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

A man agreed to buy a car via hire-purchase after inspecting a good model. The car delivered was a useless wreck. He refused to pay and the seller sued, relying on an exemption clause. The court held the breach was so fundamental that the exemption clause did not apply.

Facts

The defendant, Mr Wallis, inspected a Buick motor car in excellent condition and agreed to obtain it on hire-purchase terms from a finance company, Mutual Finance Ltd. The original owner, a Mr Stinton, arranged the sale to the finance company. The hire-purchase agreement contained an exemption clause stating: ‘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.’ Subsequently, the car was delivered to Mr Wallis, but it was in a deplorable state and incapable of self-propulsion. It appeared to have been towed, had missing parts including the radio and tyres (which were replaced with old ones), a new cylinder head was fitted, and the pistons were burnt. Mr Wallis refused to accept the car or make any payments. The rights under the agreement were assigned to the plaintiffs, Karsales (Harrow) Ltd, who sued Mr Wallis for the outstanding payments.

Issues

The central legal issue was whether the comprehensive exemption clause in the hire-purchase agreement protected the plaintiffs from liability for their failure to deliver the car in the condition contemplated by the contract. The court had to determine if a party could rely on an exemption clause in circumstances where there had been a ‘fundamental breach’ of the contract, meaning a failure to perform the very substance of what was agreed.

Judgment

The Court of Appeal unanimously dismissed the appeal, upholding the County Court’s judgment in favour of the defendant, Mr Wallis. The judges held that the plaintiffs had committed a fundamental breach of contract which disentitled them from relying on the exemption clause.

Lord Justice Denning

Lord Justice Denning reasoned that there is a difference between a breach of a term (like a warranty) and a breach that goes to the root of the contract. He stated that the delivery of a car so different from the one contracted for constituted a fundamental breach. The purpose of an exemption clause is to cover breaches of warranties, not a complete failure of performance.

It is now settled that exempting clauses of this kind, no matter how widely they are expressed, only avail the party when he is carrying out his contract in its essential respects… They do not avail him when he is guilty of a breach which goes to the root of the contract.

He concluded that what was delivered was not, in any real sense, the ‘car’ contracted for, thereby nullifying the protection of the exemption clause.

Lord Justice Birkett

Lord Justice Birkett concurred, emphasising the factual disparity between the inspected and delivered vehicle. He concluded that the accumulation of defects meant that the item delivered was not the contractual object.

The car delivered was not the car the subject-matter of the agreement, and, on the facts, there has been a breach of a fundamental term of the agreement, and the plaintiffs cannot rely on the clause which purports to exempt them from liability.

Lord Justice Parker

Lord Justice Parker agreed, approaching the matter as one of contractual construction. He argued that the exemption clause, which refers to the ‘vehicle’, presupposes that a vehicle is actually delivered. He found that what Mr Wallis received was not a vehicle in the contractual sense, but a collection of dysfunctional parts.

In my judgment, however wide the exception clause, it has no application if there has been a fundamental breach of contract… I have come to the clear conclusion that this Buick car was in such a state that it could not be described as a car at all. To borrow the words which were current in the argument in one of the cases, it was the ‘carcass of a car’.

Implications

This case is a landmark decision in English contract law regarding the doctrine of ‘fundamental breach’. It established that a party cannot rely on an exemption clause, regardless of its wording, if they have breached a fundamental term that goes to the very root of the contract, thereby depriving the innocent party of substantially the whole benefit of the agreement. While the House of Lords later clarified in cases like Suisse Atlantique and Photo Production Ltd v Securicor Transport Ltd that fundamental breach operates as a rule of construction rather than a rigid rule of law, Karsales v Wallis remains a crucial authority. It illustrates the judicial approach of preventing parties from using exemption clauses to evade their core contractual obligations and underscores the principle that one must perform the main purpose of a contract before seeking protection from its ancillary clauses.

Verdict: Appeal dismissed.

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