Bristol and West Building Society v Mothew [1998]

English Contract Law

Bristol and West Building Society v Mothew  [1998]
‘Two Lawyers Conversing’ by Honore Daumier

Breach of contract, negligence and breach of fiduciary duty prove central to a solicitor’s misgivings when for atypical reasons a lender sought recovery of their loss through equitable principles after other options failed.

In the late 1980s the respondents entered into a mortgage arrangement with a couple looking to secure a second property for £73,000, however due to market instability the respondents expressed that the £59,000 loaned was subject to the mortgagors paying the balance of the property from existing capital in order to reduce the risk of default, after which the acting appellant solicitor knowingly agreed to undertake the conveyance and provide a full report as contained in their contract. 

Prior to completion of the purchase the mortgagors took out a small charge against their existing property for £3,350 in order to raise the funds needed to secure the mortgage, and aware that the debt would be later secured against the new house, and yet the appellant continued with the purchase without reporting the change in financial circumstances to the respondents.

Following a successful transaction the mortgagors honoured only a handful of repayments before lapsing into default, whereupon the new house was sold as part of the repossession process, however the property crash had diminished the property’s value short of satisfying the debt by £6,000, thus the respondents sought equitable damages from the solicitor on grounds of breach of fiduciary duty through non-disclosure of the loan terms.

In this instance the court ruled in favour of the respondents and awarded damages to the effect of £59,000, less the funds raised from the sale, whereupon the appellant challenged the judgment in the Court of Appeal, who upheld the appeal on grounds that appellant’s oversight did not constitute a breach of fiduciary duty to either the mortgagees or the respondents, as the appellants had been consciously acting in good faith toward both parries throughout the disposition, therefore any lapse of skill or appreciation was accidental and not premeditated as required under the rules of equity, while the Court also reminded the parties that:

“[I]f a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other…”

Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd [1915]

English Contract Law

Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd [1915]
‘Tyre’ by Kiku Poch

After litigation is bought against a third party the enforcement of a contract extending beyond reasonable bounds proves the undoing of a commercial tyre distributor when the rules of English contract law move to narrow the scope of claim and protect those party to sub-contracts.

In 1911 the appellant tyre manufacturer set about establishing written agency distributorship agreements with a number of commercial outlets in order to retain control over the sale value of its key products, wherein sch.2 and sch.5 of those contracts required all participating agencies to agree that:

“(2) We will not sell or offer any Dunlop motor tyres, covers or tubes to any private customers or to any co-operative society at prices below those mentioned in the said price list…nor give to any such customer or society any…discounts or advantages reducing the same.

(5) We agree to pay to the Dunlop Pneumatic Tyre Co Ltd, the sum of 5l for each and any tyre, cover or tube sold or offered in breach of this agreement, as and by way of liquidated images and not as penalty, but without prejudice to any other rights or remedies you or the Dunlop Pneumatic Tyre Co Ltd may have hereunder.”

In exchange the agencies were granted a 10% discount and some instances annual rebates for high value orders, and so on this occasion the respondents had purchased a Dunlop tyre from an agency, who as consideration were prevented from selling Dunlop products to any other firms or individuals for less than the standard list price, while afforded a discretionary right to sell Dunlop products to other trade outlets at a maximum of 10% discount on the proviso that those purchasing had pre-signed a prohibitive contract similar to the one held by the agencies.

With this in mind the respondents later sold a particular Dunlop tyre to a private customer at a seven and a half percent discount, and yet when ordering the tyre from the agency they were informed that no discount could be offered to the buyer without the completion of a signed price maintenance agreement (an act later executed by the respondents). 

Having learned of this the appellants sought an injunction and sued the respondents for breach of contract on grounds that the agency were acting under their principle control, therefore by selling the tyre to a prohibited party they were liable for damages as expressed in sch. 5 above. 

In the first instance the judge awarded in favour of the appellants before granting the injunction as requested, while challenged in the Court of Appeal the respondents argued that the contract between the agency and the appellants excluded the right to enforce it upon a third party on grounds that no consideration had been given by the appellants when the price maintenance agreement was drafted between the respondents and the agency. 

Having lost the appeal the appellants pressed the issue before the House of Lords, who unanimously upheld the previous judgment on grounds that lack of consideration at the point the agreement was made precluded the appellants any claim of right under English common law, while reminding the parties that:

“[O]nly a person who is a party to a contract can sue on it.

L’Estrange v Graucob (1934)

English Contract Law

L'Estrange
‘Expert Salesman’ by Norman Rockwell

‘Reading the small print’ is a phrase familiar to discerning consumers, and in so this instance the value of careful reading served to remind that contracts of all shapes and sizes require careful attention, especially when the text is not readily visible.

In 1933 two travelling salesmen paid a visit to a small community café in Wales in order to sell them an automatic cigarette vending machine, and so having spent a number of hours discussing the user benefits and attached payment terms, the respondent duly agreed to sign the partially completed ‘sales agreement’ in expectation of a new and fully working product.

Upon payment of the deposit the appellants returned a signed ‘order confirmation’ and accompanying eighteen-month guarantee, at which point the contract was well underway and instalments were regularly paid, however after a period of less than a few days the machine began malfunctioning and several engineer visits were arranged before at the point of exhaustion, the respondent requested the item be returned in forfeit of her deposit.

In spite of this the appellants refused to terminate the transaction, whereupon the respondent commenced litigation for return of the monies paid on grounds that the product had been unfit for purpose and thus contrary to the contract and guarantee, while the appellants counter-claimed their remaining costs owed for the purchase of the machine before the respondent amended her claim to include repayment for failure to provide full consideration, breach of implied condition that the vending machine was functioning at point of sale, and/or damages for breach of implied warranty that the product was fit for purpose.

The argument cited by the appellants relied upon an absence of failed consideration and non-existence of implied conditions as per s.11(c) of the Sale of Goods Act 1893  which read that:

“Where a contract of sale is not severable, and the buyer has accepted the goods, or part thereof, or where the contract is for specific goods, the property in which as passed to the buyer, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there be a term of the contract, express or implied, to that effect.”

Thus no implied warranty existed on grounds that the signed sales agreement excluded both condition and warranty within the small print shown at the bottom, which read that:

“[T]his agreement contains all the terms and conditions under which I agree to purchase the machine specified above, and any express or implied condition, statement, or warranty, statutory or otherwise not stated herein is hereby excluded…”

Whereupon the respondent contended that she had been induced to sign the agreement through misrepresentation on grounds of never having her attention drawn to the exclusion notice beforehand.

In the first instance the Carnarvonshire County Court awarded a sum of 70l for the respondent in light of a perceived breach of the warranty despite her signature and no evidence of misrepresentation, and further allowed the appellants the sum of 71l for the monies unpaid.

Having appealed in the Court of the Kings Bench the appellants argued again that no misrepresentation had occurred, and that at any point the respondent was free to note and enquire as to the limitations of the contract, but had waived that right when signing to the terms expressed.

Here the Court relied upon the principles used in Parker v South Eastern Railway Co, in which the Court of Appeal had held that:

“In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents.”

Which translated that despite recognition of the respondent’s misfortune the law could not enforce a claim for misrepresentation based upon the oversight of a party willing to contract, thus the court set aside the respondent’s award and upheld that of the appellants, while reminding both parties that:

“When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”

Carlill v Carbolic Smoke Ball Co. (1893)

English Contract Law

Carlill

The primary ingredients to a valid and enforceable contract are (i) offer (ii) acceptance (iii) consideration and (iv) performance; and so on this occasion, the sale of medicinal apparatus proved the undoing of what may have at first blush appeared to be a lucrative use of marketing and false pretence.

In 1891 an advertisement was placed in the Pall Mall Gazette boasting the remedial powers of carbolic smoke balls, that when used in accordance with the manufacturers instructions could prevent users from the effects of influenza, while the exact words used stated that:

“100l reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000l is deposited with the Alliance Bank, Regent Street shewing our sincerity in the matter.”

Having decided to take the challenge, the respondent in this appeal purchased and used the product in full observation of the terms of the advert and yet still caught the virus, whereupon she sued for breach of contract.

Following a general examination of  the nature of her claim, the court awarded in favour of the respondent, before the appellants sought to challenge the existence of a contract on grounds that (i) the advert did not constitute a contract, (ii) that non-specificity of persons prevented any binding effect on consumers, (iii) that no acceptance had been notified so as to bind them, and (iv) that no consideration had been made by the respondent so as to warrant a claim of right.

After addressing each point sequentially the Court of Appeal unanimously held that while the advert did not amount to a contract, it did represent an offer to the world entire, therefore those who chose to purchase and use the product as prescribed within the published text were through their participation, demonstrating full and unconditional acceptance of the offer.

Similarly the money spent and time invested when using the smoke balls (an unpleasant experience in itself) further indicated that consideration had been sufficient enough to allow a claim.

In addition the Court upheld the appeal on grounds while noting how unlike arms-length contracts, the all-encompassing design of advertisements were not such that required acceptance for reasons of practicality and that reasonable application of the promises made prevented revocation by the advertisers on grounds that when drafting the advert, they did so upon the risk that profit may, or may not, have become certain, while reminding the parties that:

“Inconvenience sustained by one party at the request of the other is enough to create a consideration.”

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd (1942)

English Contract Law

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd
‘Steamship on Seashore’ by Vittorio Avondo

While the doctrine of frustration relies upon the existence of an unforeseen and thus unexpected event, its design is not one that requires any element of blame in order to apply, as was seen in this case between a corporation and shipowner.

In August of 1836 the now appellants contracted to supply one of their steamships to the respondents for the purposes of transportation to a number of international sea ports by way of commercial enterprise. Having been used for the reasons agreed, the ship was later anchored over the Christmas period while awaiting further use until its return in January 1837.

Unfortunately while dockside the ship suffered an enormous explosion that sent the auxiliary boiler over one hundred and sixty four feet from its original position, while the primary boilers were forced backwards by the blast, all of which rendered the vessel inoperable and thereby unable to complete its journey to the respondents.

Having cited frustration of contract, the appellants looked to leave matters as they were, however the respondents argued that the explosion had arisen by way of negligence, and so damages were owed for the loss accrued. 

First heard in the Court of the Kings Bench, the judge held that the appellants were merely unwitting victims of unforeseen circumstances, particularly when a Board of Trade Enquiry had failed to establish any liability in relation to the cause of the explosion, or any possible negligence shown by those working on the ship at the time; and so in closing the court held that:

“It is plain that it has not been established that they were guilty of negligence and there is no finding of any negligence. The worst finding against them is under the one heading of possibility of negligence.”

To which the respondents challenged the finding in the Court of Appeals, who awarded in their favour while holding that:

“A party prima facie guilty of a failure to perform his contract cannot escape under the plea of frustration, unless he proves that the frustration occurred without his default. There is no frustration in the legal sense unless he proves affirmatively that the cause was not brought into operation by his default.”

After being denied leave to appeal, the House of Lords Appeal Committee granted it so that the issue of liability could be afforded examined and conclusive clarification, and so the matter was once again given due discussion.

In the first instance Viscount Simon turned to Taylor v Caldwell in which the court held that: 

“[I]n contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.”

While Viscount Maugham noted that in Hirji Muji v Cheong Yue Steamship Co Ltd the Privy Council held that:

“[W]hatever the consequences of the frustration may be upon the conduct of the parties, its legal effect does not depend on their intention or their opinions, or even knowledge, as to the event, which has brought this about, but on its occurrence in such circumstances as show it to be inconsistent with further prosecution of the adventure.”

Before illustrating that in Bank Line Ltd v Arthur Capel & Co the House of Lords had held that:

“I think it is now well settled that the principle of frustration of an adventure assumes that the frustration arises without blame or fault on either side. Reliance cannot be placed on a self-induced frustration; indeed, such conduct might give the other party the option to treat the contract as repudiated.”

And so it was that a uniform House held how the appeal court judgment was to be reversed on the very simple yet clear principle that: 

“[W]hen frustration in the legal sense occurs, it does not merely provide one party with a defence in an action brought by the other. It kills the contract itself and discharges both parties automatically.”

FA Tamplin Steamship Co Ltd v Anglo Mexican Petroleum Products Co Ltd (1916)

English Contract Law

FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd
‘Queen Mary 2’ by Unknown Artist

Rescission of contract under abnormal circumstances can often be cited as frustration, yet unless the parties bargaining are in agreement as to the essence of the contract, there is little a court can do to amend the terms to suit.

In winter of 1912, a ship owner agreed to let one of their fleet to a commercial entity for a period of five years, with no specific requirements as to its use, aside from which types of cargo were acceptable for carriage. Just over two years into the agreement, the vessel was requisitioned by the British Government under Royal Proclamation, an act which would result in full compensation payable to the affected parties upon its safe return.

Having planned to return the ship after only two months, the Admiralty Transport Service informed the respondents that they would in fact be extending their requisition indefinitely, thereby denying the respondents any future use of the ship until the end of its military use. This left the appellants under the assumption that by an alteration in the use of the vessel, the contract had now expired and so no further payments were due, and that when issuing compensation, the State was liable for the loss suffered only by the appellants, as they were legally the owners of the ship at the time of requisition, a position fiercely argued by the respondents.

Having failed to settle the matter through arbitration, the case went to trial, during which the judge held that the requisitioning of the ship did not constitute a termination of the contract, but instead served to suspend the contract until such time that the vessel was returned, which at the point of litigation, was looking unlikely to happen within the agreed five year period.

When presented to the Court of Appeal, the Court affirmed the original judgment, at which point the matter was placed again before the House of Lords, who first examined the statement by Lord Blackburn in Dahl v Nelson, Donkin & Co, in which he stressed:

“[A] delay in carrying out a charterparty, caused by something for which neither party was responsible, if so great and long as to make it unreasonable to require the parties to go on with the adventure, entitled either of them, at least while the contract was executory, to consider it at an end.”

However, art.20 of the charterparty agreement also noted that:

“[T]he act of God, perils of the sea, fire, barratry of the master and crew, enemies, pirates and thieves, arrests and restraints of princes, rulers, and peoples, collisions, stranding and other accidents of navigation always excepted, even when occasioned by negligence, default or error in judgment of the pilot, master, mariners or other servants of the shipowner.”

Were exceptions to any rule that might provide for the end of the contract through unforeseen events, therefore the respondents argument that the contract was merely suspended was in fact validated by the imposition by the State during a time of war, and that despite implications forwarded by the appellants, the Court was in no position to argue against an express term of a contract, no matter how inconvenient that might be to those involved. It was for that simple reason that the House ruled by majority in favour of the Appeal Court judgment and dismissed the appeal with costs, while holding that:

“When a lawful contract has been made and there is no default, a Court of law has no power to discharge either party from the performance of it unless either the rights of someone else or some Act of Parliament give the necessary jurisdiction.”

Krell v Henry (1903)

English Contract Law

Krell v Henry
‘Summer Morning, Pall Mall’ by Bruce Yardley

Performance of a contract since frustrated through unexpected events, lies at the heart of a matter between a landlord and potential tenant, who having secured a room for the purposes of viewing a landmark event, was left unable to realise it when those plans were thwarted through a sudden cancellation.

In 1902, the appellant had negotiated the private use of a room within a property owned by the respondent, who for reasons of convenience, had recently offered the whole property for rent for a six-month period. Having been aware that the King’s Coronation procession was expected to pass along the Pall Mall, the appellant read that the respondent was offering a single room for a fixed time and sum to those wishing to take advantage of the view afforded. By means of letter, the two parties agreed upon the arrangement, after which the appellant paid by cheque, a sum of 25l with a further 50l outstanding.

Unfortunately, the date of the procession was put back, at which point the appellant refused to pay the outstanding 50l, thereby prompting the respondent to seek recovery of the balance owed, while the appellant counter-claimed for the 25l on grounds that the contract was unenforceable and the deposit due for return.

In the fist hearing, the court awarded in favour of the respondent on both counts, relying upon the principle that the contact rested upon the presence of the Coronation procession, which for the reasons stated had not occurred, and so therefore the contract was unable to be completed to the satisfaction of both parties.

Taken to the Court of Appeal, the facts were revisited, along with the earlier facts of Taylor v Caldwell, in which it was remarked:

“[W]here, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless, when the time for the fulfilment of the contract arrived, some particular specified thing continued to exist, so that when entering into the contract they must have contemplated such continued existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be considered a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.”

It was this approach that gave effect to the cancellation of the Coronation procession as being an event that was, as stated in Baily v De Crespigny:

“[O]f such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made, and that they are not to be held bound by general words which, though large enough to include, were not used with reference to the possibility of the particular contingency which afterwards happened.”

While in ‘Taylor on Evidence’ (vol II) it was also stressed that:

“It may be laid down as a broad and distinct rule of law that extrinsic evidence of every material fact which will enable the Court to ascertain the nature and qualities of the subject-matter of the instrument, or, in other words, to identify the persons and things to which the instrument refers, must of necessity be received.”

So it was for these fundamental reasons that the Court agreed with the previous decision, and ruled again in favour of the respondent, while reminding the court that:

“[W]hatever is the suggested implication – be it condition, as in this case, or warranty or representation – one must, in judging whether the implication ought to be made, look not only at the words of the contract, but also at the surrounding facts and the knowledge of the parties of those facts.”