nemo dat quod non habet

In the last 2 lectures, this Latin words were used frequently by the lecturer. It might be useful if I elaborate about it.

This general principle, relevant to the passing of property or title to goods, ‘Nemo Dat Quod Non Habet’, that is a seller cannot pass title if he does not have title. ‘Nemo dat quod non habet’, literally meaning `no one [can] give what one does not have.`

In ownership terms, this means ownership of goods will not pass by sale from the true owner to another unless the true owner is involved, voluntarily and for consideration, in the transfer of the ownership.

Caveat emptor

Last week, lecturer mentioned something that I feel quite important for everyone to know, Caveat emptor. The term ‘Caveat emptor’, is Latin for “Let the buyer beware”. Generally, it is the property law doctrine that controls the sale of real property after the date of closing.

Take a look at this: :D

Well, here is the short and clear explanation about ‘Caveat emptor’ taken from the book by Gerald N. Hill and Kathleen T. Hill. 

The basic premise that the buyer buys at his/her own risk and therefore should examine and test a product himself/herself for obvious defects and imperfections. Caveat emptor still applies even if the purchase is “as is” or when a defect is obvious upon reasonable inspection before purchase. Since implied warranties and consumer protections have come upon legal landscape, the seller is held to a higher standard of disclosure than “buyer beware” and has responsibility for defects which could not be noted by casual inspection ( particularly since modern devices cannot be tested except by use, and so many products are pre-packaged).

Salomon v. Salomon Co. Ltd.

I had a rather interesting lecture last Thursday. The lecturer told us a few cases about the Doctrine of Corporate Legal Entity and Lifting of Corporate Veil. I had totally forgotten that we were having Business Law Class because the stories were too interesting.

I would like to share one of the cases about the Doctrine of Corporate Legal Entity, Salomon v. Salomon Co. Ltd.

SUMMARY:

Long time ago, old man Salomon was a  leather boot and shoe manufacturer. He had a wife, a daughter and five sons. Four of the sons worked with him. As time went by, he turned the business into a limited company. The wife and five eldest children became subscribers and two eldest sons also directors. Mr. Salomon took 20,001 of the company’s 20,007 shares.

However, soon after Mr. Salomon incorporated his business, there was economic trouble. A series of strikes in the show industry led the government, Salomon’s main customer, to split its contracts between more firms. He and his wife lent the company lent the company money. He cancelled his debentures. But the company needed more money, and they sought £5000 from Mr. Edmund Broderip. They gave him a debenture, the loan with 10% interest and secured by a floating charge. But the business still failed. and they could not keep up with the interest payments. At the end, the company was put into liquidation. Mr. Broderip was paid but other unsecured creditors were not.

The liquidator met Broderip’s claim with a counter claim, joining Salomon as a defendant, that the debentures were invalid for being issued as a fraud. The liquidator claimed all the money back that was transferred when the company was started: rescission of the agreement for the business transfer itself, cancellation of the debentures and repayment of the balance of the purchase money.

JUDGEMENT:

The LIQUIDATOR asked Mr. Salomon to pay all the creditors since Mr. Salomon was the OWNER of the company. Salomon did not agree with that because he (Salomon) was supposed to pay for his DEBENTURES. But the Liquidator asked him to pay to other creditors.

TRIAL JUDGE VAUGHAN WILLIAMS agreed with Liquidator and asked SALOMON to pay on behalf of the company since Salomon was the owner, but Salomon didn't agree.

He appealed to COURT OF APPEAL so that he (Salomon) didn't have to pay the debts owed to creditors by the company. COURT OF APPEAL said that Salomon just found 6 people (his 5 children & wife) to form the company. Those 6 people are mere nominees of Mr. Salomon. COURT OF APPEAL also asked Mr. Salomon to pay.

This time Salomon appealed to the highest court "HOUSE OF LORDS".
HOUSE OF LORDS rejected all the judgments made by TRIAL JUDGE VAUGHAN WILLIAMS, COURT OF APPEAL.

HOUSE OF LORDS said that there is neither fraud in the manner which Mr. Salomon formed the company, nor Mr. Salomon formed the company for Fraudulent purpose.

So, Mr. Salomon did not have to pay to the company’s Creditors since Mr. Salomon and The Company are two Separate (Legal) Entities.The company is separate from its members.

Problem Question

In the tutorial class, we formed a group of 4 to discuss and answer the question below.

Problem question

2. Due to a rampant robbery in which the robbers used ski masks to cover their faces, the Cyberjaya Authority issued a regulation that makes it illegal to sell ski masks. as a safety measure, the rule also makes it illegal for anyone to offer for sale the ski masks. In spite of this, Messy has not cleared the ski masks from the shelves of his sport equipment shop in Cyberia. The authority officials came to know about this and later on charged Messy under the new regulation. Advise Messy according to Contracts Act 1950 and relevant decided case(s).

Answer:
In this case, it is just an invitation to treat. Since the ski masks are prohibited from selling in Cyberjaya but Messy still displaying this product at the shelves. This creates an invitation to make the offer, which is invitation to treat.

The case we could use here is Fisher v. Bell. The defendant displayed flick knives in his shop windows. He was then convicted of a criminal offence of offering such knives for sale. Display of any goods with a price tag on it in a shop window was not an offer but rather it was an invitation to treat.

Harvey vs Pacey

Lecturer gave an example about legally binding contract in tutorial class. Lets just post it here. Here’s the situation.

Pacey is a seller, Harvey is a prospective buyer. Harvey sent a telegram to pacey about certain items he’s selling. How much you sell for the pens? B replied $XXX… the dispute arose when mr. pacey didn’t want to sell it. Is it a legally binding contract?

Answer:
No legally binding contract. because Harvey is only asking question. there’s no valid agreement of offer and acceptance. pacey is just answering harvey’s question. Mr. Harvey is making offer but there’s no acceptance.

Interesting case

We were asked to solve this case in class few weeks ago. Though I’m not sufficiently knowledgeable in solving such case yet, this is what i got from some small research.

First Case:

Answer:
Ryan is liable under Civil law. Civil laws seek to prevent disputes between individuals, organizations, or governments, in which no criminal laws have been broken.

In this case, Ryan can settle with the victim by compensating him the damages or loss to avoid matter from bringing to court.

The walking pedestrian can claim for damages from Ryan under tort law. Ryan is a driver and he has the responsibility to be careful and care for the pedestrian on the road.

Second Case:


Answer:
Geena’s liability is criminal and she’ll be charged under criminal law.

This is definitely a cheating as she has deliberately cheat others’  money by inducing them to deposit their money to her account. She has violated Section 415 of Penal Code – Cheating.

Apart from that, she held a fake passport too and for this, she violated Immigration Act 1959.

The reason behind this blog

This blog is specially created to share my opinion about anything that is related to business law. We were encouraged by Mr. Sonny Zulhuda, my ‘Business Law’ Lecturer to create this site to learn sharing about law.