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Published online by Cambridge University Press: 16 January 2009
Is fitness for purpose a fundamental term in hire-purchase contracts?
The need for clarification of concepts and propositions in the area of the position of exemption clauses has already been demonstrated by the discussion of the difference between “fundamental terms” and “fundamental breach”. In the Charterhouse case we have seen one variety of judicial approach arising from this difference. But there is a further conflict of judicial opinion in the case which calls for further clarification of doctrine. The three members of the Court of Appeal agree that apart from the limited provision of the Hire-Purchase Acts there is to be implied in all hire-purchase agreements a fitness for purpose term. But while Ormerod L.J. describes such a term as fundamental, Upjohn L.J. denies that it possesses this character. Donovan L.J. is probably in accord with the view of Upjohn L.J. though he makes no explicit statement. Upjohn L.J. envisages hire-purchase agreements as containing a fundamental “correspondence with description” term in addition to a non-fundamental “fitness for purpose” term. These judicial opinions are derived from the precedents. These are few in number and can be examined separately. This examination, it is submitted, will show that much of the conflict is terminological and that the subject is in need of further theoretical analysis.
1 [1963] 2 Q.B. 683: [1963] 2 All E.R. 433.
2 [1962] 2 Q.B. 508: [1961] 2 All E.R. 281.
3 [1963] 1 W.L.R. 584: [1963] 2 All E.R. 33.
4 [1963] 2 All E.R. at p. 44 G.
5 [1956] 1 W.L.R. 936: [1956] 2 All E.R. 866: see also the notes in [1957] C.L.J. at p. 12 and p. 17.
6 p. 868 G.
7 p. 870 B.
8 p. 870 H.
9 p. 871 E.
10 In Sze Hai Tong Bank, Ltd. v. Rambler Cycle Co., Ltd. [1959] 3 All E.R. 182Google Scholar, Lord Denning, giving the judgment of the Board of the Judicial Committee of the Privy Council said at p. 186 E: “In Karsales (Harrow), Ltd. v. Wallis the agent of the finance company delivered a car which would not go at all in breach of its obligation to deliver one that would go.” Lord Jenkins and Mr. de Silva were the other members of the Board. The case was one in which the court held that the defendants could not rely on an exemption clause because according to the wording of the clause it did not apply to what had happened: “as a matter of construction their lordships decline to attribute to it the unreasonable effect contended for.” Lord Denning gave as a reason for this construction that unless so limited “the exemption clause … would run counter to the main object and intent of the contract.” He appears to have considered that there was a general doctrine that exemption clauses “must … be limited and modified to the extent necessary to give effect to the main object and intent of the contract” (p. 185 G). He then proceeded to refer to fundamental breach as the disregard of “the prime obligations of the contract” (p. 185 H).
11 [1961] 2 All E.R. p. 285 A. The account of what the county court judge said is taken from the judgments in the Court of Appeal.
12 p. 290 B.
13 p. 285 D.
14 p. 291 F.
15 [1963] 2 All E.R. at p. 436 B.
16 p. 290 B. The Lord Justice relied in his judgment on the Karsales case (p. 287 G et seq.). This confirms the view that he regarded the fundamental term as a “correspondence with description” term.
17 p. 292 E.
18 Per Pearson L.J. [1963] 2 All E.R. at p. 40 F.
19 p. 44 F.
20 p. 48 D. Ormerod L.J. commenced his judgment by saying: “I agree with the judgments which have been delivered”. The headnote to the All England Reports, however, goes too far in saying that he agreed with the views of Upjohn L.J. about the existence and character of the two stipulations which Upjohn L.J. said were to be implied. Ormerod L.J. specifically refers to the description by Pearson L.J. of the tipping lorry.
21 46 C., and see n. 23.
22 Though he cites no authority this statement is surely derived from the judgment of Parker L.J. in the Karsales case, see n. 9. The learned Lord Justice does not directly expand on the meaning of “essentially different”: but he does discuss the question of when the motor vehicle delivered complies with the fundamental obligation. This, he says, “is very largely a question of fact and degree and must depend on the circumstances of each case.” One of the factors he refers to is “the impact of unknown defects not merely on the roadworthiness of the car but on its general condition and the ability to perform the tasks for which it is hired” (p. 46 G). The manner in which description involves fitness for purpose may be noted. It should also be noted that all “description” in a contract does not deal with matters which are “essential.” The distinction drawn between “definition” and “description” is relevant: see notes on the Karsales case in [1957] C.L.J. at p. 12, and (by K. W. Wedderburn) at p. 16.
23 This indicates that the phrase in his circumscription “subject to any express terms as to the state of repairs or condition” requires consideration. Perhaps Upjohn L.J. had in mind specific references to particular defects, or the phrase only applies to the fitness for purpose term.
24 He classifies the term as one of those described in the Hong Kong case, breach of which does not automatically give a right to terminate a contract, but which may do so according to the nature of the breach: see above p. 76 and n. 53.
25 It could be said that the exemption clause prevented the implication of a fitness for purpose term: see nn. 21 and 23. What Upjohn L.J. said was: “it is possible that the hirer might originally have had some claim for damages against the lender for the defective condition in which he found the vehicle but for the fact that by clause 3 of the agreement the lender excluded liability” (p. 47 G). There was another answer, he said, to a claim based on breach of the fitness for purpose term. This depended on a more detailed consideration of the nature of the term: see infra, p. 262, and n. 38.
26 The Astley case was heard on Nov. 13, 14 and 15, 1962, and the Charterhouse case on Jan. 21, 22, 23 and 24. Judgments were delivered on March 8, 1963, and March 15.
27 [1963] 2 All E.R. at p. 444 F.
28 444 D. Upjohn L.J. said “probably excluded”: but that is because there was no full argument— “this matter was really treated in argument as de minimis”. He also gave another reason for the failure of the borrower's claim in respect of the replacement of the defective tyres: this was based on the nature of the fitness for purpose term, see infra, p. 262 and n. 39.
29 p. 436 B.
30 p. 436 I.
31 p. 437 A.
32 See n. 24.
33 [1963] 2 All E.R., p. 47 C.
34 Even so far as particular purposes are concerned it may be contended that a statement of such purposes is part of description. Again authority is to be found in the judgment of Upjohn L.J. in the Astley case. After asserting that the hirer of the car for driving to the luncheon engagement could repudiate the agreement he added: “It may be that it would also amount to a breach of the fundamental term [of description] for the lender has contracted to deliver a car capable of starting at 9.00 a.m. sharp and this is of the essence of the contract. This shows that these two implied stipulations may in some cases tend to merge” (p. 47 D). This emphasises the vagueness of the term “description”: though it may be doubted whether a statement that a car would be ready at 9.00 a.m. would ordinarily be regarded as “description”.
Support for the view that a fitness for purpose term is not fundamental, is to be found in Handley v. Marston (1962) 106 S.J. 327.Google Scholar There a car, which was the subject of a hire-purchase agreement, had defective brakes, defective steering, badly worn tyres, excessive oil leakage, the handbrake was inoperative and the footbrakes not in good order. Willmer L.J. said “However unsafe and unroadworthy the car, and however deteriorated its condition it did and could still function as a car, and the plaintiff had not supplied something different in kind from that which he had contracted to hire”. In the brief report of the judgments there is no reference to any discussion of a possible distinction between fitness for purpose and description. Willmer L.J. finds that there was no fundamental breach of contract, and we are told that Ormerod and Danckwerts L.JJ. delivered concurring judgments.
35 The provision in the Sale of Goods Act is to be found in s. 14. It provides as follows: “Subject to the provisions of this Act and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:—
(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose; Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose”.
36 [1961] 3 All E.R. p. 285 D: “there is an implied term of any hiring agreement that the goods hired shall be as reasonably fit and suitable for the purpose for which they are expressly hired, or for which, from their character, the owner must be aware that they are intended to be used, as reasonable care and skill can make them”.
37 p. 287 F. The limitation that the defect must not be apparent is not to be found in s. 14 (1) of the Sale of Goods Act, but a similar limitation is found in the proviso to s. 14 (2): “Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed”.
38 [1963] 2 All E.R. at p. 47 G. This answer was seen to involve also knowledge of the defects. Upjohn L.J. added: “He knew of the principal defects yet took the vehicle relying on the collateral agreement with the dealers to rectify those defects”. It may be noted that the borrowers obtained damages from the dealers for their failure to remedy the defects.
39 [1963] 2 All E.R. at p. 444 C.