Reform In The Law Of Contract

DOIhttp://doi.org/10.1111/j.1468-2230.1961.tb00653.x
Publication Date01 Jan 1961
AuthorC. Grunfeld
REFORM
IN
THE
LAW
OF
CONTltACT
IN
this paper
it
is proposed to consider those aspects of the law of
contract that appear to demand most urgently the consideration
or
reconsideration of the Law Reform Committee. Of course,
urgency in the context of law reform is a relative conception. The
capacity of
a
social systcm to absorb injustice
or
inexpediency on
an
individual scale is very high. Relative to that capacity it is
probable that none of the matters of contract to be discussed
is urgent. None of them may truly be said to evoke issues of
national dimensions
or
affecting adversely the interests of powerful
social groupings,
or,
at least, virtually none of them. But,
it
is
the tradition of the common law that its scale of justice
is
that
of
the individual, and it is
so
far
as
the following aspects of contract
inflict injustice
or
great inconvenience on individual human beings
that the discussion of their reform may said to be urgent.
1.
THE
POWER
RELATION
The most pressingly important problem that confronts the law
today in this field is that of controlling imposed, in particular,
imposed standard contracts.2
1
Since
0.
C.
Giles’ (Prauenitz’) pioneer work in England,
The Standardisation
of
Commercial Contracts,
this problem has attracted steadily increasing atten-
tion. See,
for
example, Friedmann,
Law
in
a
Changing
Society,
Chap.
4;
Soles,
I‘
Standard Form Contracts,”
16
M.L.R.
(1953) 318;
Lord Dennirig,
’’
The Way of an Iconoclast
(1959)
J.S.P.T.L.
77;
Hughes-Parry,
The
Sanctity
of
Contracts in English
Law,
Chap. 2; Wedderburn’s review article
of
the latter work in
(1960)
J.S.P.T.L.
142
and the same author’s 5th edition
of
Sutton and Shannon
on
Contracts,
pp.
304-309;
Guest’s 22nd edition of
Anson,
C~ijrlru:t,
Chap.
4,
IV;
Gardiner,
Law
in
Action
(Yo].
2,
7967),
J’rccdor)~
of
Contract;
Cheshire and Pifoot,
Contract,
5th, ed.,
107
et
seq.;
the present
\vritcr’6
I’assengrr Charges Sc.hemes
1052-53
2
I
have, for the sake
of
clarity and directness of meaning, avoided the French
teclinical phrase,
co?itrat
d’adhision.
Imposed standard contracts are to be distinguished from
compulsory
contracts.” which is a term that straddl?;
a
number
of
categoriEs of contract
including imposed standard contracts. Compulsory contracts embrace at
least three types of contractual transaction
:
(i) The case where a person who wishes to engage in a particular activity
is compelled to submit to a certain kind of contract whether he wishes to or
not. Examples, nhich are few, include third-party accident insurance under
the Road Traffic Act,
1930,
and the employment of a quota of disabled persons
by
employers of
20
or more under the Disabled Persons (Employment) Acts,
1944
and
1958.
(ii) The case in which
a
person providing certain kinds
of
services
is
compelled
to
conclude contracts with those who demand such pervices: the
coniinon carrier and innkeeper
at
common law, the rail carrier under the
Railway and
Canal
Traffic Act.
1854,
8.
2.
(iii)
The case in which a. contract once concluded becomes subject wholly or
in
pirt io
tcsriii.;
iiiipozccl
by
tlw
law.
This
class
of
miipiilsory
voiilrait*t
IS*
thcrelore, defined not
by
reference to the duty to form it, but by reference
(1954)
17
&I.~J.L<.>
119.
62
Jx<.>
1961 BEFORM
IN
THE
LAW
OF
CONTRACT
63
The rights, liabilities, privileges and disabilities of citizens are
not defined only by the law of the land. They are also subject
to the terms and conditions of the contracts people conclude under
the law of the land. Sometimes,
a
contract will be created to
meet the peculiar needs of one particular transaction: it will be a
highly individual
or
ad
hoc
contract, like the contract
of
employ-
ment between a company and its new general manager. But, much
more frequently; the contract will be
a
standard contract, whether
having contractual
or
statutory force, which the one party
constantly uses, with little
or
no variation, in his dealings with
others.
The Postmaster-General enters into a standard agreement with
each householder and business that hires a telephone. The Gas
and Electricity Boards issue standard contracts to their domestic
and industrial consumers. Similarly, water companies use standa.rd
contracts in selling their commodity. Standard contracts of employ-
ment are commonly given to its managerial and professional
employees by any sizable employer, like universities
or
the B.B.C.,
local authorities
or
I.C.I.
Virtually all types of insurance policy,
including marine, life, fire, motor-car
or
employers’ liability, assume
a standard form. The transport of goods, passengers and their
luggage, whether by road, rail, air
or
sea, is conducted within the
regulatory frame not only of statute and case law but
also
of
standard terms and conditions. Government departments and
local authorities employ uniform terms and conditions to define
their relationship with outside contractors for works and supplies.
Financing contracts, like contracts of loa.n, mortgages and guaran-
tee, are standard; and the st.andard form of contract is universally
employed in the transfer and definit:on
of
freehold and leaseho!d
interests. The entire structure of wholesale and retail distribution
rests in substantial part on standard contracts of sale, hire-purchase
and resale price maiiitenancc; and the. standard contract is
to
be
found at almost every turn throughout the range
of
services in
addition to transport, from the contracts of the giant building and
engineering contractors to laundering, dry-cleaning and dyeing
contracts, contracts for the deposit of luggage, coats and other
articles in railway
or
theatre
or
cinema cloakrooms, the conkact
to take a room in a metropolitan hotel. Even the constitr:tions of
unincorporat.ed associations, like trade unions and trade associa-
tions, arc in a sense standard
contract^.^
In
employment, in distribution, in finance and insurance, in
property
transfer and holding, in the public utilities, in transport,
sole!y
to
its contents.
e.9..
the mandatory terms
of
the Hire Purchase Act.
1938.
and
of
the First, Srherlule to the
Carrin.:e
by
Air
Act,
1932.
Ccmipu!sory
cootracts
is
a phrase
of
philnsophical
rather than tcchnical
si;nifican
iisetl
in
general jurisprudent,ial disc*itwion
of
the doctririe
of
free-
dorn
of
contract.
All
types
of
contract subsiinred under this
phmw
are
exarnplrs
el
the way in which freedom to contract with
whom
one ~ilcases on
such terriis
as
one pleases has, for
a
varicty
of
reasons. heen ili~nininhcd.
3
See, especially.
Lee
v.
Showmen’s
Guild
[1952]
2
Q.B.
329.
64
THE MODERN LAW REVIEW
VOL.
24
building and other services, in the organisation of business and
labour, the standard contract recurs as
a
vital legal instrument.
Far and away the most significant development in the use of
the contract over the past hundred years has been the tremendous
increase in the number of standard contracts that are in circula-
tion. The tempo and complexity of modern life and commerce
make the standard contract indispensable, as indispensable as the
machine,
or
the division of labour,
or
the electrical system of
communications,
or
the large scale of commercial, industrial and
labour organisation. Through the use of standard forms of contract,
substantial economies of time, effort and expense are achieved.
As
standard contracts are in writing, the contractual provisions
governing the relationship between parties are clear and certain,
subject, it is true, to problems of interpretation. And, the power
which the common law principle of freedom
of
contract confers on
parties to make their own contracts as they please, enables business-
men and employers, trade unions, central and local administrators
to adapt their contractual arrangements to the actual and changing
demands
of
their respective spheres of activity. Economy,
certainty and adaptability are the three outstanding virtues
of
the
standard contract.
But, always coiled in power is its abuse; and contractual power
is no exception. Not invariablyY4 but usually, the freedom to
contract through standard terms and conditions is that of one
party only. Though such contracts contain terms shaped simply
to meet the practical needs of the transaction concerned, they also
include clauses, few
or
many, simple
or
complicated, that confer
decided legal as well as other advantages upon the party who
is
in
a position to insert them. Purely economic clauses, operational
clauses and, in particular, exemption clauses may thus be imposed
by the party of the stronger on the party of the weaker contracting
position.
Before new statutory measures to govern such contracts may
be discussed, the existing state of legal regulation must be dehed.
Therefore, as
a
necessary prologue to proposals for reform, there
follows
a
survey of the control of imposed contracts by the law at
the present time.
LEGISLATIVE
CONTROL
The regulation by the law
of
imposed standard contracts has
paralleled their emergence and growth. But, the manner of control,
whether legislative
or
judicial, has up to the present time been
consistently piecemeal.
With the legislation we are not here principally concerned.
Employment and transport, in particular, have attracted statutory
4
For example, the Lloyd’s marine policies.
5
The use
of
the phrase,
‘I
exemption clause”
is
merely
a
personal preference.
Synonymous phrases are,
exception clause,”
exemptive clause,”
‘I
excul-
patory clause,”
‘I
exempting clause.”
JAS.
l9Gl
XEFORM
IN
THE
LAW
OF
CONTRACT
65
regulation of contract: in the former, for example, the Truck Acts,
1631-96,
the Solicitors Act,
1932,
s.
GO
(2),
and the entire corpus
of minimum wage and maximum hours legislation
6;
in the latter,
the Carriers Act,
1830,
Railway and Canal Traffic Act,
1854,
s.
7,
Carriage of Goods by Sea Act,
1924,
Carriage by Air Act,
1932,
Road Traffic Act,
1930,
s.
97,
British Transport Commission
(Passenger Charges) Scheme,
1954,
paras.
32-33.
Again, in
financing, there are the Moneylenders Act,
3927,
and the Building
Societies Act,
1939,
s.
14;
in property holding, the Agricultural
Holdings Act,
1918,
and Agriculture Act,
1958,
and the Rent Acts;
in distribution, the Hire Purchase Acts,
1938-54;
in business
organisation, the Partnership Act,
1890,
and current Companies
Act; while the statutory schemes for the nationalised public utilities
and rail transport industries included an experiment with con-
sumers’ consultative committees.
JUDICIAL
CONTROL
In the vast area
of
contract left untouched by statute, the courts
have gradually created a series of independent rules which, in sum
total, exert an extensive but still imperfect control over contracts
or
contractual clauses imposed by parties who occupy dominant
bargaining positions.
The controlling rules of case law apply their influence in two
main ways. Some deny the valid formation of a contract at all;
the others deny the legal effect argued for a particular clause
or
particular clauses in
a
contract.
The first set of rules includes the doctrine of duress and undue
influence, equitable
surprise
and
‘‘
unfair advantage,”
*
the
non
est
juctum
rule and the recent distinction between a signed
admission and a signed contract in
Loxc
v.
L~rnbank.~
The second set of rules is much more important in practice. An
attempt to contract out of liability for fraud would founder on
the rock of public policy.’O A clog on the equity
of
redemption,
however clearly drafted, is controlled. An imposed exemption
c!ause in
a
standard contract
will
be cut down by misleading state-
ments in the
zone of negotiations,” whether such statements take
the form of a promise-warranty
or
mere rnisrepresentation.l2
0
Compare
too
the
Law
Reform
(Personal
Injuries)
Act,
1948,
s.
1
(3).
7
e.g.,
Ecans
v.
Llemellin
(1787) 2
Br0.C.C.
150;
Williams
v.
Williams
(1809-
lo),
16.1’es.
78.
8
e.9..
Wood
v.
Abney
(1818) 3
Madd.
417;
Fry
v.
Lane
(1888)
40
Ch.D.
312;
and,
in
particular,
O’Rorke
v.
Bolingbroke
(1877) 2
App.Cas.
814, 823
(per
Lord
Hatherley).
9
119601
1
W.L.R.
196.
10
Cf.
agreement
to
commit
a
fraud:
Berg
v.
Sadler
and
Moore
“371
2
K.B.
158.
11
e.g..
Couchman
v.
Hill
[1947]
K.B.
554;
Harling
v.
Eddy
[1951] 2
K.B.
733;
Wcbnter
v.
Hzggin
[1948]
2
All
E.R.
127;
S.S.
Ardcnves
(Cargo
Owners)
v.
Ardenne.? (Owners)
[1951]
1
K.B.
55.
12
Curtis
v.
Chemical
Cleaning and
Dyeing
Co.
[1951] 1
K.R.
805.
VOL.
24
3
66
THE
MODERN
LAW
REVIEW
VOL.
24
Such a clause might also be nullified
if
its form of presentation
is
misleading
or
tricky.’3 Not only will a restraint of trade clause in
a contract of employment fail
if
it
offends the cardinal principle
of
voluntary employment because its sole aim is to prohibit the
ex-employee from competing, not only will such a clause fail
because its purpose is to protect quasi-property interests of the
employer but on an unreasonably wide scale, but the courts refuse
to save an unreasonably wide clause by the application of the
severance rule because the contract of employment, when concluded
between individual employer and employee, is regarded as a con-
tract distorted by inequality of bargaining power.14
The field of restraint of trade is not the only one in which the
courts apply a
(‘
rule of reason
against the unjust consequences
of imposed contracts. They apply it also through the doctrine of
penalties to liquidated damages clauses,15 to which
I
shall return
later, and to contracts which prima facie bind an infant, like
contracts for necessaries and contracts of employment. Such
infants’ contracts will not be enforced if
it
is
considered that they
are not on the whole for the infant’s benefit, which means, in
effect, that they contain clauses that are over-onerous, that is to
say, unreasonable in relation to tfie infant party.la Even the
doctrine of privity of contract has a not unbeneficial function in
those cases in which it deprives the agent
or
servalit of the protec-
tion of exemption clauses imposed by the principal
or
ma9ter.l‘
They are taken
together because they are interconnected. They are the rule of
interpretation
contra proferentem,
the rule that the defendant must
have done what he contracted to do, and the doctrine of
fundarncntal breach.
There are three additional rules to mention.
REGULATION
THROUGH
INTERPRETATION
No principle is more firmly settled than that, when one
is
con-
struing exceptions to the general liability of a carrier
or
a
bailee,
those exceptions are to be construed strictly,
so
that
if
a word
is
capable
of
bearing two meanings, the narrower meaning should be
adopted.” This principle of what may be called regulative
interpretation
is
not only applied to contracts of carriage and
bailment, but to all contracts.
1s
Cf.
Roe
v.
Naylor
[1917] 1
K.B.
712; (1918)
87
L.J.K.B.
958;
Spurling
v.
Bradshnui
[1956]
1
W.L.R.
461, 466
(per
Denning
L.J.).
14
See, especially, Marsh,
‘’
Severance
of
Illegality in Contract
(1948) 64
L.Q.R.
230,
347.
15
At least, in relation to indkidual resale price maintenance end hire-purchase
minimuin payment clauses.
18
Fatcelt
v.
Stncthurst
(1914)
84
L..T.K.B.
473;
De Franccsco
v.
Barnurn
(1890) 45
Ch.D.
430;
Flower
v.
L.K.W.
Ry.
[1894]
2
Q.B.
65.
17
Adler
v.
Dickson
[1955]
1
Q.B.
158;
Midland
Stltcoiies
v.
Sci‘uttons
[1959]
2
Q.B.
171; [1960] 2
All
E.R.
737;
Wzlkie
v.
L.P.T.B.
[1947] 1
All
E.R.
258.
18
Alesander
v.
R.E.
[1951] 2
K.B.
882. 893
(per
Devlin
J..
a8 he then was).
Cf.,
too,
the rule that written clauses take precedence over printed.
J.\s.
1961
REFORM
IN
THE
LAW
OF
CONTRACT
67
If
an imposed clause is plainly ambiguous
or
proves, under the
judicial probe, to be capable of ambiguity, the clause may be
regulated through the power of interpretation. Numerous examples
of the exercise of this power occur in the reports. There are the
cases of alternative standards of care and forms of liability in
carriage by road and rai1,18 and in the subtle decision of
White
v.
IVar~ick.~~
There is the famous line of sale of goods cases,
Wallis
v.
Pratt,21 Baldry
v.
Andrews
v.
Singer
and
the equally famous series of estate agent commission note cases.24
There are the immensely important decisions in which the courts
have, by interpretation
contra proferentem,
controlled the expul-
sion of the individual from his trade union.25 But the limitation
of the
contra proferentenz
rule requires no emphasis.
If
the
imposed clause is unambiguous, the power to regulate in this way
fails:
L'Estrange
v.
Graucob
26
marks the spot.
THE
PRINCIPLE
IN
GIBAUD'S
CASE
The rule that the defendant must have done what he contracted
to do and its restatement and extension, the doctrine of funda-
mental breach, take over where the principle of regulative
interpretation falters.
The first of these rules was described by Scrutton
L.J.
in
Gibaud
v.
Great Eastern
RY.~~;
"
The principle is well known, and
perhaps
Lilley
v.
Doubleday
28
is the best illustration, that if you
undertake to do
a
thing in a certain way,
or
to keep a thing in a
certain place, with certain conditions protecting it, and have broken
the contract by not doing the thing contracted for ir? the way
contracted
for,
or
not keeping the article in the place in which
you have contracted to keep
it,
you cannot rely on the conditions
which were only intended to protect you if you carried out the
contract
in
the way in which you had contracted to do it."
28
What may be called, for the sake of brevity, the principle
in
Gibaud's
case is
"
common to all classes of contract."
The
contra proferentem
rule applies to contractual clauses
19
See,
e.g.,
Steinman
v.
Angier
Line [1891]
1
Q.B.
619, 623;
Rutter
v.
Palmer
[1922] 2
K.B.
87,
90;
Turner
v.
Gid
Service Supply
Asscn.
[192G]
1
K.B.
50;
Bontes Knitting
Works
Ltd.
v.
St.
John's Garage
[1943] 2
All
E.R.
690.
[1944]
1
All
E.R. 387;
Hailing
v.
Eddy, supra; Alexander
v.
R.E.,
supra
892-893.
Cf. Wooher
v.
Delmer
Price Ltd.
[1955]
1
Q.B.
291,
where the
ambiguity
lay
in the
facts
and not
in
the exemption clause.
20
[1953]
1
W.L.R. 1285.
21
[1911]
A.C.
394.
22
[1925]
1
K.B.
260.
24
See Gower,
"
Estate Agent's Commission
"
(1950) 13 M.L.R. 491. Most
29
See
Braithwaite
v.
Amalgamated Society
of
Carpenters
[1922]
2
A.C.
440.
z6
[19%1
2
K.H.
39.1.
See
also
Drewery
v.
Ware-Lone
[1900]
1
W.L.R.
1.704.
28
(1881)
7
Q.B.D.
510.
29
Supra,
at p.
435.
80
The Cap Palos
[1921]
P.
468,
471
(pet
Atkin
L.J.).
23
rig311
1
K.B.
17.
recently,
Ackrohd
v.
Hasan
[1959]
1
W.L.R.
706 (at first instance).
27
rig211 2
K.B.
426.
68
THE
MODERN
LAW
REVIEW
VOL.
24
generally, whether economic clauses
as
in estate agent commission
notes,
or
operational clauses as in trade union rule books, as well
as exemption clauses. The principle in
Gibaud's
case, on the other
hand, governs only exemption clauses covering the defendant in
respect of breaches of contract. The scope and limits of the
principle
may be most clearly indicated contractual transaction by
contractual transaction.
The contractual transactions in which the principle in
Gibaud
has been applied divide into two large categories, that of services
and that
of
distribution'and use of goods through sale and hire-
purchase.
(a)
Contracts
for
Services
The contracts for services include, to date, the deposit of goods, the
carriage of goods by land and sea, laundering and dry-cleaning, and
towage. The first three are, of course, aspects of the general
institution
of
bailment.
In the case of the bailment contract, the principle in
Gibaud
is
sometimes expressed as follows:
"
a bailee who comports himself
in a manner utterly repugnant to the terms of a bailment terminates
the bailment and thereupon the right to possession revests in the
bailor."
31
Thus, when goods are deposited for safe keeping with
a bailee for reward, the bailee loses the protection of any express
exemption clause covering wilful misconduct
or
negligence, limita-
tion of damages,
or
any other subject-matter,
if
the goods are lost,
destroyed
or
damaged because stored in
a
place other than the one
agreed upon,sz
or
because the bailee allows an unauthorised third
person to break into the
or
the bailee sells the goods by
mistake
or
otherwise wrongfully to a third party,s4
or
delivers them,
without excuse, to the wrong person,ss
or
himself consumes
or
destroys the goods instead of storing them.ge
Two points arising from deposit-bailment deserve further com-
ment. The obligation in respect of storage is fundamental, not
absolutely, but only relative to the terms
of
the contract: in other
words, the obligation may be varied by express contract
so
as
to
81
N.
Central Wagon and Finance
Co.
Ltd.
v.
Graham
[1950]
2
K.B.
7,
11;
Alezander
v.
R.E., supra,
888.
32
Lilley
v.
Doubleday, supra; Woolnter
v.
Delrner
Price Ltd.
[1955]
1
Q.B.
291, 295;
Spurling
v.
Bradshaw, supra,
465,
469;
see too,
Edwards
v.
Newland
[1950] 1
All
E.R.
1072.
"The only exception
.
.
.
to this general
rule is where the dEstruction
of
the goods must take place as inevitably at one
place
as
the other
:
Lillq
v.
Doubleday, supra,
511.
See, too, the carriage
case,
Davis
v.
Garrett
(1630)
6
Ring.
716,
723.
Diet.
Gibaud
v.
G.E. Ry.,
supra.
3::
.A/t~~~r.~,/rr
v.
1f.6..
srrprn,
818-680.
84
Woolmer
v.
Dclmer Price, supra,
295;
Spurling
v.
Bradshaw, supra,
465.
Cf.
wrongful sale by hire-purchaser
:
N.
Central Wagon and Finance
Co.
Ltd.
v.
G
raha
ni,
supra.
.l/~~.~~~~id~~r
x-.
/:.I?..
suprn;
,S!irtrli~?fj
v.
Bratlahmr. srcprn.
465;
Qtc.:
whether
Ashby
v.
Tolhurst
[1937]
2
K.B.
242
is
out
of
line with the post-war develop-
mcnt.?
Hilt
we the reference
to
merely negligent or inadvertent misdelivery
in
Sze
Hai
Tong
Bank
v.
Ramblcr Cycle
Co.
[1959]
A.C.
576, 581.
36
Spurling
v.
Bradsharr, supra,
465, 470
(simple failure
to
redeliver).
JAS.
1961
REFORM
IN
THE LAW
OF
CONTRACT
69
permit a sub-bailment, here, storage on premises not of the bailee
but of a third party.S7 The second point is, in Lord Denning’s
words, that
negligence by itself, without more, is not
a
breach
which goes to the root of the contract.”
38
But this refers to
negligence which, as in
Spurling
v.
Bradshaw,
occurs in the course
of contractual performance, not negligence which, as in wrongful
sale, occurs when
the bailee
.
.
.
comports himself in a manner
utterly repugnant to the terms
of
the bailment,”
i.e.,
outside the
course of contractual performan~e.~~ This distinction is further
illustrated in the towage cases, which will be mentioned shortly.
On the other hand, in contracts for services, gross negligence
or
reckless indifference, though in the course of contractual per-
formance, may be subject to the doctrine of fundamental breach,
as will be indicated later.
Taking carriage of goods by sea and land together, deviation
from the agreed route
or,
where none was agreed, the customary
route, has long been held to be a fundamental breach of the
contract
of
carriage and to deprive exemption clauses of their
effect
40;
though deviation is permissible, of course, where the
contract contains
a
deviation clause like that in
Connolly
Shaw
v.
AIS
Deb Nordenfjeldske D/S.41
Breach of the implied warranty
of seaworthiness, while
it
does not nullify the express contract of
affreightment
in
toto
as unjustifiable deviation does, nevertheless
nullifies the exemption clauses, including time limits on claims
’*
and limited damages clauses
43:
Underlying the whole contract
of affreightment there is an implied condition upon the operation
of the usual exceptions from liability-namely, that the shipowners
shall have provided a seaworthy ship.”
44
But, this rule
is
subject
to two qualifications: first, the warranty
of
seaworthiness may be
displaced by
a
blanket clause against liability for breach of such
warranty, and, second, the rule regarding breach of the implied
warranty of seaworthiness does not apply, strangely, to breach of
an
express
warranty
of
seaw~rthiness.~~
ST
Woolmer
v.
Delmer Price, supra,
295. See, also, the dry cleaning case.
38
Spurling
v.
Bradshaw, supra,
465.
89
Cf.
Lord Greene
M.R.,
in the laundering case,
Alderslade
v.
Heridon
Laundry
[1945] K.B. 189, 193: “What
I
may call the hard core
of
the
contract, the real thing to
which
the contract is directed, is the obligation
. . .
to launder.
It
is
the contractual obligation
which must be performed according to
its
terms, and no question
of
taking
due
care
enters into it.”
40
e.g.,
Davis
v.
Garrett, supra; Mallett
v.
G.E. Ry.
[1899]
1
Q.B. 309.
Generally, Scrutton,
Charterparties,
16th ed., 297
et
seq.
An arbitration
clause is not,
of
course, affected.
41
(1931) 49
L1.L.R.
183,
such clauses being strictly construed
contra proferentem.
42
Tattersa!Z
v.
National
S.S.
Co.
(1884) 12 Q.B.D. 297.
43
Atlantic Shipping and Trading
Co.
v.
Louis Dreyfus and
Co.
[1922]
2
A.C.
250;
also,
Rank
of
Auqtralasia
v.
Clan
Line
[1916]
1
K.B. 39, 40-43
(Bailhache
J.
at
first
instance).
44
Atlantic Shipping and Trading
Co.
v.
Dreyfus. supra,
260
(per
Lord Sumner).
45
See Scrutton,
op.
cit.
103, note (i).
Dacies
v.
Collins
[1945]
1
All
E.R.
247, 249, 251.
That is the primary obligation.
70
THE
MODERN
LAW REVIEW
voc.
24
Further to the carriage
of
h:oods, express exemption clauses are
displaced by conduct in thc course of transit, like extremely
unreasonable delay, which bears an analogy to deviati~n.~~ Exemp-
tion clauses may also be nullified by carrying the goods in a vehicle
other than that agreed
or
to a destination other than that
agreed
On the other hand, it was not a fundamental breach when the
carrier negligently failed to notify the consignee, in accordance
with the contract of carriage, of the arrivsl
of
perishables (bananas)
with the result that they were seriously damaged in the meantime
by the climate.50 The contractual provision requiring notice of
arrival within a reasonable time was classified as
merely an
ancillary provision not bearing upon the contract of carriage at
all.”
51
Also, the consignee had had a choice of cqrrier’s risk and
owner’s risk rates and had freely chosen the
Turning to laundering and cleaning services,
Davies
v.
Collins
53
makes
it
clear that,
if
the contract itself and other material
sur-
rounding circumstances show that the customer committed his
clothes
to
the care of the launderers
or
cleaners personally, sub-
contracting
54
the work, since
it
vastly extends the area of agreed
risk for the customer, is a breach
of
contract that cuts down
express exemption clauses. The principle in
Gibaud’s
case was
re-expressed in
Alderslade
v.
Hendon Laundry,
as approved in
Davies’
case, as follows:
a limitation clause of this kind only
applies where the damage in respect of which the limitation clause
is operative takes place within the four corners of the contract.
A
contracting party who goes outside his contract cannot rely upon
the clause
if
the loss occurs during operations outside the contract,
as distinct from operations which the contract contemplates.”
55
or
by delivering to the wrong person.4g
Cunard
S.S.
Go
v.
Buerger
[1927]
‘A.C.
1;
Bontex Knitting Works Ltd.
v.
St. John’s Garage
[1943] 2
All
E.R. 690.
Gunyon
v.
S.E.
d
C.
Ry.
[I9151 2
K.B.
370;
Garnett
v.
Willan
(1821)
6
I).
&z
Ald.
53;
Sleat
v.
Fagg
(1822)
5
B.
&
Ald.
342;
Davies
v.
Garrett, supra
(wrong conveyance by mistake).
L.N.W.
Ry.
v.
Neilson
[1922] 2
A.C.
263.
Dist.
Renton
v.
Palmyra Tradirig
CO.
rig571
A.C.
149.
5ze Hai ?ong Bank Ltd.
v.
Rambler Cycle
Co.,
supra
(also,
the dictum about
burning and throwing into the sea, at
587).
Quaere,
the validity today
of
Smaekman
v.
General Steam Navigation Co.
(1908) 13
Com.Cas.
196.
in
connection with which the dictum about misdelivery in
The Albion
[1953] 2
All
E.R. 679
at
682
should be marked. Note, however. the “special circum-
stances” cases like
British Traders Ltd.
v.
Ubique Transport
Ltd.
[1952]
0,
L1.L.R.
236.
5”
Hartstoke Fruitcrcrs
Ltd.
v.
L.M.S.
Ry.
C19-131
1
A11
E.R.
470.
51
At
472.
52
At
473.
53
Supra.
54
There is,
of
course, nothing to prevent the customer agreeing to sub-contract
:
Davies
v.
Collins, supra,
249,
251.
A sub-bailment may also be reasonable in
the circumstances of the transaction,
i.e.,
may be
impliedly
agreed:
Eduwrds
.
-
-.
v.
Newland, supra,
1081.
55
In
[1945]
1
All
E.R. 244, 245
(the second sentence quoted is omitted from the
report in
[1945]
K.B.
189, 192,
possibly because it merely amplifies but does
not add). Approved in
Davies, supra,
at
249.
JAS.
l9Gl
REFORM
IN THE
LAW
OF
CONTRACT
71
On the other hand,
it
would not be outside the course of
contractual performance
if
it
were necessary to sub-contract
‘‘
an
ancillary service,” such as sending the goods back to the customer
through the Post Office
or
other independent carrier.s6
Finally, in respect of towage contracts, following on the prin-
ciples discussed above, while
it
was held in
The Albion
57
that an
exemption clause covered negligence in the course of performing
the towage contract, in
The Cap
pa lo^,^^
the clause was held
ineffective where the injuring act, inadvertence, mistake
or
miscai-
culation, took place outside the course of contractual performance.
(b)
Contracts
of
Sale and Hire-Purchase
I
have tried
so
far to analyse the contracts for services exclusively
in terms of the principle in
Gibaud’s
case, though, unavoidably,
since the development of the two doctrines has overlapped in time,
the language of fundamental breach has crept in. Likewise,
I
shall
try to keep the two distinct in discussing contracts of sale and
hire-purchase in order the better to stress later on the legal
development thet appears to have occurred actually and potentially
by reason of consolidating the principle in
Gibaud
in the doctrine
of fundamental breach.
In sale and hire-purchase decisions, the principle in
Gibaud’s
case has been activated either in the case of the seller failing to
transfer good title
or
where the seller has delivered goods other
than those contracted for.
As
to the former type of case, there is simply the decision in
Rowland
v.
Di~all.~~
As to the latter, however, we may begin with
Shepherd
v.
Kain,60
where a
with all faults
clause went by‘the
board because the ship delivered was only partially copper-fastened
and not
a
copper-fastened vessel
as described in the contract.
It
would be the same, the Court of King’s Bench pointed out,
if
a
silver service were sold and turned out on delivery to be plated.61
Then, we have Lord Abinger’s celebrated dictum that,
‘‘
if a man
offers to buy peas of another, and he sends him beans, he does not
perform his contract
”:
it is
‘‘
a non-compliance with
a
contract
which a party has engaged to fulfil.”
62
Later, we can draw on
Pinnock
v.
Lewis,6s
where, in a contract
for copra cake, copra cake mixed with castor beans was held to be
‘‘
a substance quite different from that contracted for.”
64
More
recently,. there were
Andrews
v.
Singer Motors
65
and
Nicholson
and
56
See
drderslade [1945]
E.B.
189, 193;
Dawies,
supra,
251.
57
Supra.
58
Supra.
59
[1923] 2
K.B.
500.
60
(1821) 5
B.
&
Ald.
240.
01
Ibid.
62
Chantel
v.
Hopkins
(1838)
4
M.
&
W.
399,
404.
63
[1923] 1
K.B.
690.
64
At
696-697.
65
[l934] 1
K.B.
17.
72
THE
MODERN LAW REVIEW
VOL.
24
Venn
v.
Smith
Jlarriott,B6
which, although decided by applying
the
contra proferentem
rule to their respective exemption clauses,
might have arrived at the same conclusion by holding the clauses
displaced because, in the one, a non-new Singer car was delivered
instead of a new one as agreed,67 while, in the other, Georgian
linen was sold instead
of
the Caroline linen offered, Indeed, it is
plainly implicit in the logic of the principle in
Gibaud,
or
the rule
of
repugnancy, whichever one chooses to call
it
here, that breach
of the promise, express
or
implied, to deliver the goods of contract
description could not be neutralised by any exemption clause, not
wen the comprehensive
L’Estrangc
v.
Grauco
b
clause.
The most recent continuation of these cases brings us to the
doctrine
of
fundameital breach and will be considered under that
heading.
THE DOCTRINE
OF
FUNDAMENTAL
BREACH
The principle in
Gibaud’s
case might have been regarded as
a
special way of interpreting the sense of a contract
:
in this aspect,
it looked back to the principle of regulative interpretation.
It
might, on the other hand, have been regarded as erecting
a
barrier
beyond which exemption clauses, however crystal clear, may not
operate: in this aspect,
it
looked forward to the doctrine of
fundamental breach.
Before
1951,
the principle in
Gibaud’s
case was, as we have
seen, sometimes referred to as involving a fundamental breach of
contract, for example, in the deviation and towage cases. Since
1951,
that is to say, since
Alexander
v.
Railway
Executive,B8
the
principle has plainly been restated in the form of the doctrine of
fundamental breach, into which
it
has been absorbed. This process
of absorption and restatement
has not, however, been merely
a
substitution of one label
or
one set of words for another. The
doctrine of fundamental breach is an extension as well as
g
restate-
ment of the principle in
Gibaud’s
case. The very phrase,
funda-
mental breach,” suggests a vaguer and, therefore, wider scope
than the phrase,
not doing what one has contracted to do.”
How, then, has this wider
feeling
been translated by the courts
into concrete terms
?
The doctrine of Iundamental breach has been described in a
wide variety of expressions, all of which have the same meaning,
whatever that may be.
It
has been referred to, simply, as
a
‘‘
fundamental breach of contract,”
68
or
as a
breach
or
And, what appear to be its potentialities
?
66
(1947) 177
L.T.
189.
87
See
Karsales (Harrow)
Ltd.
v.
Wallis
r19561
1
W.L.R.
936. 943-944
(per
Parker
L.J.,
as
he
then
wae);
also,
Benjamin,
Sale,
8th
ed.,
632-623.
Morris Motors
Ltd.
v.
Lilley
[1959] 3.All
E.R.
737.
“Cf.
68
Supra.
69
Alexander
v.
R.E.,
supra,
888489;
Woolmer
v.
Deliner Prico, supra,
295.
.T,\s.
1961
REFORM
IN
THE LAW OF CONTRACT
73
‘‘
fundamental breach which went to the root of the contract,”
io
or
as
a
breach of a fundamental term
l1
or.
breach of a
fundamental term which is in the nature of a deviation,”
I*
or
‘‘
akin to a deviation,”
l3
or
as
a radical breach,”
l4
or
a breach
which
goes outside the contract,”
Is
or
a violation of
‘‘
the
essence of the contract,”
la
or
of
‘‘
the main object and intent of
the contract,”
l1
or
of
one of the prime obligations of the
contract,”
l8
or
of
a
fundamental contractual obligation,”
Is
or
of
one of its main objects,”
or
as a failure to perform a
contract
in its essential respects,”
or,
finally-and this sounds
a
special note on which more must later be said-a breach which
evinces a
deliberate
disregard of
.
.
.
bounden obligations.”
82
Even Devlin L.J.’s tentative definition in
Smeaton Hanscomb
v.
Setty,
at first sight more definite, leaves one, on closer inspec-
tion, equally in the semi-dark. The learned Lord Justice said:
‘‘
I
do not think that what is a fundamental term has ever been
closely defined.
It
must be something,
I
think, narrower than a
condition
of
the contract,
for
it
would be limiting the exceptions
too much to say that they applied only to breaches of warranty,
It
is,
I
think, sdmething which underlies the whole contract
so
that,
if
it
is not complied with, the performance becomes something
totally different from that which the contract contemplates.”
83
The doctrine of fundamental breach has already been criticised
on the ground of
its
un~ertainty.~‘ Before attempting to indicate
the possible line
of
legal development through the idea of funda-
mental breach, a word about the importance
of
uncertainty in case
law
85
may not be out
of
place. There are the
rules and principles that are certain, the rules and principles that
are uncertain, not deliberately but through the accident of
insufficient litigation, and the rules and principles that are
uncertain by design. This third class is, in a sense, the
most
70
N.
Central Wagon
d
Finance Co.
v.
Graham, supra,
15;
Karsales (Harrow)
Ltd.
v.
Wallis, supra,
940, 941;
The Albion. supra,
682;
Alexander
v.
R.E.,
supra,
887;
Spurling
v.
Bradshaw, supra,
465.
71
Alexander
v.
R.E.,
supra,
888;
Smeaton Hanscomb
v.
Setty
[1953] 1
W.L.R.
1468, 1470;
Karsales (Harrow) Ltd.
v.
Wallis, supra,
941.
12
The Albion, supra,
683.
13
Spurling
v.
Bradshaw, supra,
469.
74
Spurling
v.
Bradshaw, supra,
465.
75
Davies
v.
Collins, supra,
249;
Alderslade
v.
Hendon Laundry
[1945]
1
All
70
Spurling
v.
Bradshaw, supra,
465.
17
Sze Hai Tong Bank
v.
Rambler Cycle Co., supra,
587.
18
Ibid.
79
Karsales (Harrow) Ltd.
v.
Wallis, supra,
941.
80
Sze Hai Tong Bank
v.
Rambler Cycle
Go.,
supra,
587.
81
Karsales (Harrow) Ltd.
v.
Wallis, supra,
940.
82
Sze Hai Tong Bank
v.
Rambler Cycle Co., supra,
587
(italics added).
83
Supra,
!!
1470.
84
Unger, The Doctrine
of
the Fundamental Term”
(1957) 4
Business Law
Review
30,
38.
85
A
similar analyais might
be
applied to statute law.
Legal rules and principles are
of
three kinds.
E.R.
245.
Cf.
Hartstoke Fruiterers
v.
L.M.S.,
supra,
472.
74
THE
MODERN
LAW REVIEW
VOL. 24
important class of all, and the rules and principles composing it
may properly be described as formulae of judicial discretion.
The primary axiom of the formcla of judicial discretion may be
stated thus: the formulation of a principle that has no meaning
in itszlf maximises the flexibility of the law. Where there is some
uncertainty, there is some flexibility, and where the uncertainty is
total, the flexibility is commensurate.
Or,
to put
it
the other way
round; rigid law is dead law; to be viable, law must be flexible;
flexibility is the function
of
uncertainty.
Uncertainty is often spoken of as though
it
was a legal vice. It
may be where the uncertainty is undeliberate, but it is nothing of
the sort where the uncertainty underlies a formula of judicial
discretion. Uncertainty in law may be regrettable, but it is a
regrettable necessity.
No
major step forward in case law develop-
ment is ever taken without it.
The law abounds in examples of the importance of uncertainty,
that is to say, of flexibility, that is to say, of judicial discretion.
Confining oneself to the law of contract, there is, for instance, the
fruitful area of uncertainty within the doctrine of consideration
resulting from its highly abstract concepts of
benefit,”
(‘
detri-
ment
and
reality.” There is, again, the doctrine
of
the implied
term based on a judiciously elastic notion of
business efficacy,”
which has enabled the courts to write justice and commercia:
expediency into many types of contract, as well as deny them to
others.8e There
is,
further, the doctrine of public policy, the heads
of which must never close, and the rules governing the legal
consequences of illegal contracts which comprise
a
veritable network
of formulae
of
judicial discretion. One may also reier to the
doctrine of frustration proper, as distinct from subsequent physical
or
legal impossibility, and to the principle of
interpretation,”
which is to be found, in relation to statutes, in the doctrine
of
illegality, and, in relation to promises, in the doctrine of friistra-
tion. Such areas of judicial discretion
s7
are strategic areas in the
law of contract. To them has now been added the doctrine of
fundamental breach. What, then, is the nature
of
and possibilities
inherent in this new formula of judicial discretion
?
First, the doctrine of fundamental breach is an absorption and
restatement of the principle of the fundamental obligation to do
what one has contracted to do,. the principle in
Gibmd’s
case.
Therefore, the new doctrine collects together and includes all those
applications of the principle in
Gibaud
that have already been
enumerated. That the doctrine
is
regarded
in
the courts as separate
from and,
so,
in the light of subsequent developments, an extension
“fi
I
have
in iiiintl
Lislcr
v.
Rotitford
Ice
and
Cold
Slorage
Co.
IAd.
[I0571
A.C.
555.
87
Naturally,
these
formulae of judicial. discretion
are
al-xays
employed very
cautiously. manifesting
that
tension between repetition and innovation that
underlies the judicial
process
on
its purely
legal
side.
cr
JAN.
1961
REFORM
IN THE LAW
OF
CONTRACT
I
.I
of the older principle may be seen in this passage from the judg-
ment of Denning
L.J.
(as he then was) in
Spurli.ng
v.
Bradshaw:
These exempting clauses are nowadays all held to be subject to
the overriding proviso that they only avail to exempt a party
when he is carrying out his contract, not when‘he is deviating from
it
or
is guilty of a breach which goes to the root of
it.”8s
Just
how the extension may take place is far from certain, but some
indications already appear in the cases which suggest, to begin
with, two possible points of departure.
(a)
Wilful
or
Reckless Breach
of
Contract
Although
negligence by itself, without more, is not a breach
which goes to the root of the contract,”89 the same may not be
true of reckless or wilful misconduct
If
a warehouseman were
to handle the goods
so
roughly as to warrant the inference that he
was reckless and indifferent to their safety, he would
.
.
.
be guilty
of
a
breach going to the root of the contract and could not rely on
the exempting clause. He cannot be allowed to escape from his
obligation by saying to himself:
I
am not going to trouble about
these goods because
I
am covered by an exempting clause.’”9’
And, again:
it
is now settled that exempting clauses
.
. .
no
matter how widely they are expressed, only avail the party when
he is carrying out his contract in its essential respects. He
is
not
allowed to use them as a cover for misconduct
or
indifference
or
to
enable him to turn a blind eye to his obligations.”
92
These passages suggest that rcckless
or
wilful misconduct may
amount to a fundamental breach; even
if
the obligation
so
broken
is
not fundamental
per se.
Thus,
if
a
warehouseman, on the
evidence, recklessly left a defective carboy of acid on a shelf over
a
consignment of fabrics, which were in consequence badly
damaged, the warehouseman might be denied the protection of his
comprehensive exemption clause. But, the doctrine
of fundamental breach is of universal application, and, in principle,
what applies to services may also be applied to the sale and use
of goods.
So,
a vendor who, on the evidence, delivers goods he
88
Supra,
at
465
(italics added).
89
Spurling
v.
Bradshaw, supra,
465.
Cf.
too
Sze Hai Tong Bank
v.
Rambler
Cycle,
supra,
589.
90
Compare the system of duties and of liability
in
the Warsaw Convention
(Carriage
by
Air Act,
1932,
Sched.
I),
and in the Standard Terms and Condi-
tions for the carriage
of
goods by rail (Kahn-Freund,
Inland Transport Law,
3rd ed., Part
2).
See
also
Sze
Hai Tong Bank
v.
Rambler
Cycle,
supra,
especially
at
587-588.
But, see
The Cap Palos, supra,
at
471-
472:
‘I
I
am far from saying that
8
contractor
may
not make
a
valid contract
that he is not to be liable for any failure to perform his contract, including
even wilful default “-an obsolete view, unless the clause is actually brought
to the subordinate party’s attention and expressly agreed by him?
The dicta above occur in cases
of
bailment.
91
Spurling
v.
Bradshaw, supra,
466.
92
Karsales (Harrow) Ltd.
v.
Wallis, supra,
940.
76
THE
MODERN
LAW
REVIEW
Vor..
2
1.
knows
to be of defective quality, may find himself deprived of the
protection even of
a
L’Estrange
v.
Graucob
clause.
(b)
Goods:
Description and Vital Quality
The other visible possibility in the development of the doctrine of
fundamental breach lies in the field of sale and hire-purchase
of goods.
We have seen that sellers have already been held incapable of
circumventing by contract their fundamental obligations to transfer
the title to and description
of
goods contracted for. In the contracts
of
sale and hire-purchase of goods, the transition from the language
and idea of the principle in
Gibaud’s
case to that
of
fundamental
breach began with the well-known dictum of Devlin L.J. in
Smeaton Hanscomb
v.
Setty:
It
is
no
doubt
a
principle of
construction that exceptions are to be construed as not being
applicable
for
the protection of those for whose benefit they are
inserted if the beneficiary has committed a breach of a fundamental
term of the contract.
. . .
If,
for example, instead of delivering
mahogany logs the sellers delivered pine logs, and the buyers
inadvertently omitted to have them examined for fourteen days,
it might well be that the sellers could not rely on the time
clause.”
g3
In
Karsales (Harrow) Ltd.
v.
Wallis,
the transition was carried
a stage further,
if
not completed. Judgment there was given in
terms of both the principle in
Gibaud
and the doctrine of
fundamental breach.
A
second-hand Buick car in sound, running order was inspected
and approved by the buyer who concluded a hire-purchase contract
at a price of about
2600.
On
delivery, he found
(inter alia)
that
the new tyres had been replaced by old ones, the cylinder head was
off,
the valves burnt and two pistons broken; the car, in short,
would not go without some
2150
worth of repairs. The finance
company, in their action against the hire-purchaser to enforce his
contract, relied on an exemption clause which ran:
No
condition
or
warranty that the vehicle
is
roadworthy,
or
as to its age,
condition
or
fitness for any purpose is given by the owner
or
implied herein.”
It
is worth underlining that, in respect of the
condition of the vehicle and its fitness for its purpose, this clause
was
arguably just
RS
wide as that in
L’Estrange
v.
Graucob.
Held
:
the clause did not protect the hire-purchase company. The exemp-
tion clause was displaced by the fact that
what was delivered was
not what was contracted for,)’
94
that there had been a
breach
of
a fundamental term.”
95
The Sale of Goods Act,
1893,
codified
a
branch of case law
011
which
laissez-faire
and freedom of contract were writ large. But,
93
Supra,
at
1470.
94
Supra,
at
943.
95
Ibid.
J\s.
1961 REFORM
IN
THE LAW
OF
CONTRACT
77
as we have seen, the nineteenth-century courts appreciated early
on that the price of freedom is also regulation. Exemption clauses
were not allowed
to
encompass any and every breach of contract.
Liability for failure to deliver the goods of contract description
couid not be thus evaded. In this century, title was added to
description
as
a
compulsory,
or
mandatory, obligation.
Through the doctrine of fundamental breach, the courts today
have consolidated the old position and indicated new refinements,
additional obligations which the seller of goods and the hire-
purchase finance company may not be able to shrug off by means
of imposed exemption clauses. Precisely what these additional
obligations are is still indefinite. The possible implications of
Karsales (Harrow)
Ltd.
v.
Wallis
have been mooted in some detail
in an earlier number of this journal.ge Just a word may be added
here.
The scope that the courts give to the doctrine of fundamental
breach in the field of sale of goods and hire-purchase will depend
on whether they are prepared to extend their classification of
defects of description
or
identity as fundamental breaches to defects
of quality
or
attribute. More concretely, will the courts be pre-
pared to hold that breach of the fitness for
a
purpose and merchant-
able quality conditions amounts--at least, in certain .circumstances
-to a fundamental breach, as well as breach of the description and
title conditions
?
The penumbra of uncertainty surrounding
‘‘
description,”
identity,)’
quality,”
attribute
’)
need not be laboured; and
the opportunity
for
judicial discretion flowing from such uncertainty
is
enhanced by the fact that products of modern factories lack the
ancient simplicity of peas and beans,
or,
indeed, mahogany and
pine logs. Was not the Buick car delivered in
Karsales
the car
described in the contract? Did not the difference between the car
contracted for and the car delivered reside in defects as to
vital
qualities of the subject-matter? Therefore, is not
a
defect as to a
vital quality as fundamental a breach as a defect of description
‘‘
proper
”?
And, is
it
not a defect as to a vital quality where
goods are, in any serious way, not reasonably
fit
for their purpose,
as in
L’Estrange
v.
Graucob,
or
are, in any serious way, not of
merchantable quality
?
w
It
may be that the organic link between
Karsales
and the
future of the doctrine of fundamental breach in sale
of
goods and
hire-purchase will be found among the criteria of repudiation
of
a
contract
gs
or
of total failure of considerati~n,~~
or
the fundamental
mistake cases,
or
a classification of conditions, all of which are
fundamental but some of which may be more fundamental than
98
Melville,
‘‘
The
Core
of
a Contract
(1956)
19
M.L.R.
26.
97
Cf.
Parker
L.J.
(as
he then
was)
in
Karsales (Harrow)
Ltd.
v.
Wallis,
98
Cf.
AIcrander
v.
R.E.,
supra,
889490.
99
Cf.
Rowland
v.
Dicall,
supra.
supra.
943.
78
THE
MODERN
LAW
REVIEW
YOL.
11
others.’ In the ultimate analysis, however,
it
will be
a
matter of
judicial discretion whether the sounder policy will be to draw the
limits of the doctrine wide
or
narrow.
If
the unorganised consumer
is
to enjoy adequate legal protection, they should be drawn wide.
Fundamental Breach: Summing-up
The anatomy of the doctrine of fundamental breach at the time of
writing may be outlined in the following propositions
:
1.
Where there is
a
fundamental breach of contract, then,
provided the subordinate party does not waive the breachY2 ‘the
contract breaker may not take advantage of any exemption clause
purporting to displace his common law position, whether in respect
of liability
for
negligence
or
wilful misconduct,
or
in respect of
limitation
of
action
or
of damages
or
otherwise.
The better view is that such exemption clauses are nullified, not
ab initio,
but from the moment of the fundamental brea~h.~
Pro-
vided the subordinate party draws his pleadings properly, the
burden is
on
the contract breaker of proving that the breach was
not a fundamental one.4
2.
Fundamental breach of contract includes two kinds of breach
of contract
:
(i) First, it generally refers to the nature of the obligation
broken. That is to say, it refers to breach of an obligation regarded
as fundamental
per
se,
not merely
ancillary.” Whether
a
con-
tractual obligation is a fundamental one has to be determined in
the light of each contractual transaction, following, by analogy
with,
or
as an extension of, those cases previously analysed. Such
obligations are,
it
is useful to note, of two types, namely,
(a) those fundamental obligations that are variable
or
dis-
placeable by express contract; and,
(b) those fundamental obligations that are immutably
fundamental, with the result that, where the contractual clause
is in contradiction with any
of
them, either the clause is void
for fundamental repugnancy,
or,
possibly, the agreement as
a
whole is deprived of contractual force.s
(ii) The second kind of breach of contract, which may be
included in the doctrine of fundamental breach, refers to the
1
Cf.
Smsaton Hanscomb
v.
Setty, supra,
1470.
2
Alexander
v.
R.E.,
supra.
889-890. But see
The Cap Palos.
aiipra.
471.
8
Alexander
v.
R.E..
supra.
889:
Hain
S.S.
Co.
v.
Tate and
Lyle
(1936)
68
T.L.R.
617;
N.
Central Wagon and Finance
Co.
v.
Graham, supra.
11.
See
also.
Chorley
and
Giles.
Shipping
Law.
4th
ed..
172.
4
Woolmer
v.
Delnier
Prier
Ltd., supra; Spurling
v.
Bradshnic.,
srcprn.
466.
;I
l:!vr.q:n/lt,
Y.
Hcnrl,~n
i
oiindr?,.
rupro,
is
re:.oiici’rd
on
thi.
po:iic
oi!
thi>
gronnd
that the Court
of
Appeal
did
not there
address
its
mind
to the qnestion
of
burden
of
proof; see
Spurling.
466;.
Woolmrr,
294.
5
See
HON~
Guan nnd
Co.
Ltd.
v.
Jumabhoy
d
Sons
Ltd.
[1960]
2
W.L.R.
751
at 762.
,J:%s.
1961
REFORM
IN
THE
LAW
OF
CONTRACT
79
manner in which the obligation is broken, even though the obliga-
tion is not one fundamental
per
se.
It
may refer, in other words,
to the breach of contract that'is wilful
or
reck1ess.O
THE
NEED
FOR
REFORM
The doctrine of fundamental breach is subject to the same limita-
tion as the old principle
in
Gibaud's
case.
It
only regulates
exemption clauses in connection with breaches of contract. Even
if the doctrine were developed as far as is reasonably possible,
there would still be
no
general principle of control, only the incom-
plete fragments of a general principle; between the doctrine of
fundamental breach and the other independent rules devised by
the courts to control imposed contracts there would still remain
a
good deal of interdoctrinal space.
Even in the general field of application of the doctrine of
fundamental breach, that is to say, where there
is
a breach
of
contract allegedly covered by an exemption clause, the doctrine,
however fully exploited, may fall short of what is required. Thus,
in accordance with the general principle of freedom of contract,
dominant contracting parties may, and frequently do, contract
out of the common law of damages. This is done by means of two
kinds of standard clause, the liquidated damages clause, and what
may be termed the limited damages clause. The latter subdivides
into two species, the clause that excludes the second rule in
Hadley
v.
Baxendale,
and the clause that sets an uppermost limit, an
absolute ceiling to the dominant party's liability for breach of
contract. Examples of limited damages clauses are found in
laundering contracts and in contracts for the carriage of goods and
passengers by land, sea and air. To such clauses, activated as
they are by
a
breach of the dominant party, the doctrine of
fundamental breach will apply. But, the doctrine is only directed
to the nature of the breach, not to the nature of the limit set to
the damages that may be awarded.
If
the breach
is
not funda-
mental, the courts must enforce the contractual limit, however
unreasonable it may be.
Again, there are imposed standard clauses that are activated
by certain events defined in the contract but not involving any
breach of contract at all. Plainly, such clauses stand entirely
outside the sphere of control of the doctrine of fundamental breach,
and few. are touched by the other independent rules the courts
have devised.
Take, for example, the operation of the liquidated damages
clause. Where there
is
a breach
of
contract, regulation may be
6
Qunere
whether, in theory, the subordinate party would be bound
if
an exemp-
tion clause covering wilful or reckless misconduct were brought to his notice
and agreed by
him
at the time of contracting. Or should the courts require
some concession to the subordinate party in return,
on
the lines of the old
rule
of
the
"
fair alternative
"
in railway law?
80
THE
MODERN
LAW REVIEW
VOL.
24
effected through the doctrine of penalties. But, where there is no
breach of contract, no countervailing rule obtains. This is the case
of the liquidated damages clause in hire-purchase contracts (falling
outside the
1938-54
Acts), in the form of a minimum payment
clause, where the hire-purchaser exercises his right to return the
goods without taking the precaution of first breaking the ~ontract.~
Similarly, neither the doctrine of fundamental breach nor any
of the other independent regulatory rules will apply to those opera-
tional clauses
in
the contract of guarantee that
strip a guarantor
of virtually ail those rights which the law would otherwise confer
upon him-at any rate, where they conflict with the banker’s
interests,”
*
nor, again, to warranty clauses
or
notice of claim
clauses in insurance policies
or
other one-sided provisions in
insurance policies that are purely operational
or
economic in nature.
Doubtless, evidence would be forthcoming of other cases were an
inquiry set in train.
The problem of the imposed, standard contract is one of the
first magnitude of importance that ought to be referred to the
Law Reform Committee.
It
is probable that a pluralist rather
than a single approach would be the more desirable and effective.
There are certain transactions, like insurance, that ought probably
to be made the subject of specialised legislation, which might
create a special tribunal to settle the terms of such transactions.
Other transactions might simply be submitted to the exercise by
the courts of a broad, general principle of control.
In
this case,
the broader,
or
should
I
say, the more uncertain the principle, the
better
:
the criterion of reasonableness is indicated.
2.
TOLERATED LEVELS
OF
DISHONESTY
AND
INACCURACY
One
of
the basic questions of policy a legal system has to answer
is, which kinds
or
degrees of dishonesty and inaccuracy are to be
tolerated and which are to be legally suppressed
or
discouraged
In the field of contract, the question has to be answered with
special reference to the behaviour of parties and the oral and
written exchange between them in the zone of negotiations, that
is to say, with reference, in particular, to the law
of
misrepresenta-
tion, independent oral warranties and undue influence.
On the whole, the law of contract as we know
it
today dates
from no earlier than the end of the eighteenth century. Since then,
the general trend has been towards steadily screwing up the
standards
of
honesty and accuracy in the negotiation of contracts.
The persistent wearing away of the distinction between statement
e
of fact and statements of law, intention and opinion affords a good
7
Associated Distributors
Lid.
v.
PlZ
[1938]
0
K.B.
83.
8
Holden,
Srcuntres
for
Bankers Advances,
at
173-203. See also. Chorlcy,
9
The snbject,
at
present,
of
what
is.
from a common lawyer’s point
of
view,
Lam
of
Bunking, 3rd ed., 248; Paget, Lam
of
Banking.
5th
ed.,
417.
nil
unsatisfactory private agreement in lieu of clear legal rights.
JAS.
1961
REFORM.
IN
THE
LAW
OF
CONTRACT
S1
illustration of the overall trend.1° The fact that the common law
of puff remains the cornerstone of the industry
of
advertising,
which, in this aspect, may not unjustly be described as institu-
tionalised dishonesty, simply demonstrates one of the natural
limitations
of
the common law as an instrument of social control.
In recent years, attention has focused on two particular flaws
in the law governing accuracy in the negotiation of contracts,
namely, the absence of the remedy of damages for innocent mis-
representation and the rule in
Seddon's
case.12 Innocent mis-
representation has now become the subject of review by the Law
Reform Committee. Just one
or
two additional remarks may,
therefore, not be out of place.
I
say that innocent misrepresenta-
tion is concerned with inaccuracy, not dishonesty, in the negotiation
of contracts. But,
one might add that it is not all cynicism to say that innocent
misrepresentation might also be defined as misrepresentation where
it
has not been possible to discharge the heavy burden of proving
fraud.
Be this as
it
may, however, about the rule in
Seddon's
case, as
distinct from the parent rule in
Wilde
v.
Gibson,I3
little more can
profitably be said here. There is no reason in principle why the
rules about rescission for innocent misrepresentation should differ
from those relating to fraudulent misrepresentation.
Long
v.
Lloyd
indicates that the courts themselves could now ease the
rule in
Seddon's
case out of the law governing
at
least contracts
for the sale of goods; but the problem of the rule in the total
context of contract ought still to be reviewed.
As in the case of rescission,
so
in the case of damages, there
ought not to be such a great difference between innocent and
fraudulent misrepresentation. The denial of the action in tort for
innocent,
or
rather negligent, misrepresentation rests on
Le
Lievrc
v.
Gould
and
Candler
v.
Crane.la
In.the latter, Asquith L.J. (as
he then was) instanced as a contributory reason for the majority
decision the dreadful plight of the cartographer whose carelessness
ends the career of the
Queen Mary.
Lord Asquith said:
"
The
case has been instanced by Professor Winfield and referred to by
my brother Denning of a marine hydrographer who carelessly omits
to indicate on his map the existence of a reef. The captain of thr
Queen
Mary,
in reliance on the map and having no opportunity
of
checking it by reference to any other map, steers her on the
10
The slowly growing volume
of
protective legislation
is
part
of
the same trend.
11
See Salmond,
Torts,
12th
ed.,
647
et
scq.
and the literature cited at
647,
note
47.
12
Seddon
v.
N.E.
Salt
Co.
Ltd.
[1905] 1
Ch.
326.
See Cheshire and Fifoot,
ap.
cit.,
235
et
seq.;
Anson.
op.
at.,
227
et
seq.;
Sutton and Shannon,
op.
of
.
199.
101.
20".
This, of course, inheres in its legal definition.
13
(1848)
1
H.L.Cas.
605.
14
[1958]
2
All
E.R.
402; [1958] 1
W.L.R.
753.
15
ri8931 1
Q.B.
491.
10
[1951]
2
K.B.
164.
89
THE
MODERN
LAW
REVIEW
vor..
24
unsuspected rocks, and she becomes a total loss. Is the unfortunate
cartographer to be liable to her owners
for
negligence for some
millions
of
pounds damages?
If
so,
people will, in future, think
twice before making maps. Cartography would become an ultra-
hazardbus occupation.”
‘7
that
it
may be
thought worth while to point out the singularly unrealistic
character of the whole of Lord Asquith’s cartography dictum.
Important ships of the mercantile marine, like the
Queen
Mary,
do
not use marine charts prepared by private individuals, as Lord
Asquith’s words suggest, but charts prepared by the Hydrographic
Department of the Admiralty.lQ The heyday of the private carto-
grapher, of an Eratdsthenes
or
a Strabo, a Ptolemy
or
a Pietro
Visconto, an Andrea Biancho
or
a Captain Greenville Collins, is
over.2o British Admiralty charts are prepared on the basis
of
the
data received from the surveying ships of this and the other major
maritime nations. In the actual production of the charts, the great
pains taken in the selection and training
of
staff, the system of
checking and double-checking of all points at all stages, and a long,
perfectionist tradition virtually rule out the possibility of a hydro-
graphic publication being inaccurate by reason of carelessness.*‘
British Admiralty charts have long enjoyed immense prestige
throughout the maritime world, and mercantile marines other than
the British rely on them.
Yet, suppose the impossible were to materialise, the unthinkable
to occur, and a ship were lost through a negligent error in the
production of an Admiralty chart. Clearly,
no
unfortunate
cartographer
yy
will
‘(
be liable to her owners in negligence for some
millions of pounds damages.” The Crown would be vicariously
liable, *and, as
.
such an accident would
SO
closely touch national
prestige and interest,
it
may be hazarded that the British Govern-
ment would, given proof of the negligent error, shoulder respon-
sibility for the loss without the prompting of litigation. Admiralty
charts-are, as
it
were, state guaranteed.
Nor,
may
it
be added,
would the Hydrographic Department be led even by such an
accident to
‘‘
think twice before making maps.”
In
considering
This passage has been taken
so
seriously
17
Supra,
at
194.
Winfield, it should be emphasised, employed the cartographer
example in support
of
his contention that an action in tort
should
lie in
certain circumstances
for
negligent misrepresentation. Winfield
also
referred
to an
official
map:
Textbook
of
the Law
of
Tort,
4th ed., at
387.
gig.,
Paton
(1951) 25
Aus.L.J.
293;
Street
(1951) 14
M.L.R.
346;
Seavey.
Candler
v.
Crane, Negligent Misrepreeentation
by
Accountants
(1951) 67
L.Q.R.
480;
Goodhart
(1951) 67
L.Q.R.
177;
Salmond,
Torts,
Heuston’s
12th ed..
649.
note
56: 647.
note
47.
An histohcal summary
of
the development
of
the Hydrographic Dept. of the
Admiralty since
1795
is
in
Charting the Seas
in
Peace and War
(H.M.S.O.
1947).
See Bencker.
I‘
The Development of Maritime Hydrography
and
Methods
of
Navigation
(1944) 21
International Hydrographic Review,
117.
See
‘I
A
Memorandum
on
the Organisation
of
the Hydrographic Department,
Admiralty
’’
(1950) 27
Intcrnational Hydrographic Review,
12.
JAN.
1961
REFORM
IN
THE
LAW
OF
CONTRACT
53
whether an action for damages should lie for negligent misrepre-
sentation, at least in circumstances of the kind discussed by Lord
Denning in his dissent in
Candler
v.
Crane,
the Law Reform
Committee wou!d lose nothing by ignoring Lord Asquith's dictum.
3.
SOME
ADDITIONAL
POINTS
There is space just to mention four additional points.
I
say nothing
of privity, consideration and the rule in
Gourley's
case,22 all of
which will doubtless require reconsideration in the future.
1.
The first matter is the preservation of the last shred of the
Statute of Frauds,
1677,
comprised in that part of section
4
dealing
with the contract of guarantee. The Law Reform Committee
justified this retention on the ground that the requirement
of
written evidence of the contract of guarantee necessarily safe-
guarded the guarant~r.~~ In practice, however, the guarantor
would enjoy greater legal protection
if
there were no written
contract at all, since, in practice, the written contract is an imposed
standard contract which, in the words already quoted, strips the
guarantor of virtually all those rights the law would otherwise
confer on him. The contract of guarantee would be one of the
special contracts falling within the' scope of the Law Reform
Committee's general review of imposed, standard contracts. The
repeal of the last bit of the Statute of Frauds might be treated as
a subsidiary consequence of the general review.
2.
The second point refers to the common
law
of fundamental
mistake, the sole major survivor of the will theory of contract.
There are two questions that might be examined here. The first is
the abandonment of the common law rules entirely in favour
of
the
more flexible rules of equity: the way has already been indicated
by Lord Denning in
Solle
v.
Butche~.~'
The importance
of
the
second question goes well beyond contractual mistake, extending
through a wide segment of commercial bontracts: it is the question
of the
''
two innocent parties."
It
is time that the Law Reform
Committee inquired whether a principle of distributive justice
should be introduced into. the
"
third party cases," as it has been
into cases of frustration. There is no convincing reason why one of
two innocent parties should, without more, bear an entire
loss:
they could share
it;
but, how and in what circumstances the
Committee would have to inve~tigate.~~
5.
The third subject-matter that may be suggested for investi-
gation is the way in which the doctrine
of
frustration has been
22
23
24
25
B.T.C.
v.
Gourley
[1956]
A.C.
185.
Cmd.
8809.
[1950]
1
K.B.
671.
The consequences
of
substituting equity for common law
following
SoZZe
v.
Butcher
are worked out in the present writer's
''
Study in
the Relationship between Common Law and Equity in Contractual Mistake
"
(1952) 15
M.L.R.
297.
See Devlin
L.J.
in
Ingram
v.
Little
[l960] 3
W.L.R.
504
at
531; [1960] 3
All
E.R.
332. 551352;
also, the present writer's article in
(1952) 15
M.L.R.
297
at
317-318.
84
THE
MODERN
LAW
REVIEW
VOL
24
applied to leaseholds. Here is a monument to blind logic that well
deserves the Committee's inspection.
It
is not wholly an academic
point. The mind, it
is
true, shrinks from imagining the future
destruction of leasehold premises by enemy action, but comparable
destruction may result from natural forces not only in this country,
but,
more
particularly perhaps, in countries from which an appeal
still lies to the Judicial Committee. Also, occupation by the state
or
other public authority of leasehold premises may yet recur.
4.
Finally, mention must be made of infants' contracts.
Does
property pass to a fraudulent infant under a contract for the supply
of non-necessaries? How far and in how many mutations of form
may goods
or
money in the hands of a fraudulent infant be traced
?
26
May an adult vendor recover the non-necessaries supplied to an
infant who later resiles from the bargain
?
May an infant enforce
against the adult party a contract that does not bind the infant?
These are some of the outstanding open points in the law of infants'
contracts.27 Litigation
in
this field has remained relatively dormant
since the termination in
1914
of the golden era of the high living
Oxbridge undergraduate. But, the large sums of money of which
teenagers now dispose and.to which a large section of trade and
industry has been attracted may give these problems of infants'
capacity a sharper significance than was foreseeable before the war.
The open questions above mentioned and others may be solved by
sufficient litigation alone
;
but, there remain two large questions
that are foreclosed to the courts; is twenty-one too late an age
today for contractual infancy, and-an
old
but
still valid sugges-
tion 28-should not infants be bound by any contract that is on
the whole for his
or
her benefit?
C.
GRUNFELD."
26
See
t)e
discussion in Atiyah,
I'
The Liability of Infants in Fraud and Restitti-
27
See, generally, Treitel, "The Infants Relief Act,
1874
"
(1957)
73
L.Q.R.
tion
(19S9)
22
M.L.R.
273.
144.
28
iiimond and Williams,
Contracts
(2nd
Ed.),
at
309310.
*
M.A.,
LL.B.;
Reader in Law
in
the University
of
London.

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