Karsales (Harrow) Ltd v Wallis [1956] EWCA Civ 4 (12 June 1956)

Mr Wallis agreed to acquire a Buick car on hire purchase after inspecting it in excellent condition. When delivered, the car was in a deplorable state, incapable of self-propulsion with burnt valves and broken pistons. The Court of Appeal held that exemption clauses cannot protect a party who commits a fundamental breach of contract.

Facts

Mr Wallis, owner of the By Pass Garage, Bagshot, inspected a second-hand Buick motor car owned by Mr Stinton and found it to be in excellent condition. Unable to pay the full price of approximately £600, he agreed to purchase it through a hire purchase finance company. He signed hire purchase forms in blank, which were processed through Karsales (Harrow) Limited as an intermediary. The arrangement concluded with Mutual Finance Limited letting the car to Mr Wallis on hire purchase terms.

Approximately a week after the agreement was concluded, the vehicle was left outside Mr Wallis’s garage late at night. Upon inspection the following morning, Mr Wallis discovered the car was in a deplorable state: it had been towed with a rope attached to the front bumper, the new tyres had been replaced with old ones, the radio had been removed, chrome strips were missing, the cylinder head was off, all valves were burnt, and there were two broken pistons. The car would not operate. Mr Wallis refused to accept the car in this condition, and it was towed away to Mr Stinton’s premises and never repaired. Repairs would have cost £150.

Mutual Finance Limited subsequently assigned their rights under the hire purchase agreement to Karsales (Harrow) Limited, who sued Mr Wallis for ten months’ instalments.

Issues

Primary Issue

Whether the hire purchase company could rely on an exemption clause excluding conditions and warranties as to the vehicle’s roadworthiness, condition, or fitness for purpose, when the vehicle delivered was in a fundamentally different condition from that which the hirer had inspected and agreed to hire.

Secondary Issue

Whether the plaintiffs could claim arrears of instalments when delivery had not been accepted, or whether their only remedy was damages.

Judgment

Lord Justice Denning

Lord Justice Denning held that under a hire purchase agreement where the hirer has previously seen and examined the motor car and made application for hire purchase on the basis of his inspection, there is an implied obligation on the lender to deliver the car in substantially the same condition as when it was seen. This obligation exists even though the lender is a finance company which bought the car without seeing it.

On the application of exemption clauses, Lord Justice Denning stated that such clauses, no matter how widely expressed, only avail the party when carrying out the contract in its essential respects. They do not protect against misconduct, indifference, or breaches which go to the root of the contract. The breach in this case was fundamental and disentitled the lender from relying on the exemption clause.

Lord Justice Birkett

Lord Justice Birkett agreed, emphasising that in the true meaning of words, a car that will not go is not a car at all. The finance company was in fundamental breach and could not rely upon clause 3(g) of the written agreement.

Lord Justice Parker

Lord Justice Parker held that it was the duty of a hire purchase finance company to ascertain that the chattel is reasonably fit for the purpose for which it is hired. He cited Mr Justice Devlin’s statement in Smeaton Hanscomb & Co. Ltd v Sassoon I Setty, Son & Co.:

“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”

Lord Justice Parker further noted:

“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, something 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.”

He also held that delivery was never accepted, and therefore the only possible claim would be for damages, not for rent or instalments.

Implications

This case established the important principle that exemption clauses, however widely drafted, cannot be relied upon where there has been a breach of a fundamental term of the contract. The decision significantly limited the ability of parties to exclude liability through contractual terms when their performance was so deficient as to constitute something fundamentally different from what was contracted for.

The case contributed to the developing jurisprudence on fundamental breach and the construction of exemption clauses, which would later be modified by the House of Lords but remains significant in the historical development of contract law regarding exclusion clauses.

Verdict: Appeal allowed with costs in both Courts. The defendant Mr Wallis was not liable for the hire purchase instalments as the plaintiffs had committed a fundamental breach of contract by delivering a vehicle in a deplorable condition, fundamentally different from what was contracted for, and could not rely on the exemption clause.

Source: Karsales (Harrow) Ltd v Wallis [1956] EWCA Civ 4 (12 June 1956)