Facts
Mr. Wallis viewed a used Buick car that was being sold by Stinton for £600. Wallis found the car to be in excellent condition, and agreed that he would buy the car if Stinton would arrange financing through a hire-purchase company. Karsales (Harrow) Ltd. bought the car and sold it to Mutual Finance Ltd., which then finally supplied the car to Wallis on hire-purchase terms. Wallis had not seen the vehicle since his first viewing.
The car was delivered not at the dealership, but instead was towed at night to the customer's house. The following morning, Wallis inspected the car and found it to be in a substantially different state than it was when he first saw the vehicle: the bumper was being held on by a rope, the new tires had been replaced by old ones, the radio was missing, as were chrome body trim strips. The car would not run, because the cylinder head (with bent and burnt valves) was lying loose upon the engine block. Wallis refused to pay for the car since it was not in the same condition as when he agreed to make the purchase.
Significance
The "fundamental breach" doctrine
Denning LJ established a new precedent by declaring this a fundamental breach: that is, a breach that goes to the root of the contract, where the breach is so severe that there cannot be a contract after this breach. [1] This decision set the precedent that goes against the strict construction rule. In strict construction, the rule is that the contract is intended to do what it says it will do, and that judges can only apply what the contract says within its own terms. Since the contract has been agreed upon by both parties, the contract is seen as representing both parties' interests. However, Denning ruled against this rule since it would not be fair for the consumer.
The doctrine challenged
Karsales v Wallis' concept of "fundamental breach" (aka "breach of a fundamental obligation) was essentially a restatement of the "Main Purpose Rule" established in Glynn v Margetson [1893] A.C. 351, the leading case on deviation in carriage of goods by sea. While the Main Purpose Rule [2] still holds good in maritime law, it was deemed too wide for the general law of contract. The 1967 House of Lords decision of the Suisse Atlantique [3] held that whether or not the breach was "fundamental" was not a matter of LAW but a question of CONSTRUCTION; [4] that is, exemption clauses might apply if the court's interpretation of the facts was that the exemption clause was not inappropriate. [5]
Despite some reluctance by Lord Denning to absorb the new ruling [6] in Photo Production v Securicor 1980, [7] the House of Lords upheld and approved its earlier decision, thereby signalling the decline of the doctrine of "fundamental breach"
Unfair Contract Terms Act 1977
The Suisse Atlantique and Photo Production cases together represent the final authoritative statements of the common law on fundamental breach prior to the enactment of the Unfair Contract Terms Act 1977. The Act provides that some contract terms are VOID (such as limiting liability for causing death or injury through negligence), while others are "Valid only insofar as they are reasonable". "Reasonableness" was defined in the Act, which also provided some examples of reasonable and unreasonable terms. The Unfair Contract Terms Act 1977 was amended by the Consumer Rights Act 2015.
Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. Breach occurs when a party to a contract fails to fulfill its(s), whether partially or wholly, as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract. Where there is breach of contract, the resulting damages will have to be paid by the party breaching the contract to the aggrieved party.
Fundamental breach of contract, is a controversial concept within the common law of contract. The doctrine was, in particular, nurtured by Lord Denning, Master of the Rolls from 1962 to 1982, but it did not find favour with the House of Lords.
A charterparty is a maritime contract between a shipowner and a "charterer" for the hire of either a ship for the carriage of passengers or cargo, or a yacht for pleasure purposes.
Photo Production Ltd v Securicor Transport Ltd[1980] UKHL 2 is an English contract law case decided by the House of Lords on construction of a contract and the doctrine of fundamental breach.
A Himalaya clause is a contractual provision expressed to be for the benefit of a third party who is not a party to the contract. Although theoretically applicable to any form of contract, most of the jurisprudence relating to Himalaya clauses relate to maritime matters, and exclusion clauses in bills of lading for the benefit of employees, crew, and agents, stevedores in particular.
A contractual term is "any provision forming part of a contract". Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract.
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982] EWCA Civ 5 and [1983] 2 AC 803 is a case concerning the sale of goods and exclusion clauses. It was decided under the Unfair Contract Terms Act 1977 and the Sale of Goods Act 1979.
English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth, from membership in the European Union, continuing membership in Unidroit, and to a lesser extent the United States. Any agreement that is enforceable in court is a contract. A contract is a voluntary obligation, contrasting to the duty to not violate others rights in tort or unjust enrichment. English law places a high value on ensuring people have truly consented to the deals that bind them in court, so long as they comply with statutory and human rights.
Contractual terms in English law is a topic which deals with four main issues.
J Spurling Ltd v Bradshaw[1956] EWCA Civ 3 is an English contract law and English property law case on exclusion clauses and bailment. It is best known for Denning LJ's "red hand rule" comment, where he said,
I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.
Suisse Atlantique Societe d'Armament SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 is a landmark English contract law decision of the House of Lords, concerning the notions of fundamental breach of contract and inequality of bargaining power.
Maredelanto Compania Naviera SA v Bergbau-Handel GmbH or The Mihalis Angelos [1970] EWCA Civ 4 is an English contract law case, concerning breach of contract.
Interpreting contracts in English law is an area of English contract law, which concerns how the courts decide what an agreement means. It is settled law that the process is based on the objective view of a reasonable person, given the context in which the contracting parties made their agreement. This approach marks a break with previous a more rigid modes of interpretation before the 1970s, where courts paid closer attention to the formal expression of the parties' intentions and took more of a literal view of what they had said.
The Supply of Goods Act 1973 was an Act of the Parliament of the United Kingdom that provided implied terms in contracts for the supply of goods and for hire-purchase agreements, and limited the use of exclusion clauses. The result of a joint report by the England and Wales Law Commission and the Scottish Law Commission, First Report on Exemption Clauses, the Act was granted the Royal Assent on 18 April 1973 and came into force a month later. It met with a mixed reaction from academics, who praised the additional protection it offered while at the same time questioning whether it was enough; several aspects of the Act's draftsmanship and implementation were also called into question. Much of the Act was repealed by the Sale of Goods Act 1979, which included many of the 1973 Act's provisions.
The doctrine of deviation is a particular aspect of contracts of carriage of goods by sea. A deviation is a departure from the "agreed route" or the "usual route", and it can amount to a serious breach of contract.
Phillips Products Ltd v Hyland and Hamstead Plant Hire Co Ltd [1984] EWCA Civ 5 is an English contract law case concerning the Unfair Contract Terms Act 1977.
Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 QB 400 is an English contract law case, concerning the interpretation of unfair contract terms.
Penalties in English law are contractual terms which are not enforceable in the courts because of their penal character. Since at least 1720 it has been accepted as a matter of English contract law that if a provision in a contract constitutes a penalty, then that provision is unenforceable by the parties. However, the test for what constitutes a penalty has evolved over time. The Supreme Court most recently restated the law in relation to contractual penalties in the co-joined appeals of Cavendish Square Holding BV v Talal El Makdessi, and ParkingEye Ltd v Beavis.
Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd [1970] is an English contract law case involving the quantum of damages and the concept of fundamental breach. It was heard in the Court of Appeal by Lord Denning MR, Widgery LJ and Cross LJ.
Glynn v Margetson is an English case on the law of carriage of goods by sea which established the "Main Purpose Rule" in relation to deviation.
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