent with elementary principle”, and even “unjust”.
See Stoljar, supra, note 2, 203, n. 3. A summary of the critique of the doctrine
and the explanations suggested appears in Stoljar, ibid., 228-33.
7 Holmes, supra, note 6, 404.
McGILL LAW JOURNAL
[Vol. 25
mentioned, nor indeed contemplated by one of the parties, and fur-
thermore, takes liabilities as well as rights”. 8
Nevertheless, the doctrine has survived this criticism, having
served a useful commercial purposeY Besides protecting the undis-
closed principal in the case of his agent’s bankruptcy,”
the doctrine
has the effect of accomplishing in one action what otherwise would
have taken two. It provides the owner with a direct action against
a buyer of his goods who purchased them through an agent con-
tracting in his own name. Reciprocity would then seem to require
that the buyer be allowed to sue the undisclosed principal., How-
ever, an agent contracting in his own name may be paid by the
buyer, and then abscond with the proceeds without accounting to
his principal. Nevertheless, the defrauded undisclosed principal,
under the contract of sale, will remain liable to the buyer for any
breach of a warranty given by his agent. 2 In addition, under the
law of sale of goods, resale to a third party by a seller or buyer in
possession, 3 although in breach of the original contract of sale,
“shall have the same effect as if the person making the delivery or
transfer were expressly authorized by the owner of the goods to
make the same”.’ 4 The defrauded party thus becomes a notional
8 Bowstead, supra, note 2, 257.
9 Bowstead, ibid.; Anson, supra, note 5, 596; Treitel, supra, note 5, 502.
I’ Subject to the reputed ownership rule of The Bankruptcy Act, 1914, 4-5
Geo. V, c. 59, s. 39(c) (U.K.).
“Mechem, The Liability of an Undisclosed Principal [Part] I
(1910) 23
Harv. L. Rev. 513. Cf. Fawkes v. Lamb (1862) 31 LI.Q.B. 98, 101 per Blackburn
J.: a broker cannot sue on a contract made by him on behalf of another,
because he cannot be sued on it; “the liabilities of the parties on the con-
tract are … reciprocal”.
12 Cf. Irvine v. Watson (1879) 5 Q.B.D. 414, 417-18 (undisclosed principal
buying through agent remains absolutely liable to seller for price even
after giving the money in good faith to his agent). But see Chitty & Denning
(eds.), Smith’s Leading Cases 13th ed. (1929), vol. 2, 366.
13The third party must act in good faith and without notice –
The
Factors Act, 1889, 52-53 Vict., c. 45, ss. 2, 8, 9 (U.K.); The Sale of Goods Act,
1893, 56-57 Vict., c. 71, s. 25(1), (2) (U.K.).
is different but essentially –
14The Factors Act, 1889, s. 8; The Sale of Goods Act, 1893, s. 25(1) [em-
phasis added]. Cf. definitions of “agency” and “authority”, infra, note 25.
The language of The Factors Act, 1889, s. 9 and The Sale of Goods Act, 1893,
s. 25(2)
that
emerge from Newtons of Wembley Ltd v. Williams [1965] Q.B. 560 (C.A.) –
to the same effect: the resale by the buyer “shall have the same effect as if
… [he] were a mercantile agent in possession of the goods … with the con-
sent of the owner” [emphasis added]. Cf. U.C.C. 2-403(2) (1972): “Any en-
trusting of possession of goods to a merchant … gives him power to trans-
fer all rights of the entruster to a buyer in ordinary course of business”
[emphasis added].
subject to the qualifications
19791
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
35
principal of the party in breach. Under the doctrine he, too, may
find himself liable to the new buyer for breach of warranty.
In normal commercial arrangements, raising a contractual re-
lationship between an undisclosed principal and a buyer may pro-
duce substantial injustice. First, when an agent who maintains a
place of business under his own name becomes bankrupt, the
principal’s intention to recover from the agent’s buyers the price
of goods bought by them on credit may well be frustrated under
the reputed ownership rule of The Bankruptcy Act, 1914.1′ While in
this case the principal derives no advantage from such a contract,
he will nevertheless be held liable for breach of the agent’s warranty
to the buyer.
Secondly, it is far from universal that a principal will be entitled
as against his agent to all the proceeds realized from the sale, or
even to a substantial part thereof. An agent may be allowed to
retain all the profit made by him over and above an agreed price
and yet remain an agent.’ This extra profit may result from the
labour he has put into the goods in his own place of business where
the ‘undisclosed principal has no means of control.’7 The application
of the doctrine to these circumstances produces the unjust result of
making the undisclosed principal liable for the quality of that
labour.’8 However, even when the right of the agent to an extra
profit stems from reasons other than his labour in the goods, it is
still unjust to charge his principal with liability for breach of war-
ranty when the agreed sum remittted to the principal does not
represent the gain realized from the false warranty.
In a third situation –
secured wholesale financing by means
“the principal does not enjoy all the gains
of title retention –
or suffer the losses of ownership, such as any profit or loss
16 4-5 Geo. V, c. 59, s. 39(c) (U.K.). See generally Williams, Law and Practice
in Bankruptcy. 18th ed. (1968), Hunter & Graham (eds.), 325-26, 380. The
“reputed ownership” clause has been omitted from the Canadian statute: see
Duncan & Honsberger, Bankruptcy in Canada 3d ed. (1961), 299. Cf. U.C.C.
9-114 (1972) and the Comment thereto, from which it emerges, by operation
the U.S. Bankruptcy Act 70c, 11 U.S.C.
of U.C.C. 9-301(1)(b) and
1 et seq. (1976), that a consignor-principal who fails to file his interest in
the proceeds will lose it in the case of bankruptcy of his agent.
1 See Ex p. Bright, In re Smith (1879) 10 Ch. D. 566, 570 (CA.) per Jessel
M.R; Ex p. White, Re Nevill (1871) 6 Ch. App. 397, 405″ per Mellish LJ.
See also Handy v. C.LT. Corp. 197 N.E. 64, 66 (Mass. 1935).
7 Cf. Lloyds & Scottish Fin. Ltd v. Williamson [1965] 1 All E.R. 641 (CA.);
Ex p. White, supra, note 16.
18 Cf. Ex p. White, supra, note 16, 404.
McGILL LAW JOURNAL
[Vol. 25
realized upon the sale”.10 Whenever title to stock in trade is retain-
ed by a party who finances inventory under a trust receipt,20 a con-
1 a hire purchase agreement, 2 or a consign-
ditional sale contract,2
ment intended as security,3 the sale of the goods by the dealer trans-
fers the title to the buyer.24 Thus, although ostensibly he may act in
his own name, the dealer acts on behalf of the financing party, there-
by becoming his agent for that purpose.2 5 The scope of the agency is
confined to each instance of transfer of goods and does not extend
19Handy v. C.I.T. Corp., supra, note 16, 66.
20 For the domestic trust receipt in the U.S. as a title retention security
device, see generally Gilmore, Security Interests in Personal Property (1965),
vol. 1, 86-127. Regarding the dealer (“trustee”) under that arrangement as an
agent of the banker (“entruster”), see, e.g., Handy v. C.LT. Corp., supra,
note 16; International Trust Co. v. Webster Nat’l Bank 154 N.E. 330 (Mass.
1926); Foreign Trade Banking Corp. v. Gerseta Corp. 142 N.E. 607 (N.Y. 1923).
See also Glenn, Fraudulent Conveyances and Preferences rev. ed. (1940), vol.
2, 960-63; Gilmore, Chattel Security I1: The Trust Receipt (1948) 57 Yale L.J.
761, 764; Skilton, Cars for Sale: Some Comments on the Wholesale Financing
of Automobiles [1957] Wis. L. Rev. 352, 404-5. Cf. McGowan, Trust Receipts
(1947), 76, n, 54. The trust receipt arrangement is governed now in the U.S.
(1972). Cf. the trust receipt in English law where it is
by U.C.C. 9-102(2)
seen as an integral part of a pledge transaction. Following the advance of
money against a bill of lading, the bill of lading is released to the debtor
under a trust receipt. In general, and for the borrower as an agent of the
lender in selling the goods under the trust receipt, see North Western Bank
Ltd v. Poynter [1895] A.C. 56 (H.L.); Official Assignee of Madras v. Mer-
cantile Bank of India Ltd [1935] A.C. 53 (P.C.); Lloyd’s Bank Ltd v. Bank of
America Nat’l Trust [1938] 2 K.B. 147 (C.A.); In re David Allester Ltd [1922]
2 Ch. 211 (CA.).
21See Aluminium Indus. Vaassen B.V. v. Romalpa Alum. Ltd [1976] 1
W.L.R. 676, 690 (C.A.). Cf. Commercial Sec. Ltd v. Johnson [1931] 1 D.L.R. 861,
863 (B.C.CA.).
22 Cf. Goode, Some Problems of Hire-Purchase Law (1962) 112 L.J. 35; Goode
& Gower, “Is Article 9 of the Uniform Commercial Code Exportable?” in
Ziegel & Foster (eds.), Aspects of Comparative Commercial Law (1969), 298,
312-13.
23 Consignment intended as security is a consignment arrangement under
which the consignee-agent bears the risk of non-sale. Cf. the definition of
“security interest” in U.C.C. 1-201(37) (1972); Goode & Gower, supra, note
22, 313-14. This is a security device rather than a true consignment. Cf. in
general Henson, Handbook on Secured Transactions Under the Uniform
Commercial Code (1973), 31-33.
24But see Ziegel, The Legal Problems of Wholesale Financing of Durable
Goods in Canada (1963) 41 Can. Bar Rev. 54, 96-107.
25 Note the following definition of “agency” in Restatement of the Law of
Agency 1(1)
(1958): “Agency is the relationship which results from the
manifestation of consent by one person to another that the other shall act
on his behalf and subject to his control, and consent by the other so to act”
[emphasis added]. See also the definition of “authority” in 7: “the power
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
37
to the operation of the dealer’s business in general. Therefore, it
does not result in interference by the financing party in the operation
of the dealer’s business. 26 Yet, under the doctrine, the financing party
will be held liable under the contract of sale between the dealer
and the buyer.2
The injustice of the doctrine lies in the fact that one who was
not a contracting party may be held liable on the contract beyond
his actual gain from it. Insofar as a contractual relationship is the
only basis for the right to the .proceeds of a sale, the claimant of this
right must found his claim upon contract. Once considered a party to
a contract, the undisclosed principal becomes liable for any breach
of its terms. However, the assumption that the right to the proceeds
of sale is grounded in a contractual relationship is erroneous. “Sale”
is not only a contract; it is also a conveyance.28 There is no conceptual
obstacle in viewing the agent as both the principal under the con-
tract 9 and the agent of the undisclosed principal in the conveyance
of the latter’s title to the buyer.30 Indeed, there is some authority
upholding contracts made by an agent which result in direct passage
of property from the principal to the third party without giving rise
to a contractual nexus between them. 1 The principal’s remedy is
of the agent to affect the legal relations of the principal” [emphasis added].
As for the “control” required under 1(1); note that a -contract between prin-
cipal and agent that control will not be exercised does not change the
character of the relationship as agency. Cf. Restatement, 14, comment (b);
Weiner v. Harris [1910] 1 K.B. 285 (CA.).
2ONotwithstanding the fear expressed to the contrary by Ziegel, supra,
note 24, 105. Cf. T.D. Dowing Co. v. Shawmut Corp. 139 N.E. 525 (Mass. 1923),
annotated (1924) 27 A.L.R. 1526. This case was wrongly criticized by Glenn,
supra, note 20, 962-63.
27In the U.S., this result has been avoided by specific statutory pro-
visions. See Uniform Trust Receipts Act 12, superseded by U.C.C. 9-317
(1972) (secured party not liable on contracts of his debtor).
2 8 See, e.g., Salmond, Jurisprudence 12th ed. (1966), Fitzgerald (ed.), 339-40;
Benjamin, Benjamin’s Sale of Goods (1974), Guest (ed.), 21.
29The agent in such a case also personally warrants that “he has a right
to sell the goods” under s. 12, The Sale of Goods Act, 1893. The section does
not require that the contracting party undertake that the title transferred
will be his title.
30 Cf. supra, note 25 and accompanying text.
3 1l Ireland v. Livingston (1872) L.R. 5 H.L. 395, 408-9 per Blackburn J.; Robin-
son v. Mollett (1875) L.R. 7 H.L. 802, 809-10 per Blackburn J.; Cassaboglou v.
Gibb (1883) 11 Q.B.D. 797, 806 per Fry J.; Teheran-Europe Co. v. S.T. Belton
(Tractors) Ltd [1968] 1 Lloyd’s Rep. 211, 216 per Donaldson J., aff’d in part
[1968] 2 Q.B. 545 (C.A.); Bolus & Co. v. Inglis [1924] N.Z.L.R. 164, 174 per
Salmond J. See in general Hill, The Commission Merchant at Common Law
(1968) 31 M.L.R. 623.
McGILL LAW JOURNAL
[Vol. 25
based on the transfer of property and not on the contract. Its limita-
tions are therefore governed by principles of unjust enrichment,
rather than by those of the law of contract. The actual gain of the
undisclosed principal thus becomes the upper limit of his liability,
and the injustice and conceptual difficulty associated with the
doctrine are avoided.
II. Right to collect the proceeds of sale: the debt relationship
The premise that the seller’s claim for the price of goods rests
on the proprietary right in the goods, rather than on any contractual
promise of the buyer, has a long history in English law. One of the
early common law writs for enforcement of what we would now call
“contract” was the writ of ‘debt.3 2 This writ was frequently used to
demand the price of goods sold.33 Under the old action of debt, in the
absence of a deed, 4 the plaintiff’s action was not dependent on the
defendant’s promise to pay; 35 rather, the defendant’s duty to pay
arose from his receipt of a benefit from the plaintiff.3 0 In other words,
it was the delivery of a res –
a quid pro quo – which perfected the
transaction and gave rise to the liability of the debtor.3 7 As such, the
transaction underlying a debt was “real”, 38 and the recovery of the
32 Fifoot, History and Sources of the Common Law (1949), 220; Levontin,
Debt and Contract in the Common Law (1966) 1 Israel L. Rev. 60, 60-64. For
the old writ of debt, see also Ames, “Debt” in Lectures on Legal History
and Miscellaneous Legal Essays (1913), 88; Simpson, A History of the Com-
mon Law of Contract (1975), 53-199.
33 Fifoot, supra, note 32, 222; Levontin, supra, note 32, 65. See in general
Milsom, Sale of Goods in the Fifteenth Century (1961) 77 L.Q.R. 257.
34 When the plaintiff relied on an obligation coniained in a deed he sued
[trans.] “in Debt on an obligation, for the obligation is a contract in itself”:
Anon. (1384) Bellewe 111. 72 E.R. 47. In other words, liability was generated
by the obligation: see Fifoot, supra, note 32, 223-25.
35The promise was essential to fix the liquidated sum: see Denning,
Quantum Meruit and the Statute of Frauds (1925) 41 L.Q.R. 79, 82.
36 The action was then called “debt on a contract”: Fifoot, supra, note 32.
But note that “contract” in this context is not “promise” but rather the
underlying “real”
in this part (unless specified
otherwise), “debt” will denote “debt on a contract” in this special sense,
rather than “debt on an obligation” as explained supra, note 34.
transaction. Hereafter
3rFor the doctrine of quid pro quo and its exceptions in early English
law, see Levontin, supra, note 32, 65, n. 27; Fifoot, supra, note 32, 226 et seq.
For the idea that the requirement of a quid pro quo in the action of debt
(and hence the liability of the debtor) expressed a relief for unjust enrich-
ment, see Dawson, Unjust Enrichment (1951), 9.
38 Fifoot, supra, note 32, 225-27; Levontin, supra, note 32, 65.
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
39
creditor is grounded upon the fact that what is being claimed is the
res previously handed over
9
[While] obviously …
the purchase money paid for the goods never
belonged to the seller … [n]evertheless, in contemplation of law what the
debtor owes is “representative” of what he has received, and it is as if
he were called upon to give up the very same thing.4o
If liability is established by the passing of the res from the
plaintiff to the defendant,4 1 then, where an undisclosed principal
buys or sells through an agent, it would not matter who promised
to pay the price of the goods to whom. What is important in both
instances is who has acquired the property from whom.4 1a The exis-
tence or non-existence of a promissory nexus between the de-
fendant and the plaintiff is wholly immaterial4 2
By way of illustration, early English cases of debt in tripartite
relationships will be examined. These cases deal with transactions by
monks and married women, and by servants and business agents,
on behalf of another.
As early as the fourteenth century, it was held that a monk’s
purchase of wool for the use of his house of religion gave rise to
a debt of the Abbot of the House towards the seller, even though
the promise to pay had been given to the seller by the monk per-
sonally.43 The defendant argued that the plaintiff-seller had “counted
39 In that respect debt was “very much like a claim in detinue”: Denning,
supra, note 35, 82. But cf. Mortymer v. Mortymer (1292) 20 & 21 Ed. I 188
(R.S.)
(married woman who “could not bind herself” did not “owe”
(“debet”) and was therefore not liable in debt). The proposition either refers
to the promise as an essential ingredient of the action in Debt so as to fix
the liquidated sum (supra, note 35) or accepts the incapacity to contract of
a married woman as founded on her proprietary disabilities: infra, note 57,
and accompanying text.
40 Levontin, supra, note 32, 68-69.
41Under later developments the res could also move from a third party
(Harris v. de Bervoir (1625) Cro. Jac. 688, 79 E.R. 596) or to a third party
(Shandois v. Sirnson (1601) Cro. Eliz. 880, 78 E.R. 1104). For contracts for
the benefit of third parties under debt, see in general Simpson, supra, note 32,
153-60.
41a Cf. Edgcomb v. Dee (1670) Vaugh. 89, 101, 124 E.R. 984, 990: “an action of
debt … is an action of property” rather than on “a breach of promise”.
42 Also in its expansion so as to cover an action to enforce a seller’s obliga-
tion under an executory contract for sale, the action of debt was based
(in theory at least) on viewing the agreement as transferring property,
rather than generating enforceable promises: see Fifoot, supra, note 32,
227-29.
43 Randolph v. Abbot of Hailes (1313-14) Eyre of Kent, 6 & 7 Edw. 11 (1912)
27 Selden Soc’y 32. An earlier case in Anon. (1307) Y.B. 33-35 Ed. I 566 (R.S.).
For later medieval cases concerning purchasing by monks, see Simpson,
supra, note 32, 540, nn. 1 and 2.
McGILL LAW JOURNAL
[Vol. 25
a contract i-nade with … our monk … but not said that we were
a party to the contract”. 4 It was countered by the rhetorical ques-
tion of Bereford C.S.: “If I sent my man to the market and he buy
divers goods for my use and have them sent to my lodgings, and I
use them, do you not think that I should be answerable?”‘ ‘ 7 De-
livery of the wool to the Abbot and -its use for the profit of his
House were thus held adequate to charge him with the debt created
by the sale to the monk 6 In other cases, a prior 4A and an abbot4 8
were charged with their predecessors’ debts from the purchase of
goods used for the profit of the House. Furthermore, in an action
in debt based on a loan of money 9 to a married woman, the plaintiff-
lender did not recover the debt from her husband because he failed
to plead “that she received [the money] for her husband’s profit”.
Indeed, in order to charge the defendant with the debt, the receipt
of the property to his use and profit had to be shown.
However, the -legal position of a monk and a married woman
differed fundamentally from that of a servant, factor or bailiff.”
A monk could neither make a contract nor possess property in his
own right. He was only capable of acting as an agent for his
House;6″ otherwise his contracts were void. 3 Even the assumption
“Ibid., 33.
4Ibid.
46Note that the promise of the monk in this case was contained in a deed,
but the action was not “in Debt on an obligation” (supra, note 34) but
rather in “Debt on a contract” (supra, note 36). The monk’s deed was pro-
duced only as evidence: ibid., 32, 33. For the production of a deed as evidence
of “contract”, see The Prior of Bradstock’s Case (1371) Y.B. 44 Ed. III f. 42
pl. 46, reproduced in Fifoot, supra, note 32, 247. Whether this possibility is
consistent with Salman v. Barkyng (1422) Y.B. 1 Hen. VI (1933) 50 Selden
Soc’y 114 (an “obligation” contained in a deed discharges the “contract”) is
beyond the scope of the present discussion.
47 Parker v. Prior of Blythburgh (1314) Y.B. 8 Ed. 11 (1920) 37 Selden Soc’y
131 per Bereford CJ.
48Anon. (1516) Keil. 180, 72 E.R. 357.
49Loans were familiar causes for actions in Debt: see Levontin, supra,
note 32, 65; Fifoot, supra, note 32, 221.
50 Anon. v. Musket (1313) Eyre of Kent, 6 & 7 Ed. II 45, 47 (reproduced in
Fifoot, supra, note 32, 39).
51 Factors and bailiffs constitute “a fourth species of servants … being
rather in a superior, a ministerial capacity … [but as] servants pro tempore,
with regard to such of their acts as affect their master’s or employer’s pro-
perty”: Blackstone, Commentaries (1766), vol. 1, 427.
designation of the “House” as the principal, while not legally
see
the present understanding of the true situation:
accurate, reflects
infra, note 54 and accompanying text.
“See
in general Pollock & Maitland, The History of English Law 2d ed.
62he
(1952), vol. 1, 433-38.
1979)
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
41
of the abbacy was not tantamount to resumption of personal legal
life. An abbot could charge only the house headed by him, and only
in this limited non-personal sense could he charge his successor. 4
A married woman differed from a monk in that she could sue and
be sued along with her husband,55 and resume ownership in her’
original -property after coverture. 6 However, -during her marriage,
she was incapable of contracting except in the name of her hus-
band. 7 Therefore, a purchase made by a monk or a married woman
for the benefit of their respective principals could only confer the
property upon the principal himself. Had the principal not been
charged with the debt, the transaction would have been null and
void. Servants, factors and bailiffs, however, enjoyed full legal
capacity and could own property and contract in their own right.5”
It could therefore be argued that a purchase made by any of them
would vest the property in him so that he alone would be chargeable
with the debt no matter to whose use and benefit the goods had
been bought. Yet, while possession in goods delivered by a third
party to a servant to the use of his measter has always been con-
sidered to be possession by the servant,59 it has been explicitly held.
that purchase by a servant to the use of the master charges the
master: 10 “[i]f my bailiff buys [goods] to my use, I wi ll be charged
and the plaintiff will not [have to] show that the bailiff had
authority or that [the goods] came to my use”.61 Thus, purchase by
a servant or a bailiff, while potentially distinguishable from pur-
chase by a monk or a married woman, was not treated differently.6
54 Ibid., 438.
55 Blaket v. Loveday (1312) Y.B. 5 Ed. II (1916) 33 Selden Soc’y 211, 212
per Bereford C.J.
6 Stoijar, supra, note 2, 38, n. 58.
57 For a discussion of married women’s contracts in the medieval common
law, see Holdsworth, A History of English Law (1923), vol. 3, 528-29.
or monk … is not himself by status contractually incompetent [.J”
5s Cf. Simpson, supra, note 32, 553: “the servant, unlike the married woman
5 ) Pollock & Wright, An Essay on Possession in the Common Law (1888),
191-97. It had not been identified with the possession of the master, as was
the case with respect to possession in goods delivered to the servant by the
master: infra, note 87 and accompanying text.
For later cases see Simpson, supra, note 32, 553, nn. 1 and 2.
60 Anon. (1379) Bellewe 59, 72 E.R. 25; Anon. (1379) Bellewe 136, 72 E.R. 58.
6 1 Anon. (1379) Bellewe 110, 72 E.R. 47.
2But purchase by a servant to the use of his master could charge the
servant with liability in assumpsit (based on his promise to the seller), co-
existing with the debt of his master: see infra, note 100 and accompanying
text.
McGILL LAW JOURNAL
[Vol. 25
With respect to the position of factors, Ames argued that as
between a factor and his principal, title to the goods “was always
in the factor”.P In support of this, Ames cited: (1) equity cases
dealing with the right of the principal to the proceeds of sale; (2)
cases dealing with the receipt of money by an agent from a buyer;
(3) a case illustrating the inapplicability of the action in detinue to
relations between merchant and factor; -and (4) the nature of the
action of account.
It is contended that none of these can support
Ames’s conclusion:
(1) Inasmuch as the equity cases65 suggest that a factor is the
owner at law of goods consigned to him for sale, they are in-
consistent with the view that the transfer of possession to a
servant or an agent does not transfer -the property,0 and they
are therefore not good authority.
(2) The receipt of money, rather than goods, leads to consequences
peculiar to money’s nature as a fungible.6
(3) The case which ostensibly establishes the proposition that
detinue does not lie between merchant and factor refers on
its facts to the “expendable” quality of the goods dealt with
and to their character as fungibles.0 As such, it applies the
known proposition that detinue does not lie for money “not in
bags”, 9 and does not support any broader proposition.
63 Ames, “Account” in Lectures on Legal History, supra, note 32, 116. Ames’s
views have been adopted by Jackson, The History of Quasi-Contract in English
Law (1936), 33; and by Goode, The Right to Trace and Its Impact on Com-
mercial Transactions-I (1976) 92 L.Q.R. 360, 366.
64 Ibid., 116-17. Another ground was mentioned by Ames in a different con-
text: see infra, notes 76-80 and accompanying text.
2 Ves. 582, 23 E.R. 372; Ex p. Pease (1812) 19 Ves. 25, 34 E.R. 428.
5 Burdett v. Willett (1708) 2 Vern. 638, 23 E.R. 1017; Ex p. Dumas (1754)
00 See in!ra, notes 84-88 and accompanying text.
6TIt gives rise to the establishment of a debtor-creditor relationship
between the factor and his principal: see infra, Part IV. Both of the above
points are discussed in more detail, infra, Parts III and IV.
68 Harris v. DeBevoice (1625) Rolle 440, 81 E.R. 904: “[J]eo n’avera
detinue vers un, a que jeo deliver marchandise
vender, quia sont expend-
able”. The remark on this point was obiter. Note also that Harris v. de Bervoir,
supra, note 41, is probably the same case; in the latter report the particular
remark does not appear. The goods are characterized as fungibles either by
nature (“jeo n’avera detinue unque pur chose expendable sur baylement”,
ibid.), or by substitution with money upon the sale thereof.
69See, e.g., Clark’s Case (1614) Godb. 210, 78 E.R. 128. Cf. infra, notes 168
and 169 and accompanying text. An action in detinue affirms the property
in the plaintiff: Bishop v. Viscount Montague (1601) Cro. Eliz. 824, 78 E.R.,
1051. It is therefore unavailable against a bailee of fungibles.
1979)
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
43
(4) As for the nature of the action of account as applied to the
principal-factor relationship, it seems that (notwithstanding
Ames) “the person seeking to impose the obligation [to ac-
… must be the owner of the property in respect to
count]
which the obligation is sought to be imposed”. 0 While there are
some instances where non-owners have been allowed to sue in
account 71 this fact is attributed to the focus of the action on the
relations between the parties rather than on their absolute
property rights. 2 This focus has facilitated the expansion of
the action to cover the interests of a non-owner whose situation
as between himself and the defendant is analogous to that of
the owner.73 In general, then, Ames’s view regarding title to
goods held by a factor seems to be erroneous and unsupported
by the authoritiesj 4
The strongest judicial challenge to the idea that purchase of goods
by ai agent or servant to the use of his principal or master conveys
the property directly to the latter comes from Hinson v. Burridge.7
5
The defendant’s factor bought two hundred lambs to the de-
fendant’s use. The seller sued -the defendant in assumpsit for the
payment due. The defendant argued that he should have been sued
in -debt, to which all the judges responded that “the use is only a
confidence, which does not give property to [the defendant] in law,
so that debt -does not lie against … [him], but action in assumpsit
as brought”.76 No precedent is cited in support of that conclusion,
nor does it seem that the case has ever -been followed. Rather, it
appears that shortly after the delivery of that opinion, the view
TOLangdel, A Brief Survey of Equity Jurisdiction (1889) 2 Harv. L. Rev.
241, 245. See also Belsheim, The Old Action of Account (1932) 45 Harv. L. Rev.
466, 473-74.
7 1Jackson, supra, note 63, 24-26, 32-34. The most typical case arises where
A delivers (or bails) goods or money to B to the use of C; title moves directly
from A to C (upon delivery from A to B) and if B declines to deliver the
goods or money to C, B has been held accountable to A. For Year Book
references, see Jackson, ibid., 24-25.
72Stoljar, supra, note 2, 211: “[The] property basis of the action [in
account] became greatly obscured …. [Ijnstead of [the] proprietary aspect
being emphasized, account was said to lie against ‘bailiffs, receivers and
guardians’, a formulation that strongly suggested … relationship [.]” C;.
Stephens, An Agent’s Duty to Account (1975) 28 Current Legal Prob. 39.
7- See, e.g., example in note 71, supra.
7 It was argued by Belsheim, supra, note 70, 475, n. 54, that the cases cited
by Ames “are certainly confined to money” and that “it may well be that
there was no intention on his part to go any further than that”.
71 (1594) Moore K.B. 701, 72 E.R. 850.
76Ibid.
McGILL LAW JOURNAL
[Vol. 25
that purchase of goods to the use of another transfers title directly
to him was reaffirmed77 and has remained unchallenged in the case
law.7s The judges in Hinson v. Burridge probably sought only to
dismiss the procedural objection of the defendant concerning the
propriety of the cause of action.7 9 Their decision should be read as
meaning that a plaintiff could sue in assumpsit in the circumstances
of the case. As such, the decision marks another point in the decline
of the writ of debt, and its eventual takeover by assumpsit.0 There-
fore, any remark concerning the transfer of property should be
disregarded.
Nothing in the early cases, whether dealing with a purchase by
a monk, a married woman, a bailiff, or a servant, speaks of an
undisclosed principal. While it was possible for the principal in any
of these cases to be unnamed, the status of the actual buyer as a
monk, a married woman, or a servant could have been known to the
seller.”‘ Indeed, some of the cases refer to the fact that the servant
had been known as the master’s servant.8 2 However, the focus of
all of them seems to be on the objective fact that the goods were
purchased or came to the use of another, and not on the seller’s
knowledge of the buyer’s status.as It is not clear whether the master’s
liability in these circumstances arises from the servant’s purchase
to his use, or from his receipt of the goods being a ratification of his
servant’s purchase.8 4 Whatever the rationale, it emerges from these
cases that the purchase of goods to the use of someone may confer
77See cases cited infra, notes 95-98.
78 This is not to say that the case did not affect scholarly opinion. See,
e.g., Ames, supra, note 6, 443, n. 10 and accompanying text; Jackson, supra,
note 63, 33, n. 2 and accompanying text. See further infra, note 130.
79 This is also the opinion of Stoljar with respect to that case: supra, note
2, 229, n. 48. But note the question mentioned there by Stoljar concerning
the attribution of the servant’s promise to the debt of the master; this
question has never raised any difficulty.
8 A summary of that process appears in Levontin, supra, note 32, 71-79.
81 Cf. Stoljar, supra, note 2, 204, n. 7.
82 E.g., the 1379 cases cited supra, note 60.
8 See supra, note 61. Cf. cases cited supra, notes 45-51. But see Viner’s
84The ratification theory seems to be supported by St. German’s Doctor
and Student, Second Dialogue (1530), in Plucknett & Barton (eds.), (1974) 91
Selden Society 175, 269, where it is said that “the contract shall not bind
his master unless … it came to the master’s use by his assent” [emphasis
added]. See also (150,5) Y.B. 21 Hy VII Mich. pl. 64, as discussed by Holds-
worth, supra, note 57, 529 (a husband will be charged with a debt arising
from a purchase of goods made by his wife to his use only when he knows
that the goods have come to his use).
Abridgment 2d ed. (1792), vol. XV, 332.
1979J
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
45
the property directly upon that person. Since liability in debt is a
matter of acquisition of legal title, that person will be charged
with the debt that arises, even though he has never promised the
seller payment.
The converse case –
an undisclosed prinoipal claiming the price
of goods sold by his agent to a third party –
is easier. The transfer
of bare possession to a servant or an agent, even when coupled with
authority to sell, is “closely analogous to simple bailment”.5 A
bailee has never been thought to have the property in the goods
bailed to him but only the possession.6 A servant has never been
regarded as having eventhe possession in the goods entrusted to
him by his master, his “custody” being identified with the master’s
possessionY Thus, it was held that “where a merchant beyond sea
consigns goods to a factor in London, who receives them, the factor
in this case being only a servant or agent for the merchant beyond
sea, can have no property in such goods”.88 In terms of debt theory,
it seems quite clear that the buyer would be liable for the price to
the jnerchant, the owner of the goods. As was suggested by Holmes,
the doctrine of the undisclosed principal began with debt –
it
“has no profounder origin than the thought that the defendant,
having acquired the plaintiff’s goods by way of purchase, fairly
might be held to pay for them”.’ Since in -debt it is not the promise
of the buyer that charges him, the fact that the plaintiff-owner is
not the promisee is wholly immaterial.
It should be observed, however, that early in the seventeenth
century the action of indebitatus assumpsit superseded the action
of debt as the common law action for the recovery of a money debt! 0
85 Cf. Belsheim, supra, note 70, 473.
86 If he altered the nature of the goods, the bailee could be sued by the
bailor in detinue and not in case: see Simpson, The Introduction of the Action
on the Case for Conversion (1959) 75 L.Q.R. 364, 372-74. This also applies
when the bailee received the goods for sale: Pollock & Wright, supra, note
59, 161-62.
87 Pollock & Wright, supra, note 59, 138-39; Holmes, The Common Law rep.
(1946), 226.
88 Godfrey v. Furzo (1733) 3 P. Wins 185, 24 E.R. 1022, 1023 per King L.C.
See also Scott v. Surman (1742) Willes 400, 125 E.R. 1235, 1237; Taylor v.
Plumer (1815) 3 M. & S. 562, 105 E.R. 721, 726.
89 Holmes, supra, note 6, 393, nn. 3 and 4. Holmes viewed the action in that
case as “an action of contract” (ibid.) but see infra, notes 102-105 and ac-
companying text.
90The landmark case is Slade’s Case (1602) 4 Co. Rep. 92b, 94a; 76 E.R.
1074, 1077, holding that “every contract executory imports
in itself an
assumpsit”. See in general Fifoot, supra, note 32, 358 et seq.; Levontin, supra,
McGILL LAW JOURNAL
[Vol. 25
In assumpsit, the liability of the defendant was based on his pro-
mise,91 and therefore it could be expected that problems of privity
would arise.a2 In enforcing a promise given to his servant, the
master had to prove that the promise was “an Assumpsit to the
Servant for the Master”.3 Likewise, it was held that an “Action for
breach of … Promise ought -to be brought against … the Master”
where the “Promise is made by … a Servant for the … Master”04
Yet in dealing with sale of goods, the courts continued to view the
vesting of the property in the defendant to whose use the goods
had been bought 95 as the ground for his duty to pay the price.90 It
was also held that “an Assumpsit by the appointment of the Master
of the Servant, shall bind the Master, and is his Assumpsit”;9 7 yet
this was only meant to bind the master to the consequences of his
servant’s purchase or sale –
to provide the ground to charge the
master with the debt arising from his servant’s purchase, or to en-
title him to the debt created by his servant’s sale.9 8 It fell short of
note 32, 74-79; Ames, “Express Assumpsit” in Lectures on Legal History, supra,
note 32, 129, 145-48.
91 Levontin, supra, note 32, 74; Ames, supra, note 90, passim.
92 For the problem of privity in the early days of assumpsit, see in general
Simpson, supra, note 32, 475-85.
93 Seignior & Wolmer’s Case (1623) Godb. 360, 361, 78 E.R. 212 per Dodde-
ridge J. [emphasis added].
94 Anon. (1646) Style’s Practical Register (1707 ed.) 29 [emphasis added].
95 See, e.g., Moore v. Moore (1611) 1 Bulst. 169, 80 E.R. 859, 860 per Yelverton
J.: “If I do request one to buy … a gelding for me … and he buys …
accordingly … , before my taking of [it], the property of the gelding is not
in him, who bought him to my use, but the property is in me who requested
him to buy the gelding for me [J”
96 See, e.g., Drope v. Theyar (1625) Poph. 178, 79 E.R. 1274; Anon. (1645)
the report of this case in the
Style’s Practical Register (1707 ed.) 231 (c.
1657 ed. at 102). Cf. Boulton v. Arlsden (1698) 3 Salk. 233, 91 E.R. 797; Southy
v. Wiseman (1676) 3 Keb. 630, 84 E.R. 920. Cf. also Petties v. Soam (1601)
Gouldsb. 138, 75 E.R. 1049. But cf. Buckley’s Case (1681-1683) 2 Lilly’s Practical
Register 250, Viner’s Abridgment, supra, note 83, vol. XV, 310 (no. 9) per
Pemberton CJ. (where a factor buys upon a general order (as opposed to an
order to buy from a particular supplier), “the Factor is the Debtor, and not
the Merchant”). The distinction is erroneous and is probably based on a
mistaken analogy with a passage from St. German’s Doctor and Student,
supra, note 84, dealing with the liability of a master for the breach of
warranty given by his servant.
97Seignior & Wolmer’s Case, supra, note 93.
98 For the sentence that follows tells us that “[ilf my Baily of my Manor
buy cattel to flock my grounds, I shall be chargeable in an Action of Debt;
and if my Baily sell corn or cattel, I shall have an Action of Debt for the
money; For whatsoever comes within the compass of the servant’s service,
I shall be chargeable with, and likewise shall have advantage of the same”:
ibid. [emphasis added].
19791
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
47
recognizing a promissory link between the master and the third
party9 A promissory nexus with the third party in the context of the
sale of goods mattered only when it actually existed with respect
to a party against whom debt did not lie –
a -buying servant who
“[bound] himself to payment”, 100 or a master who had been “trusted
by the trader” and whose buying servant absconded with the
goods.'”‘ As between the seller and the master to whose use the
goods had been bought, a promissory nexus did not matter; liability
was based on the debt arising from the sale.
In fact, as a substantive legal relation (as opposed to a mere
form of action or remedy), debt survived even the abolition of the
forms of action in the nineteenth century.’02 As such, debt has been
“a conceptual bridge between property and obligation, between
rights real and rights personal, between conveyance and contract,
between choses in possession and choses in action”. 13 He who owns
a debt is entitled “to the debt itself” rather than to damages for
the breach of promise. 0 4 Thus indebitatus assumpsit has been an
action on the debt arising from the executed contract. The requisite
“promise” has been attributed to the receipt of the res from the
plaintiff, rather than to the actual promise of the defendant to pay
5 This proprietary basis of an action for the price of goods
for it.
sold is reaffirmed by cases wherein the plaintiff, being an auc-
6 or a broker0 7 for the seller, was allowed, by virtue of his
tioneer
90For another view, see Stoljar, supra, note 2, 40 and 66.
100Alford v. Eglisfield (1564) 2 Dyer 230b, 73 E.R. 509. In such a case, the
servant is charged with “an action on the case … upon an assumpsit”: ibid.
His liability is concurrent with the master’s liability in debt: Simpson,
supra, note 32, 555. On the other hand, if the servant “by express words”
does not “bind himself to payment”, he “is not chargeable at all”: Good-
baylie’s Case (1608) 2 Dyer 230b n., 73 E.R. 509.
‘O Aishcome v. Le Hundred de Spelholme (1686) Holt K.B. 460, 90 E.R.
1153. Otherwise, “[i]f the master never had any previous dealing with a trade-
man, but the trademan’s dealings have all been with the servant … the
master shall not be charged”: Boulton v. Arlsden, supra, note 96, 234, n. (a).
102 Levontin, supra, note 32, 79-80.
103 Ibid., 61.
104 Ibid., 90-91. For a summary of the legal advantages of owning a debt,
see ibid., 90-97.
105 See, e.g., Fifoot, supra, note 32, 400-1; Denning, supra, note 35, 82-84
[emphasis added]. See also Jackson, supra, note 63, 42.
106 See, e.g., Williams v. Millington (1788) 1 Hy BJ. 81, 126 E.R. 49; Benton
v. Campbell, Parker & Co. [1925] 2 K.B. 410; Chelmsford Auctions Ltd v.
Poole [1973] Q.B. 542.
107 See, e.g., Atkyns v. Amber (1796) 2 Esp. 493, 170 E.R. 431. Cf. Fawkes v.
Lamb, supra, note 11, and Fairlie v. Fenton (1870) L.R. 5 Ex. 169 (in the
absence of property in goods, broker could not sue buyer).
McGILL LAW JOURNAL
[Vol. 25
special property or lien in the goods, to recover the price from the
buyer even as -against his disclosed principal. 08 While “[i]n such a
case the contract of sale … is made with the principal only” and
the agent “does not sue for the price by virtue of the contract of
sale”, 1 9 “[t]he sale is of him who has the property in the things
sold,” ‘ 0 and “[a] proprietor … is entitled to receive the price of
his own goods”.” t It
is the agent’s “special property and his
lien ‘ ” 2 that suffice to support his action.
It can be seen that the controlling principle is that “the debt
[of the buyer] is due to the owner of the goods only”.”13 In the case
of an undisclosed principal who sells through an agent, the debt is
neither assigned” 4 nor transmitted’15 to the principal but rather
belongs to him from its inception; in bringing an action upon the
contract, he sues on the debt arising therefrom and originally
owed to him.””
Indeed, the theory that “[i]n a contract of undisclosed agency
the consideration moves from the undisclosed principal to the
third party” to create a contractual relation between them1 does
not convey the true picture. Being unknown to the promissor, the
undisclosed principal is not the promisee from whom consideration
108Cf. Drinkwater v. Goodwin (1775) 1 Cowp. 251, 98 E.R. ‘1070 (factor
allowed to collect for own use price of goods sold by him by virtue of his
lien in the goods).
0 9 Benton v. Campbell, supra, note 106, 416.
11OAtkyns v. Amber, supra, note 107, 432 (argument of plaintiff adopted
by Eyre CJ.).
111 Baring v. Corrie (1818) 2 B. & Ald. 137, 145, 106 E.R. 317, 320.
11 Benton v. Campbell, supra, note 106, 416.
x13Houghton v. Matthews (1803) 3 Bos. & P. 485, 489, 127 E.R. 263, 266 per
Chambre J. [emphasis added].
“1
4 For the view that “[the doctrine of the undisclosed principal is perhaps
best considered as a primitive and highly restricted form of assignment”, see
Goodhart & Hamson, supra, note 6, 352.
11 For a characterization of the doctrine of the undisclosed principal as
“transmissions of rights”, see Stoljar, supra, note 2, 332.
116 Thus, an undisclosed principal who takes from his agent a promissory
note made by the third party buyer to the agent’s order does not qualify
as a holder in due course. The negotiation does not transfer, but perfects a
pre-existing interest. See Bills of Exchange Act, 1882, 4546 Vict., c. 61, ss.
29(1) and 31(1) (U.K.). Cf. Sisemore & Kierbow Co. v. Nicholas 149 Pa. 376,
27 A. 2d 473 (Super. Ct 1942) and cases cited at (1955) 44 A.L.R. 2d 157.
117 For this view, see Milller-Freienfels, The Undisclosed Principal (1953) 16
M.L.R. 299, 301-12. The citation in -the text is taken from page 306.
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
49
must move.” 8 He who has owned the res is entitled to-the debt,
and that is the essence of the right to the proceeds of a sale.
III. The eighteenth-century factor cases:
privity of contract or property right in the proceeds?
The -first known contest between a merchant and his factor’s
creditor over the proceeds of goods sold by the factor before bank-
ruptcy was won in a common law court by the creditor. According
to a short note to Burdett v. Willett,”9 Holt C.J., “after considera-
tion”, ” maintained the creditor’s aotion at law. Holmes thought
this decision strange, as “a factor in those days always was spoken
of a servant, and … Lord Holt was familiar with the identification
of servant and master”.121 Furthermore, Lord Holt must have been
familiar with the rule of law that goods in the possession of a
factor.are nonetheless the property of the merchant2s Lord Hoit
may have regarded both rules as irrelevant; his decision can then
be viewed as standing for the proposition that an undisclosed prin-
cipal is not a party to the contract for sale of his goods and con-
sequently cannot recover the price from the buyer. Nothing in
the report, however, supports the conclusion that the principal was
in fact undisclosed to the third party. If -he were undisclosed, the
decision would be inconsistent with Garrat v. Cullum-3 (decided
shortly after Burdett v. Willett), which held for the merchant. Since
Lord Holt was involved in both cases,’ 2 4 the inconsistency between
them seems inexplicable. Whatever the possible explanation, Lord
11sFor the promisee as a party to the consideration, see in general Treitel,
supra, note 5, 419. The consideration (in the form of a reciprocal ‘contractual’
undertaking) can easily be seen as moving from the agent. Cf. supra, note 29
and accompanying text (selling agent); supra, note 105 and accompanying
text (buying agent). For the major distinction between ‘benefit’ in debt
(i.e., quid pro quo) and consideration, see Fifoot, supra, note 32, 400.
119 Sunra, note 65, 1018, n. 2. The report itself is of the Chancery Court
dec:sion.
I”2 Ibid. The note makes it clear that the owner was a party to the pro-
ceedings at law.
321 Holmes, supra, note 6, 394.
1=2 See, e.g., L’Apostre v. Le Plaistrier (1708) 2 Eq. Cas. Abr. 113, 22 E.R.
96; 1 P. Wms 314, 318, 24 E.R. 404, 406; Anon. (1708) 1 Salk. 289, 91 E.R. 256;
.:;ti.n to the Law of Trial at Nisi Prius (1806), 35 (hereinafter
Buller, Int
cited as Bull. N.P.).
P- -11. N.P., supra, note 122, 42. See infra, notes 138-146 and accompanying
text.
124 Lord Holt’s part in the case of Garrat v. Cullum is mentioned in the
decision of Willes L.CJ. in Scott v. Surman, supra, note 88, 1238.
McGILL LAW JOURNAL
[Vol. 25
Holt’s decision in the Willett case went unnoticed.-‘ As the decision
is not fully reported, 126 it is impossible to find the rationale behind
it.
Following the decision at law, the merchant in Burdett v. Willett
submitted a bill in equity wherein he applied for an injunction to
restrain the buyers from paying the money to the creditor. 2 Hold-
ing for the merchant, the court disposed of the issue in one sen-
tence: “The factor is in nature of a trustee only; and although he
has the right at law, yet he is in equity but a trustee”. 28 Insofar
as the owner in Burdett v. Willett succeeded by virtue of his pro-
perty right, the decision manifests the concept of tracing –
follow-
ing the right in the goods into their proceeds. However, the court’s
underlying assumption that legal title to the goods was in the factor
is erroneous.m Since the merchant retained legal title, his relation-
ship with the factor was not that of cestui que trust and trustee; 30
thus the rationale behind the decision seems to fall apart. While
there is some modern support for the view that equity will aid in
tracing a legal title,’3′ this view is neither overwhelmingly accep-
ted 32 nor consistent with the letter of Burdett v. Willett.’3
Nonetheless, the Lord Chancellor’s decision in Burdett v. Willett
should not be dismissed. Although technically incorrect, it was un-
derstood as a landmark case in the expansion of equity jurisdiction
12 5 Holmes suggested that Lord Holt might be “the father of the …
doctrine” of the undisclosed principal: supra, note 6, 394.
120The only source of information as to the proceedings at law is the
laconic note referred to supra, note 119.
127 See supra, note 119.
128 Ibid. Cf. the two other cases cited supra, note 65. Three years later, the
Chancery Court in Whitecomb v. Jacob (1711) 1 Salk. 160, 91 E.R. 149, followed
Burdett v. Willett and extended its principle to cover goods bought by the
factor prior to bankruptcy out of proceeds of previous sales of the mer-
chant’s goods.
notes 81-88 and accompanying text.
129 See, e.g., Pearce, A Tracing Paper (1976) 40 Cony. (n.s.) 277, 280; Cf. supra,
130 But cf. Lees v. Nuttal (1829) 1 Russ. & M. 53, 39 E.R. 21; ajf’d (1834) 2
My. & K. 819, 39 E.R. 1157 (C.A.) (buying agent for undisclosed principal a
trustee). See also Ames, supra, note 6; for criticisms of Ames, see Seavey, The
Rationale of Agency (1920) 29 Yale L.J. 859, 879; Stoljar, supra, note 2, 230.
131 See, e.g., Pearce, supra, note 129; Oakley, The Prerequisites of an Equit-
able Tracing Claim (1975) 28 Current Legal Prob. 64.
132 See, e.g., Maudsley, Proprietary Remedies for the Recovery of Money
(1959) 75 L.Q.R. 234 (criticism of the rule that equity will trace only separate
equitable title).
133 See supra, note 128 and accompanying text.
19791
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
51
into fiduciary relationships analogous to those created by trust.134
Though an agent “is not a trustee … he is quasi a trustee for that
particular transaction for which he is engaged and therefore in
these cases the Court of Equity has assumed jurisdiction”. 1 35 Ac-
is almost unanimously accepted’ 36 that even if equity
cordingly it
does not aid in the tracing of legal rights, those equitable pro-
prietary remedies that are available to trust beneficiaries are also
available to principals whose property is
the control of an-
other.’i
in
Garrat v. Cullum 1 3
8 was an action for money had and received’ 9
by a merchant against his factor’s assignees in bankruptcy for the
price of goods paid to the assignees by a buyer on credit. This was
the first case
in which the fact that the principal was unknown to
the third party was explicitly noted. It differed from Burdett v.
Willett as the money had already been paid by the buyer to the
assignees by the time the action was taken. The report tells us the
following:
A, living in Ireland employed B. in London to sell goods for him. B.
sold them to J.S. (A. not knowing to whom they are sold, and J.S. not
knowing whose property they were). B. became a bankrupt, and J.S.
paid the money to his assignees. A. shall recover it from them. It was
agreed that a payment by J.S. to B. was a discharge for him against the
principal A. yet the debt was not in law to B. but to the person whose
goods were sold and therefore was not assigned to the defendants under
the general assignment of all their debts, but remained due to A. as it
was before; and it being paid to the defendant, who had no right to it,
but under a mistake, that payment must be understood in law to be for
the use of him to whom it. was due.140
It was argued by Holmes that the case had been decided on the
basis of identification of agent and principal. Thus he opined that
“[s]o far as Lord Holt is concerned …
in Garrat v. Cullum the
agent was a factor, … a factor in those days always was spoken
of as a servant, and … Lord Holt was familiar with the identifica-
134 Dowrick, The Relationship of Principal and Agent (1954) 17 M.L.R. 24,
28-32.
13 Foley v. Hill (1848) 2 H.L.C. 28, 35-36, 9 E.R. 1002 per Lord Cottenham
L.C.
‘MOThe qualified exception refers to the controversial case of Lister v.
Stubbs (1890) 45 Ch. D. 1.
137 See Bowstead, supra, note 2, 342. See also Waters, The Constructive
Trust (1964), 229 et seq.
138 Supra, note 123.
139 The nature of the claim as an action for money had and received
emerges from the report itself and is mentioned specifically by Willes
L.CJ., supra, note 88, 1238.
40 Supra, note 123 [emphasis added].
1
McGILL LAW JOURNAL
[Vol. 25
tion of servant and master”. 141 However, inasmuch as “identification”
means that “within the scope of agency, principle [sic] and agent
are one”, 142 Holmes’s explanation is not convincing. In a contract
made by an agent of an undisclosed principal, a contractual relation-
ship exists between the agent himself and the third party; 143 the
former cannot be characterized as “but [an] Instrument”. 4 In-
deed, Holmes’s view that the doctrine of the undisclosed principal
“would seem to follow very easily from the identification of agent
and principal”‘ 45 is not supported by the authorities. It is submitted
that Garrat v. Cullum stands for the proposition that the property
of A in the goods entitled him to payment, irrespective of the con-
tractual arrangement . 46
Scott v. Surman147 contains an extensive discussion of the pro-
prietary rights of the merchant in the case of his factor’s bank-
ruptcy. This was an action on the case for money had and received
between a foreign merchant and his factor’s assignees in bank-
ruptcy. Willes L.C.J. held that the merchant was entitled to prevail:
“The general rule is that if a man receive money which ought to be
paid to another or to apply to a particular purpose to which he does
not apply it, this action will lie as for money had and received []”148
The money ought to have been paid to the merchant, rather than to
the factor, as the goods were to be considered as the merchant’s:
“‘because they remain in specie, and so may be distinguished from
the rest of the bankrupt’s estate”. 149 The principle laid down is
thus that “the thing produced ought to follow the nature of the
thing out of which it is produced, if it can be distinguished; and
so long as it remains a debt, it is equally distinguishable”.5 0
There is nothing in the foregoing factor cases to suggest the
existence of a contraot between the buyer and the merchant; there-
fore they cannot be taken to lay down the doctrine of the undis-
141 Holmes, supra, note 6, 394. Note Holmes’s suggestion that the doctrine
of the undisclosed principal began with debt: supra, note 89 and accom-
panying text.
14’Holmes, supra, note 6, 368.
143 See, e.g., Joseph v. Knox (1813) 3 Camp. 320, 321, 170 E.R. 1397. Cf. supra,
notes 14 and accompanying text.
144As was the servant promising “for … the Master”: Anon., supra, note 96,
145 Holmes, supra, note 6, 390.
146 Supra, text accompanying note 140, especially where emphasized.
147 Supra, note 88. Probably Scott v. Salmon, referred to in Bull N.P., supra,
note 122, 43, is the same case.
148 Ibid., 1238 [emphasis added].
149 Ibid., 1237.
16OIbid., 1237-8 [emphasis added].
19793
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
53
closed prncipal. 5 1 At the same time, their proprietary basis” 2 can
be supported on analogy with contemporaneous cases dealing with
a customer’s property right to identified proceeds of bills of ex-
change remitted to a banker for collection. 13 Furthermore, had
Scott v. Surman been governed by a contract analysis, the decision
should have gone the other way. The case involved a foreign mer-
chant; in such cases, it had been accepted that privity is established
between the domestic third party and the faotor. 54 Also, the actual
proceeds (that is to say, the debt arising from the sale) consisted
of two promissory notes, 55 and in such cases, “whether or not …
[the principal] can sue depends on whether he is the payee, or a
holder of the bill, in accordance with the general law”. 56 Thus, had
the issue in Scott v. Surman turned on in whom the promise to pay
had vested, the factor (or his representatives) would have pre-
vailed. 57
IV. The limits of the proprietary right
It would appear to follow from the preceding discussion that
money received by a faotor in discharge of debts from the sale of
goods will be the merchant’s money. 58 Indeed, this was the position
of the House of Lords in Foley v. Hill:
[G]oods held by a factor for sale … remain the goods of the owner
or principal until the sale takes place, and the moment the money is re-
16’But see Street, supra, note 6, 478; Holmes, supra, note 6, 391; Stoljar,
supra, note 2, 204; Bowstead, supra, note 2, 256.
152 Note, however, the opinion of Professor Goode that “the common law
is concerned not with ownership as such, but with right to possession”,
and that the meaning of “follow” in the common law indicates the principal’s
right “to treat whoever is or has been in possession of the proceeds as
under a personal duty to account to him for them”: Goode, supra, note 63,
368-71. In light of the foregoing analysis, this view is unconvincing.
153 Explicit analogy appears in Zinck v. Walker (1777) 2 Wm BI. 1154, 96
E.R. 681. See also Ex p. Dumas (1754) 1 Atk. 232, 26 E.R. 149; Hollingworth v.
Tooke (1795) 2 Hy BI. 501, 126 E.R. 670; Ex p. Sayers (1800) 5 Ves. 169, 31
E.R. 528; Ex p. Rowton (1811) 17 Ves. 426, 34 E.R. 165; Ex p. Pease, supra,
note 65. Other cases are cited by Bowstead, supra, note 2, 366, nn. 15-16; 367,
n. 17. Note also the explicit analogy to which the notes to the reports ‘of the
factor cases (except for Garrat v. Cullum) refer.
’16 See Gonzales v. Sladen (1702) Bull N.P., supra, note 122, 130 and Hudson,
Agents for Foreign Principals (1966) 29 M.L.R. 353.
’55 Supra, note 88, 1235.
’66 Bowstead, supra, note 2, 268. See also Restatement of the Law, Agency
(1933), 295; Ames, supra, note 6, 446; Mechem, supra, note 11, 519.
167 Cf. Seavey, Handbook of the Law of Agency (1964), 136B.
158 Cf. U.C.C. 9-306(1), (3).
McGILL LAW JOURNAL
[V7ol. 25
ceived the money remains the property of the principal … .[A]n agent
… obtains no interest himself in the subject matter beyond his re-
muneration.169
In another case, money paid by a third party to a servant in dis-
charge of a debt owed to the master was regarded by Lord Holt as
the property of the master: “[I]f the payment [of the third party]
was a good discharge [of his debt to the master], it is reason it
[the master’s] money”. 0 However, in Holiday v.
should be …
Hicks, where “the defendant, being a servant and factor to the
plaintiff, sold … his master’s corn for 25 and, receiving it, con-
verted it to his own use”, 6 1 the court held, though with hesitation,”
that the factor was not liable to his master in trover, since “[t]he
property of the money was never in the master, but in the servant”.1 0
Likewise, judicial recognition of the merchant’s entitlement to debts
created by the sale of his goods by a factor was accompanied by the
denial of the merchant’s right to the money paid by the buyers to
the factor prior to the factor’s bankruptcy: “[i]f the factor have
the money it shall be looked upon as the factor’s estate”Y’6
Reconciliation of these two lines of cases can be founded on
Langdell’s view that a factor who sells his principal’s goods has
a “right to appropriate … [the money received by him in payment
thereof] to his own use, making himself a debtor to the … [prin-
cipal] to the same amount”‘0 5 In other words, although money re-
ceived by the factor from the buyers is the merchant’s property,
unless the factor is required to remit or keep separate the actual
coins or bills,166 a “constructive” bailment of the money occurs
15 9 Supra, note 135.
160 Anon., supra, note 122; Bull. N.P., supra, note 122, 35. See infra, note 166.
101 (1597) Cro. Eliz. 638, 78 E.R. 878.
1 02 “The case was moved again” as reported in Holiday v. Hicks (1598)
Cro. Eliz. 661, 78 E.R. 900, where “all the Court resolved for the plaintiff”.
Then “[e]rror was brought and assigned in the point of law”.
16 3 Higgs v. Holiday (1599) Cro. Eliz. 746, 78 E.R. 978.
10 4 Whitecomb v. Jacob, supra, note 128. See also Scott v. Surman, supra,
note 88, 1237, 1238.
115 Langdell, supra, note 70, 245 [emphasis added]. Another aspect of Lang-
dell’s view –
the inapplicability of the action in account in these circum-
stances –
is convincingly criticized in Jackson, supra, note 63, 33. Langdell
overemphasized the proprietary basis of account and tended to overlook
the action’s focus on the parties’ relationship. Cf. supra, notes 70-73 and ac-
companying text.
16 Indeed, the actual case before Lord Holt (supra, note 160) did not in-
volve an ordinary business relationship between a merchant and a factor, but
rather that between a son with a general authority to receive money and
his father. In such a case it is reasonable to assume that the son was
required to remit the very coins and bills received.
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
55
instantly.6 7 The bailee, having “liberty by the bailment to make
an exchange of the … [money given to him]’ 6 8 becomes its owner.
As such, he is not subject to an action in detinue but rather incurs
liability to the bailor in debt.”” In fact, notwithstanding the cate-
gorical statement of the court in Higgs v. Holiday that the property
“was never in the master”,170 the latter is aotually regarded there as
having lost the property, thereby becoming a creditor of his factor.’7 ‘
It is in this sense that Lord Haldane’s statement that money can
be followed in the common law “only so long as the relation of
debtor and creditor has not superseded the right in rem”‘ 2 should
be understood. Unfortunately, while acknowledging that money in
the common law “could be followed … provided it could be ear-
marked or traced into assets acquired with it”,'” Lord Haldane
added an “unguarded observation”‘7 4 to the effect that the common
law “gave no remedy when the money had been paid by the wrong-
doer into his account with his banker, who simply owed him a
debt”. 7 r In so stating, Lord Haldane missed the point of his own
statement. Debts under bank accounts created with followed money
16 The expression “bailment of money”
the
“bailment” has nothing to do with custody but rather denotes the delivery of
a sum of money to be applied to a certain purpose: see Jackson, supra, note
63, 24.
is somewhat misleading;
168 Core’s Case (1537) 1 Dyer 20a, 22a, 73 E.R. 42, 46.
16 This is true “although … the money be sealed up in a bag”: Anon.
(1619) 3 Leon 38, 74 E.R. 526 (money sealed in a bag given to the bailee to be
used by him to purchase goods for the bailor). Money sealed up
in
a bag would be otherwise the subject of an action in detinue “to recover
the thing it self”: Sir George Walgrace’s Case (1687) Noy 12, 74 E.R. 983. An
earlier case is Anon. (1389) Y.B. 13 Ed. III 244 (R.S.). Cf. Earl of Lincoln v.
Topcliff (1597) Cro. Eliz. 644, 78 E.R. 883 (receipt of money acknowledged
by the defendant in a bill “ensealed”). See also Bretton v. Barnet (1599) Owen
86, 74 E.R. 918. Earlier Year Book citations appear in: Jackson, supra, note
63, 25, n. 2; and Ames, supra, note 63, 120, nn. 1 -and 4. The observation of
the court in Higgs v. Holiday that the bailor “can maintain accompt [account]
only” (supra, note 163, 978) is therefore incorrect.
110 Supra, note 163, 978 [emphasis added].
171 “But here the plaintiff’s declaration is not good … and when he had
lost the possession thereof he had lost the property also, because it cannot
be known”: ibid. [emphasis added]. Of course on the facts of the case, “loss
of possession” by the plaintiff is more conceptual than real: supra, note 161
and accompanying text.
172 Sinclair v. Brougham [1914] A.C. 398, 419 (H.L.). Cf. also In re Hallett’s
Estate (1880) 13 Ch. D. 696, 723-24 per Thesiger L..
1-3 Ibid., 420.
174 Cf. Goode, supra, note 63, 391.
175 Supra, note 172, 420.
McGILL LAW JOURNAL
[Vol. 25
are as traceable as any other asset acquired with followed money.
The debtor-creditor relationship that supersedes the right in rem
and brings the right to follow to its end is not that between the
banker and the factor, but rather that between the factor and the
owner.
617
The debtor-creditor relationship between the factor and the
owner of goods does not supersede the owner’s right in rem unless
this relationship relates to the proceeds themselves or to the subject
matter of the transaction producing them. Thus a conditional sales
contract, a hire purchase agreement, a consignment intended as
security, a domestic trust receipt, or an advance of money against
a bill of lading creates a debtor-creditor relationship between the
parties. Property in the goods subject to the agreement, however,
remains in the hands of the creditor. In selling the goods to third
party buyers with the authority of the creditor-owner, the debtor
acts as the latter’s agent,’17 7 and debts created in this way belong to
the creditor-owner 78 Indeed, the debt of the debtor-agent under
the original transaction is discharged with the satisfaction of the
debts created by the sale to the third party buyers. Not relating to
the sale itself and conceptually distinct from it,’79 the debtor-
creditor relationship under the original -transaction does not super-
sede the creditor-owner’s right in rem.18
When the debtor-creditor relationship does relate to the trans-
action producing the proceeds, it is important to see at what point
in time this relation has superseded the right in rem so as to bring
176 A bank customer has no right to follow “his” money as against the
bank. “Money, when paid into a bank, ceases altogether to be the money
of the principal (see Parker v. Marchant, 1 Phillips 760); it is then the money
of the banker, who is bound to return an equivalent by paying a similar
sum to that deposited with him when he is asked for it”: Foley v. Hill, supra,
note 135, 36. (Cf. Arab Bank v. Barclays Bank [1954] A.C. 495 (H.L.).) How-
ever, if the deposited money belongs to another, that other will be able to
follow it into the bank’s hands.
177 See in general supra, notes 20-25 and accompanying text. See also
Lloyd’s Bank, Ltd v. Bank of America Nat’l Trust, supra, note 20.
178 Cf. also the treatment of the mortgagee’s right in the proceeds of the
mortgaged property upon the sale thereof by the mortgagor. “Although the
[mortgagor] does not sell as an agent for the … [mortgagee], he does not sell
free of the… [mortgagee’s] claim to the proceeds. There is an analogy with the
case where goods are consigned to a factor to be sold by him and reduced to
money”: Re Canadian Western Millwork Ltd, Flintoft v. Royal Bank of Canada
(1965) 47 D.L.R, (2d) 141, 145 (S.C.C.) per Judson J.
179 Cf. In re David Allester Ltd, supra, note 20.
180 Cf. in general Goode, The Right To Trace and Its Impact on Commercial
Transactions-II (1976) 92 L.Q.R. 528, 547-52.
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
57
to its end the common -law right to follow. Where goods are de-
livered to another for sale to a third party, it is important to dis-
tinguish between sale by a factor and resale by a consignee on “sale
or return”. Neither intermediary acquires the property in the goods
upon taking delivery. However, a sale by a factor transfers the pro-
perty from the owner directly to the buyer; a sale by the consignee
on “sale or return” is an act adopting his purchase of the goods
from the consignor’ s’ so that his buyer acquires the property from
him, rather than from the consignor. 82 While the factor becomes
the debtor of the consignor only in the wake of his receiving pay-
ment from the buyer, 8s the consignee on “sale or return” becomes
indebted to the consignor upon acquiring and passing the property
at the moment of resale. Thus, while a sale by a factor creates one
debt between the principal and the buyer, a sale by a consignee
on “sale or return” creates two: a debt of the consignee to the con-
signor is instantly followed by a debt of the buyer to the consignee.
As a result, upon the bankruptcy of a consignee on “sale or return”,
following sales made by him, the debts of the buyers will be col-
lected for the benefit of all the creditors, and the consignor will not
be allowed to follow the proceeds created by the sales.’ 4 The con-
signor’s right in rem will have been superseded by the debtor-
creditor relationship created at the time of the sale of the goods.
In determining the point in time at which the debtor-oreditor
relationship supersedes the right in rem, it should be realized that
the cases of the factor and the consignee on “sale or return” are
not mutually exclusive. This may shed light on the controversial
decision of the jury in Scrimshire v. Alderton 85 The facts in this
case are somewhat different from those in the factor cases pre-
viously considered. The factor in this case, for higher commission,
181 Within the meaning of s. 18, rule 4(a) of The Sale of Goods Act, 1893, 56-
57 Vict., c. 71 (U.K.).
182 If, due to the terms thereof, the disposition by the consignee on “sale
or return” falls short of being an act adopting the transaction, and hence
does not convey title of the consignor to the consignee, good title will not
vest in the third party. As it does not involve a “mercantile agent”, the
transaction with the third party will not be governed by The Factors Act,
1889, 52-53 Vict., c. 45 (U.K.). See Weiner v. Harris, supra, note 25; R. v. Eaton
(1966) 50 Cr. App. Rep. 189. In general with respect to “sale or return”
and the distinction between it and sale by a factor, see Benjamin, supra, note
28, 41, 43, 49, 202 et seq., 324 et seq.
’83 Supra, notes 165-171 and accompanying text.
184 See, e.g., Ex p. White, supra, note 16.
185 (1743) 2 Stra. 1182, 93 E.R. 1114.
McGILL LAW JOURNAL
[Vol. 25
took from the principal “the risque of the debts””‘ arising from
his credit sales. The buyer defied the principal’s request for direct
payment and the principal brought an action against him.187
This was the first reported case dealing with what was later
to be known as a del credere factor,188 as well as the first direct
contest between the merchant and a buyer with respect to the pro-
ceeds of the sale.18 9 Chief Justice Lee “was of opinion that this new
method had not deprived the [merchant] of his remedy against the
buyer … And therefore he directed the jury in favour of the
[merchant] “.190 The jury found for the buyer, even after a third
consideration. A new trial was moved for, in which Chief Justice Lee
declared “that a factor’s sale does by the general rule of law create a
contract between the owner and buyer”.191 Nonetheless, the jury
found again for the buyer. Asked for their reason, the jurors said
“that they thought from the oircumstances no credit was given as
between the owner and buyer, and that the latter was answerable to
the factor only, and he only to the owner”.92
There are conflicting views as to the propriety of the jury’s
decision. Buller J. suggested that “where the factor sells the goods
at his own risk; (i.e. is answerable to the owner for the price,
though it be never paid) … he is the debtor to the owner, and not
186 Ibid.
187 There is a controversy with respect to the nature of this action. Holmes
suggests that it was an action of debt: supra, note 6, 392. Buller J. deals
with the case in the context of indebtitatus assumpsit for goods sold and
delivered: Bull. “N.P., supra, note 122, 130.
lsSFor this fact, see Chorley, Del Credere (1929) 45 L.Q.R. 221, 222. The
report of the case did not use the term “del credere”; the first case to use
it was Grove v. Dubois (1786) 1 T.R. 112, 99 E.R. 1002 (see Chorley, ibid., 221).
For commission del credere in general, see Chorley, ibid., passim.
189 See Holmes, supra, note 6, 392. Cf. Street, supra, note 6, 478; Stoljar,
supra, note 2, 207. The previous factor cases were contests between the
merchant and assignees in bankruptcy (or creditors) of the factor.
190 Supra, note 185, 1115.
191 Ibid. With respect to the use of the term “contract”, note that in-
debtitatus assumpsit has been an action on the debt arising from the executed
contract; for a situation where debt lies see, e.g., Shandois v. Simson, supra,
note 41. Another eighteenth-century case speaking of the right of a principal
of a factor to bring an action against the buyer “upon … [the] contract”,
and yet arguably compatible with a debt relationship, is Rabone v. Williams
(1785) 7 T.R. 359, 360n., 101 E.R. 1019, 1020n. per Lord Mansfield. In debt, “no
contract that we can count” means the absence of a “real” transaction: Anon.
(1368) Y. B. Pasch. 41 Ed. III f. 10 pl. 5 (reproduced in Fifoot, supra, note 32,
285). Cf. supra, notes 32-42 and accompanying text.
192 1Ibid. [emphasis added].
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
59
the buyer”.193 Therefore, according to Buller J., this case is an
exception to the principle that a factor’s sale generally creates a
contract between the owner and the buyer. This is also the opinion
of Paley.’9 On the other hand, it was argued by Lord Chorley
that the reason mentioned by the jury “was an outrage to legal
theory”, since it means that a person doing business on the basis
of a del credere commission is a peculiar form of buyer rather than
a peculiar form of agent.195 Notwithstanding both views, the jury’s
decision need not make a sale by a del credere factor into an act
adopting his purchase of the goods from the principal; the sale can
be viewed as a sale of the principal’s property, thereby creating a
debt of the buyer to the principal. This sale is conceptually follow-
ed by the extension of credit from the factor to the buyer. The
effect of this credit extension is to substitute the debt of the buyer
to the principal with a debt of the buyer to the factor, and to cast
upon the factor an absolute obligation towards his principal with
respect to the price of the goods. The debtor-creditor relationship
thus established between the factor and the principal supersedes
the latter’s right in rem, and brings to an end his right to follow the
property. In theory, the debt of a consignee on “sale or return”
precedes the sale to the ultimate buyer and supersedes the consignor’s
right in rem in the goods just before the creation of the proceeds. In
contrast, the debt of the agent assuming the risk follows the sale and
supersedes the consignor’s right in rem just after the creation of the
proceeds. Indeed, whether or not the latter is the proper view of the
del credere arrangement,98 the right to follow the proceeds of a sale
may end before collection by the consignee, where the owner em-
ploys an agent who personally extends credit to the buyer.
It is noteworthy that in dealing with priority contests over
proceeds, the draftsmen of the U.S. Uniform Commercial Code
viewed the typical consigneeagent as an agent who personally
’93 Biller, An Introduction to the Law Relative to Trials at Nisi Prius
7th ed. (1817), 130a.
‘.94 Paley, Law of Principal and Agent 4th ed. (1856), 284-87.
195 Chorley, supra, note 188, 225. See also Miiller-Freienfels, supra, note 117,
303.
‘ 96For the controversy with respect to the nature of the del credere
factor’s responsibility (i.e., whether he is absolutely liable ‘to repay the prin-
cipal or only a guarantee of the buyer’s solvency), see, e.g., Chorley, supra,
note 188, passim. Under the latter possibility, the debtor-creditor relation-
ship between the factor and the principal would not supersede the latter’s
right in rem.
McGILL LAW JOURNAL
[Vol. 25
extends credit to buyers.197 Thus, they provided that (subject to a
contrary agreement) a consignor-principal does not have a right to
the proceeds and cannot recover the price of the goods from the
buyer; instead, at the moment of sale he becomes the creditor
of the consignee-agent. 19 8 The jury’s decision in Scrimshire v. Alder-
ton’99 is thus the general rule under the Uniform Commeroial Code.
All consignment of goods arrangements, whether with a factor,
with a consignee on “sale or return”, or with an agent who per-
sonally extends credit to a buyer, are subject to this potential loss
of the right to follow. The point in time at which the right in rem
is superseded by a debtor-creditor relationship sets the limit to the
consignor’s right, and thereby determines the nature of the con-
signment arrangement.
Conclusion
The imposition of contraotual liability on an undisclosed prin-
cipal selling through an agent is inconsistent with basic principles
of privity of contract. Injustice may result where the undisclosed
principal does not receive proceeds realized from the agent’s mis-
191Under U.C.C. 2-326(3) (1972), consignment is delivery of goods to a
person for sale in his own place of business. “True consignment [under the
U.C.C.]
is true agency”: Duesenberg, Consignments under the U.C.C.: A
Comment on Emerging Principles (1970) 26 Bus. Law 565, 566 and 575-76.
198 This emerges from U.C.C. 9-114 (1972), under which filing with respect
to consignment perfects the interest only in the goods themselves, and not
in the proceeds. Note also the following comment of the draftsmen: “It is
believed that under many true consignments the consignor acquires a claim
for an agreed amount against the consignee at the moment of the sale and
does not look to the proceeds of the sale …
.[T]he Article goes on the
assumption that if consignors intend to claim the proceeds of sale, they will
do so by expressly contracting for them and will perfect their security in-
terests therein”. (U.C.C. 9-114, Official Comment [emphasis added].) Cf.
supra, note 15.
‘9 9 Supra, note 185.
200The provision of a framework explaining the different effect of a sale
by a factor, by a consignee on “sale or return” and by an agent extending
credit to the buyer should not be taken to endorse the usefulness of its
implications. Indeed, insofar as innocent third parties are concerned (whether
creditors –
notwithstanding Langley v. Kahnert (1905) 36 S.C.R, 397 –
or purchasers under an unauthorized transactibn of the consignee – notwith-
standing Weiner v. Gill [1906] 2 K.B. 574 (C.A.)), “to the extent that external
appearances are the same, a common set of rules should be applied”: Ontario
Law Reform Commission, Report on Sale of Goods (1979), 49. In this context,
consider the bringing of consignment agreements “within the registration and
priority provisions of the Act”: Saskatchewan Law Reform Commission,
Proposals for a Saskatchewan Personal Property Security Act (1977), 7.
1979J
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
61
representation or breach of contract. This could happen where an
agent defrauds his principal, where an agent goes bankrupt, or
where an agent, either under consignment of goods or inventory
financing, is entitled to retain the profit of the sale. Nonetheless, in
all these situations, the interest of the undisclosed principal in re-
taining a direct remedy against the buyer is legitimate and deserves
legal recognition.
Such a remedy is well established. Recovery of the price of
goods is based in the common law on a debt relationship, rather
than on breach of promise: it is a proprietary action for the pro-
ceeds of sale. This remedy of the -undisclosed principal was recog-
nized in cases dealing with the debt relationship. Its enforcement
does not entail contractual liability, and thus does not involve the
theoretical inconsistency and the injustice associated therewith. One
can speculate that the later “contraotualization” of the doctrine of
the undisclosed principal is attributable to the failure to see that
“contract”, in the context of debt, is the conveyance rather than
the promise.
The fact that authority to sell does not entail a contractual
relationship is expressed in the American Uniform Commercial
Code: “authority given to the debtor to dispose of … collateral
does not impose contract … liability upon the secured party”.2 1
Notwithstanding the opinion of the draftsmen,2 2 the section ex-
presses a general principle of law and does not reject the applica-
tion of agency theory to the sale of the collateral by the debtor.
Indeed, upon the authorized sale of goods, the proprietor’s recovery
of the price from the buyer is explained by property in the goods
rather than by the existence of a contractual relationship. The dis-
connection between authority to sell and a contractual relationship
with the buyer is one side of the coin whose other side is the pro-
prietary basis of the right to the proceeds of the sale.
The proprietary basis of this right provides a unifying frame-
work applicable to all cases of authorized sale of goods. Its im-
plications are not limited to the removal of the conceptual difficulty
and injustice associated with the doctrine of the undisclosed prin-
cipal. They extend to situations where agency theory or the pro-
visions of The Factors Act, 1889203 are applied to the unauthorized
201U.C.C. 9-317 (1972). “Debtor” is used here in relation to the secured
loan, not in relation to the right to the goods or their proceeds. Cf. supra, text
accompanying note 177.
202 As expressed in the Official Comment to 9-317.
203 52-53 Vict., c. 45 (U.K.).
McGILL LAW JOURNAL
[Vol. 25
sale of one’s property, and to the case of secured wholesale finan-
cing by means of title retention, whether by trust receipt, condi-
tional sale contract, hire-purchase agreement or consignment in-
tended as secunityY2
Modem personal property security legislation, such as the Per-
sonal Property Security Act,205 abolishes the distinctiveness of title
retention security devices as a separate category of security in-
terests. 06 The framework provided by the proprietary basis of the
right to the proceeds is nonetheless broad enough to encompass the
secured party’s right to the proceeds created by an authorized sale of
the collateral.4 7 Being based on property, the right is not linked to a
contractual relationship, notwithstanding the absence of an explicit
provision.2
08 Not being a statutory exception, the content and the
limits of the secured party’s right are determined by the ordinary
rules of tracing.20 9
Giving the authority to sell to a consignee does not necessarily
result in a right to the proceeds created thereby. Rather, the right
to follow the proceeds ends when a debtor-creditor relationship
supersedes the right in rem. This explains the limits of the prin-
cipal’s right to cash proceeds. This, and not the existence or absence
of a contractual relationship, is also the key to the different effects
of sale by a factor, by a consignee on ‘”sale or return”, and by an
agent extending credit to the buyer.210 The existence or absence of a
contractual relationship between the consignor and the third party
buyer is neither indication nor foundation of the consignor’s right
or lack of right to the proceeds; this right is compatible with the
existence as well as with the absence of a contractual relationship.
204See in general, supra, notes 12-27 and accompanying text.
205 R.S.O. 1970, c. 344 [hereinafter PPSA]. This type of statute, modeled
on U.C.C. Article 9, was also adopted in Manitoba [S.M. 1973, c. 5 as am.] and
is currently being considered for adoption by other provinces.
206The PPSA applies to “every transaction without regard to its form
and without regard to the person who has title to the collateral that in
substance creates a security interest, including … a … conditional sale”:
s. 2(a). A “‘security
interest’ means an interest in goods … that secures
payment or performance of an obligation”: s. 1(y). The Act deals with all
security devices uniformly.
207 “Collateral” under the PPSA is “property that is subject to a security in-
terest”: s. I(d). The secured party’s right to the proceeds of the collateral
is provided for in s. 27.
208 See, e.g., supra, note 201 and accompanying text.
209A conclusion which is shared by Catzman & Abel, Personal Property
21o See supra, notes 181-196 and accompanying text.
Security Law in Ontario (1976), 133.
1979]
AUTHORITY OF SALE AND PRIVITY OF CONTRACT
63
Undoubtedly, the right to follow the proceeds of a sale and to re-
cover the price of goods is based, not on the giving of authority to
sell nor the existence of a contractual relationship, but on property.
It thus is extinguished when the property is lost.
