Garnac Grain Co Inc v H M F Faure & Fairclough and Bunge Corporation
[1967] 2 All ER 353Between: Garnac Grain Co Inc
And: H M F Faure & Fairclough and Bunge Corporation
Judges:
Lord Reid
Lord Morris of Borth-y-Gest
Lord Pearce
Lord Wilberforce
Lord Pearson
Subject References:
Agent
Creation of agency
Agency for entering into contract
Circle of contracts made on same day whereby A sold goods and subsequently re-bought the goods from another purchaser further down the chain of buyers
Transactions designed by A for financial reasons
Written contracts enforceable according to their tenor
Whether buyer who re-sold to A acted in his purchase from a previous buyer as agent for A as undisclosed principal
Contracts genuine, not shams
Contract
Breach
Damages
Date at which damages assessed
Sale of goods cif
Election by buyers to accept seller's repudiation on 24 January
Failure of sellers, if contract had continued, to send shipping documents, which would have reached buyers on 4 February
Damages, difference between value and contract price, assessed at 4 February
Contract
Repudiation
Election whether to accept repudiation
Write issued claiming declaration that contract valid and claiming damages for its breach
Writ not served
Whether election to accept repudiation
Case References:
Frost v Knight - [1861-73] All ER Rep 221; (1872), LR 7 Exch 111; 41 LJEx 78; 26 LT 77; 17 Digest (Repl) 108, 224
Heyman v Darwins Ltd - [1942] 1 All ER 337; [1942] AC 356; 111 LJKB 241; 166 LT 306; 2 Digest (Repl) 492, 435
Hochster v De la Tour - [1843-60] All ER Rep 12; (1853), 2 E & B 678; 22 LJQB 455; 22 LTOS 171; 118 ER 922; 17 Digest (Repl) 103, 174
Lamb (W T) & Sons v Goring Brick Co Ltd - [1931] All ER Rep 314; [1932] 1 KB 710; 101 LJKB 214; 146 LT 318; 39 Digest (Repl) 643, 1513
Megevand, Re, Ex p Delhasse - (1878) 7 ChD 511; 47 LJBcy 65; 38 LT 106; 36 Digest (Repl) 444, 151
Melachrino v Nicholl and Knight - [1918-19] All ER Rep 857; [1920] 1 KB 693; 89 LJKB 906; 122 LT 545; 17 Digest (Repl) 110, 242
Nash v Dix - (1898) 78 LT 445; 35 Digest (Repl) 50, 452
Pole v Leask - (1860), 28 Beav 562; [1861-73] All ER Rep 535, on appeal, HL; (1863), 33 LJCh 155; 8 LT 645; 1 Digest (Repl) 310, 1
Rabone v Williams - (1785) 7 Term Rep 360, n; 101 ER 1020; 1 Digest (Repl) 666, 2333
Roper v Johnson - (1873) LR 8 CP 167; 42 LJCP 65; 28 LT 296; 17 Digest (Repl) 110, 238
Judgment date: 26 April 1967
ORDER
In July, 1963, four companies entered into a chain of four successive contracts for the sale of fifteen thousand tons of lard, for shipment to England, each sale being at a higher price than the last and the original first sellers being also the last purchasers. Shipment was to be in December, 1963/January, 1964. Owing to the financial collapse of the original sellers the contracts could not be fulfilled. By the end of January, 1964, the market price of lard had risen considerably. By their solicitors' letter dated 17 January 1964, the second buyers, G, claimed to rescind their contract with F, who bought from them, on the ground that F acted as undisclosed agents for the original sellers and that fraud on the part of the original sellers entitled G to rescined as against F. On 24 January 1964, a writ was issued by F's assignees against G claiming a declaration that the contract of sale by G was valid and damages for its breach. This writ was not served. By letter dated 24 January 1964, the solicitors for F's assignees rejected G's claim to be entitled to rescind; this letter did not refer to the writ. In an action by G both F and F's assignees counterclaimed for damages for breach of the contract for sale. Damages were assessed on the basis of the market price on 4 February 1964, the date on which shipping documents might have been expected to have reached F if they had been dispatched on 31 January 1964. On appeal it was held that F had not contracted as agents for the first sellers, with the consequence that the question whether the fraud of the first sellers could be relied on by G as a ground for rescission of the contract with F did not arise. On further appeal.
Held:
(i) in agreeing to buy from G and to sell to the first seller F acted as principals, not as agents for the first sellers (see p 359, letter a, and p 355, letters d and e, post).
(ii) by the issue of the writ F's assignees were primarily claiming a declaration that the contract for sale was valid and accordingly, notwithstanding the further claim for damages, F.'s assignees were not electing by the issue of the writ to treat the contract as terminated (see p 360, letter e, and p 355, letters d and e, post).
(iii) even if F's assignees had, by the mere issue of the writ, elected to treat G's refusal to perform the contract as repudiation of it, so that the contract was rescinded on 24 January 1964, the true date for ascertaining the difference in market price for the purpose of assessing damages would have still been 4 February 1964, because it would have been on that date that F's assignees were deprived of the market value of the goods (see p 360, letter g, and p 355, letters d and e, post).
Decision of the Court of Appeal ([1965] 3 All ER 273) affirmed.
Notes:
As to the contractual position where the fact of a party being an agent is not disclosed, see 1 Halsbury's Laws (3rd Edn) 228, para 516; as to the position arising on the fraud of principal or agent, see ibid, p 221, para 502; and for cases on the subject, see 1 Digest (Repl) 681-687, 2435-2456.
As to the assessment of damages for breach of a contract for the sale of goods by reference to the market price, see 34 Halsbury's Laws (3rd Edn) 149, 150, para 248; and as to mitigation of damages, see 11 Halsbury's Laws (3rd Edn) 290, 291, para 478; and for cases on that subject, see 17 Digest (Repl) 107-111, 224-248.
As to election to accept repudiation, see 8 Halsbury's Laws (3rd Edn) 204, para 344, text and notes (c), (d) and 34 ibid, pp 147, 148, para 245.
Appeal
The main appeal was by Garnac Grain Co Inc. ("Garnac"), the appellants, from an order of the Court of Appeal (Sellers, Danckwerts and Diplock LJJ) dated 30 June 1965 (and reported [1965] 3 All ER 273) and a supplemental order of that court dated 28 July 1965, allowing the appeals of the respondents, H M F Faure & Fairclough ("Faure") and Bunge Corpn ("Bunge"), defendants in an action brought by Garnac, from a judgment of Megaw J dated 31 July 1964 (reported in part, [1965] 1 All ER 47). By that judgment Megaw J declared that neither Faure nor Bunge were entitled to enforce a contract dated 15 July 1963, in which Garnac were named as sellers of fifteen thousand tons of lard and Faure were named as buyers;
- (ii)
- dismissed the counterclaims of Faure and Bunge whereby they sought declarations that the contract was valid and binding and an award of damages for breach thereof by Garnac and
- (iii)
- gave judgment in favour of Bunge against Faure in the Sum of £233,259 with interest for breach of a warranty that the contract was valid and binding on Garnac and
- (iv)
- ordered that Garnac should have one third of their costs of the action against Faure and Bunge jointly and severally and that Faure should pay Bunge's costs (including any payable to Garnac).
On appeal the Court of Appeal
- (i)
- granted Faure declarations that the contract of 15 July 1963, and an assignment dated 13 December 1963, under which Faure assigned their rights under the contract to Bunge, were both valid;
- (ii)
- ordered that Bunge recover £254,464 with interest from Garnac;
- (iii)
- dismissed Bunge's counterclaim against Faure; and
- (iv)
- made orders as to costs, the effect of which was that Garnac were liable to pay the costs of both Faure and Bunge on all issues both in the Court of Appeal and below.
There was another appeal, associated with the main appeal; whereby Bunge appealed against the same order and supplemental order of the Court of Appeal; the main appeal was decisive of the associated appeal (see p 361, letter b, post).
The facts are set out in the opinion of Lord Pearson, post, and in the judgment of Sellers LJ [1965] 3 All ER at pp 275-278.
F P Neill QC, C S Staughton and A D Colman for the appellants.
A J L Lloyd QC and A B R Hallgarten for the first respondents.
Mark Littman QC and J R Bickford Smith for the second respondents.
Their Lordships took time for consideration