Morris v Baron and Co
[1918] A.C. 1(Judgment by: Lord Finlay LC (including background))
Between: Morris - Appellant
And: Baron and Company - Respondent
Judges:
Lord Finlay LCViscount Haldane
Lord Dunedin
Lord Atkinson
Lord Parmoor
Subject References:
SALE OF GOODS
Contract required to be evidenced in Writing
Rescission
Variation
Accord and Satisfaction
Implied Rescission by unenforceable Parol Contract
Legislative References:
Sale of Goods Act, 1893 (56 & 57 Vict. c. 71) - s. 4
Judgment date: 19 October 1917
Judgment by:
Lord Finlay LC (including background)
A contract for the sale of goods of more than 10l. in value, evidenced in writing as required by s. 4 of the Sale of Goods Act, 1893, may be impliedly rescinded by a parol contract for the sale of goods, though unenforceable by reason of its non-compliance with the statute, where there is a clear intention to rescind as distinguished from an intention to vary.
Noble v. Ward (1867), L. R. 2 Ex. 135 explained and distinguished.
Dictum of Sankey J. in Williams v. Moss' Empires, Ld. [1915] 3 K.B. 242 overruled.
Case v. Barber (1681) T. Raym. 450 and Wickham v. Taylor (1681) T. Jones, 168 disapproved by Lord Finlay L.C.
Decision of the Court of Appeal reversed.
Appeal from an order of the Court of Appeal (Swinfen Eady L.J., Bankes L.J., and A. T. Lawrence J.) reversing a judgment of Bailhache J. so far as appealed against.
The facts are fully stated in the judgment of the Lord Chancellor.
The following summary is taken from the judgment of Lord Parmoor:-
"The appellant is a woollen manufacturer, and the respondents are merchants of worsted goods carrying on business at Brook Street, Bradford. On September 24, 1914, the appellant contracted to sell to the respondents 500 pieces of moss blue serge at the prices fixed and on the conditions stated in the memoranda in writing signed by both parties. On March 19, 1915, the appellant commenced an action against the respondents to recover the sum of 888l. 4s., the value of goods supplied to that date. The respondents counter-claimed for 934l. 17s. 3d. for the non-delivery of goods in breach of the terms of the contract. When this action was coming on for trial the appellant and respondents made a parol arrangement, and for the purpose of this appeal the terms of such arrangement may be taken to be expressed in a letter of April 22, 1915."'Dear Sirs, - As personally arranged between Mr. Morris, and Mr. Baron, we herewith confirm the terms agreed upon."'Both to withdraw the legal proceedings and instruct the solicitors accordingly, and each to pay his own costs, you to allow 30l. (thirty pounds) to us to meet expenses incurred through not fulfilling the orders."'The account to be left over for three months so as to give us the opportunity of selling the goods, and the goods not delivered to be kept for us if we ask for them."'We have the option of taking up the balance of pieces to complete the order, giving time to make."'Yours faithfully,"'Baron & Co.'
"On February 15, 1916, the appellant commenced a second action against the respondents to recover the sum of 888l. 4s. still due to him. The respondents admitted this claim, subject to their counter-claim for damages for non-delivery of goods. This counter-claim was founded on the April contract of 1915, and alternatively on the September contract of 1914. The trial judge, Bailhache J., gave judgment for the appellant on the counter-claim, but the Court of Appeal reversed this decision, and it is against this order that the appeal is brought."
Bailhache J., dealing with the case under the contract of April, dismissed the counter-claim on the ground that the respondents could not validly exercise their option while repudiating their obligation to pay. The objection that the counter-claim was not enforceable by the respondents by reason of s. 4 of the Sale of Goods Act, 1893, was raised but not argued; but it was fully argued in the Court of Appeal.
The Court of Appeal held
- (1.)
- that the contract of April was an agreement for the sale of goods and was not enforceable;
- (2.)
- that, the contract of April being wholly inoperative, the parties must be relegated to their rights under the original contract, on the ground that a written agreement, which was required by the Sale of Goods Act to be in writing, could not be rescinded except by an agreement in writing, and they gave judgment for the respondents on the counter-claim.
1917. July 19, 20, 23, 24. Tindal Atkinson, K.C., and Thomas P. Perks, for the appellant. The contract of April, 1915, is none the less a contract for the sale of goods in that it is also a contract for something else, namely, the settlement of an action: Harman v. Reeve; and it is unenforceable against the appellant because it is not evidenced in writing as required by s. 4 of the Sale of Goods Act, 1893. But, though unenforceable, it operates to supersede the original contract.
Noble v. Ward, on which the Court of Appeal relied, is distinguishable on two grounds. First, it was a decision under s. 17 of the Statute of Frauds (which differs in its language from s. 4 of the Sale of Goods Act, 1893) and proceeded on the footing that the second contract was absolutely void (as to which see Leroux v. Brown ), and a thing which has no existence cannot operate to do anything. Secondly, the decision merely showed that a parol agreement to extend the time for performing a contract required to be in writing by the Statute of Frauds did not rescind, vary, or in any way affect the written contract, and could not in point of law be substituted for it: Hickman v. Haynes. But here the contract of April was not a mere variation of the mode of performance, but altered the legal position of the parties as a matter of substance; it was a perfectly new contract made under circumstances which absolutely precluded the parties from reviving the old contract. A contract which is required to be in writing, though it cannot be varied, may be rescinded, by a parol contract: Goss v. Lord Nugent.
Further, assuming that the new contract amounts to a mere variation of the old contract, under s. 4 of the Sale of Goods Act, 1893 (which follows the language of s. 4 of the Statute of Frauds), except for the purpose of being enforced by action a contract which does not comply with the requirements of the section is perfectly good: Maddison v. Alderson; Britain v. Rossiter; Lucas v. Dixon; Hugill v. Masker; Taylor v. Great Eastern Ry. Co. Therefore the contract of April may be used by the appellant by way of defence to the respondents' counter-claim for the purpose of showing that the respondents cannot charge him on the old contract inasmuch as the new contract amounted to an accord and satisfaction of their claim. The respondents cannot enforce the new contract against the appellant because it has not been signed by him, and they cannot enforce the old contract against him because the appellant can avail himself of the new contract.
Lastly, apart from the question under the statute, the respondents are not entitled to succeed on their counter-claim in the face of their own default in payment. The respondents throughout refused payment for the goods already delivered until delivery of the balance. This case does not fall within the class of case where one party before breach gives notice that he does not intend to carry out his contract and the other party instead of treating the contract as at an end, as he is entitled to do, treats it as still subsisting. In such a case the second party cannot claim damages on the footing of an anticipated breach. But where, as here, one party breaks his contract in a matter going to the root of the contract he cannot call upon the other party to implement his obligation thereunder: Withers v. Reynolds; Freeth v. Burr; Mersey Steel and Iron Co. v. Naylor, Benzon & Co.; Johnstone v. Milling.
Langdon, K.C., and Richard Watson, for the respondents.
1. This case is covered by Noble v. Ward, which was rightly decided, and the parties are relegated to the original contract. An accord and satisfaction is of no effect unless the agreement is binding and can be enforced: Case v. Barber; Lynn v. Bruce.
2. Reading the two contracts together, the latter is not a contract for the sale of goods, and therefore does not require to be evidenced in writing. In Tyers v. Rosedale and Ferryhill Iron Co. Martin B. in a dissentient judgment, which was expressly adopted by Blackburn J. in the Exchequer Chamber, where the judgment of the Court of Exchequer was reversed, draws a distinction between a contract for the sale of goods and a contract respecting the delivery of goods already sold, which is not within the section at all. So here, assuming that the old contract is superseded, the new contract, which provides a substituted method of delivery, is not a contract for the sale of goods.
3. Upon a true view of the facts there never was any repudiation of the contract by the respondents and the appellant never treated the contract as repudiated. The payment of the price of the goods already delivered was not a condition precedent to the respondents' right to delivery of the balance, but was an independent stipulation.
Tindal Atkinson, K.C., replied.
[The following authorities were also referred to:- Williams v. Moss' Empires, Ld.; Ogle v. Earl Vane; Egerton v. Mathews; Leather Cloth Co. v. Hieronimus; Price v. Dyer; Vezey v. Rashleigh; Comyns' Digest, "Accord" (B 4) 4; Addison on Contracts, 11th ed., p. 185; Fry on Specific Performance, 5th ed., s. 1060.]
The House took time for consideration.
Oct. 19. Lord Finlay L.C. My Lords, this action was brought for the recovery of 888l. 4s., the price of goods which had been sold and delivered by the plaintiff to the defendants. The right of the plaintiff to recover this sum was not in dispute, but the defendants set up a counter-claim for damages for non-delivery of other goods by the plaintiff to the defendants.
The case was tried by Bailhache J. without a jury. He gave judgment for the plaintiff on the claim, and dismissed the counter-claim on the ground that the defendants had not made a valid exercise of their option under the contract to have the goods in question delivered to them.
The Court of Appeal reversed the judgment of Bailhache J. on the counter-claim, and entered judgment upon it for the defendants, the damages to be assessed by a referee.
From that decision this appeal is brought to your Lordships' House by the plaintiff in the action.
The appellant is a worsted manufacturer and the respondents are merchants. On September 24, 1914, they entered into a contract in writing for the sale by the appellant to the respondents of 500 pieces of cloth: 223 of these pieces were delivered. Disputes arose between the parties, the respondents complaining of delay in delivery under the contract, and the appellant complaining of the respondents' failure to pay for the goods which had been delivered, and litigation ensued.
The first action was brought on March 19, 1915. In it the plaintiff (the present appellant) claimed 888l. 4s., the price of the goods delivered, while the defendants (the present respondents) counterclaimed for damages in respect of the failure to deliver 277 pieces, the balance of the 500 pieces contracted to be sold, On April 20, 1915 (three days after the delivery of the counter-claim), the parties at an interview agreed to a settlement, and on April 22 the respondents sent a letter to the appellant setting out the terms of settlement. The appellant did not admit the correctness of the statement of the terms in this letter, but Bailhache J. for the purposes of his judgment assumed its correctness, and I shall deal with the case on this basis, accepting the respondents' statement of the terms of settlement. The letter is as follows:-
"24 and 26, Brook Street, Bradford, April 22nd, 1915.
"Messrs. The Troydale Mill Co., Leeds.
"Dear Sirs, - As personally arranged between Mr. Morris and Mr. Baron, we herewith confirm the terms agreed upon.
"Both to withdraw the legal proceedings and instruct the solicitors accordingly, and each to pay his own costs, you to allow 30l. (thirty pounds) to us to meet expenses incurred through not fulfilling the orders.
"The account to be left over for three months so as to give us the opportunity of selling the goods, and the goods not delivered to be kept for us if we ask for them.
"We have the option of taking up the balance of pieces to complete the order, giving time to make.
"Yours faithfully,
"Baron & Co."
The three months' extension of credit which was given by the terms embodied in this letter for the goods delivered expired on July 22, 1915, and on the 27th the appellant wrote asking for payment according to agreement. On the 28th the respondents wrote back saying that they would be pleased to pay the account if the appellant delivered the balance of the blue pieces to complete the order as stated in the respondents' letter of April 22. On August 17 the respondents wrote as follows to the appellant:-
"Gentlemen, - We are surprised you have not replied to our letter of the 28th July. As explained in that letter, we shall be glad to pay your account on delivery of the balance of the pieces to complete the order.
"As you have not answered we must now ask you to deliver the balance of the blue pieces on or before the 21st September, 1915. Kindly let us know by return of post if you will do this."
A proposal was made by the respondents in September for a variation in the class of goods to be delivered, but this came to nothing.
On September 27 the respondents wrote pressing for delivery, and on February 15, 1916, the second action (that on which this appeal is brought) was begun by the appellant.
Notwithstanding the agreement of April 22, 1915, the respondents had consistently refused payment for the goods already delivered, insisting on their claim to keep back the payment until delivery of the further goods.
The statement of claim in the second action was for the 888l. 4s. for the goods delivered.
The defence admitted the plaintiff's claim, subject to the counter-claim.
The counter-claim set out the contract of September 24, 1914, the proceedings in the first action and the settlement embodied in the letter of April 22, 1915, alleging that the defendants had exercised their option thereunder, but that delivery had not been made, and claimed damages for non-delivery under the arrangement of April 22, 1915, or, alternatively, under the original contract of September 24, 1914.
The counter-claim was based before Bailhache J. solely on the agreement of April 22, and after hearing the evidence of the parties he delivered judgment, disallowing the counter-claim on the ground that the demand by the respondents for the delivery of the goods under the arrangement of April 22, 1915, was not a valid exercise of the option inasmuch as it was coupled with a refusal to abide by the terms of that arrangement as to payment for the goods already delivered.
It was contended before your Lordships on behalf of the respondents that the payment of that money was not a condition precedent to the exercise of the option. But the real question is not whether payment was a condition precedent, but whether the respondents could make a valid claim to have the goods delivered under the option while refusing to observe their part of the bargain. It is perfectly true that the appellant did not, as he might have done, claim that the contract of April 22, 1915, was at an end, treating the respondents' conduct as repudiation.
But the question remains whether they could validly exercise their option while repudiating their own obligation under the agreement which conferred that option. Bailhache J. held that they could not, and I agree. It was contended that the obligation to pay the 888l. 4s. at the end of the three months did not go to the root of the contract and that the only remedy was an action for the amount. The question is whether the obligation was regarded by the parties as an essential part of the new contract, and I think that its terms show that it was so regarded. It is, indeed, in itself a very important question for a manufacturer whether he is to go on making goods without being paid for those which have been delivered, and the stipulation that he should have the money at the end of the three months appears to me to be an essential part of the contract. A party to a contract which imposes certain obligations and confers certain rights upon him cannot claim to exercise these rights while repudiating his obligations in material particulars. The option to take the goods might indeed have been exercised before the three months had expired, but it would not have been a valid exercise of the option within the three months if at the same time the defendant repudiated his obligation to pay at the end of that term.
For these reasons I agree with the decision of Bailhache J. on the contract of April 22.
An objection was also raised before Bailhache J. to the enforcement of the new contract on which the counter-claim is based on the ground that it is not enforceable by reason of the 4th section of the Sale of Goods Act. This point was not argued before him owing to the view which he took on the point I have just dealt with. It was raised and fully argued in the Court of Appeal and in your Lordships' House.
It was contended on behalf of the respondents that the new agreement was not an agreement for the sale of goods but for the settlement of an action. It was no doubt the settlement of an action but a part, and a very material part, of that settlement appears to me to have been an agreement for the sale of goods. It is an agreement that the respondents should have an option of taking the balance of goods undelivered, and it was implied that they were to pay for them on the terms of the original agreement. Surely this is an agreement for the sale of goods. This point, I agree with the Court of Appeal, would be enough to defeat the counter-claim.
But the Court of Appeal went on to hold that the arrangement of April 22, 1915, not being enforceable, must be wholly disregarded and the parties relegated to their rights under the original contract.
The Court of Appeal treated the case of Noble v. Ward as having decided as a matter of law that in a case to which the 4th section of the Sale of Goods Act applies the original contract cannot be rescinded by a contract not complying with the section. In that case there was a valid contract on August 18 for the delivery of goods by the plaintiff to the defendant, and at an interview on September 27 it was agreed that the time for delivery should be extended. The defendant refused to take delivery and an action was brought for non-acceptance, the declaration covering either the contract of August 18 or that of September 27. The case was tried before Bramwell B., who directed a nonsuit on the ground that the contract of August 18 had been rescinded by the parol agreement of September 27, and that the parol agreement itself could not be sued on owing to the 17th section of the Statute of Frauds. The nonsuit was set aside by the Court of Exchequer, and Bramwell B. was himself a member of the Court and delivered the leading judgment. He pointed out that under s. 17 the contract of September 27 was not "allowed to be good," and that to treat it as having the effect of rescinding the old contract would be to hold that it was good for that purpose. A new trial was accordingly ordered. This decision was affirmed in the Exchequer Chamber, judgment being delivered by Willes J. He said that no rescission could be effected by an invalid contract and that it would be at least a question for the jury whether the parties did intend to rescind.
There are two observations to be made on this case.
In the first place, the agreement varying the first agreement was by s. 17 of the Statute of Frauds one which was not allowed to be good, while under s. 4 of the Sale of Goods Act, 1893, which applies in the present case, it is merely not enforceable by action.
There is a marked difference between the wording in this respect of the 4th section of the Statute of Frauds and the 17th section, as was pointed out in Leroux v. Brown, and, notwithstanding the obiter dicta (for they are no more) of some eminent judges, I do not think that the language of the two sections had the same effect. For the present purpose it is enough to say that both Courts in Noble v. Ward treated the contract as being invalid. The change made in the wording of the 4th section of the Sale of Goods Act as compared with s. 17 of the Statute of Frauds in my opinion altered the law. The agreement of April 22, 1915, in this case is not under that section invalid, as was the agreement in Noble v. Ward under s. 17 of the Statute of Frauds. It is only not enforceable by action.
In the second place, Noble v. Ward does not lay down as a matter of law that the parties cannot agree to rescind a written agreement which the law requires to be in writing by the substitution for it of another agreement not in writing, and therefore unenforceable. On the contrary Willes J. in the Exchequer Chamber says that the question would be for the jury. If the law were as the Court of Appeal in the present case has laid it down, he would have said that the judge must rule that such a rescission could not take place.
The point which arises in such cases seems to me to have been well stated by Lord Denman in Stead v. Dawber. In that case there was an agreement for the sale of goods to be delivered "on the 20th to the 22nd." The plaintiff at the defendant's request verbally agreed to enlarge the time to the 23rd or 24th. Lord Denman, after saying that many cases had been cited, expressed himself as follows: "But it seems to us that we are mainly called on to decide a question of fact; what, namely, was the intention of the parties in the arrangement come to for substituting the 24th for the 22nd as the day of delivery; did they intend to substitute a new contract
for the old one, the same in all other respects except those of the day of delivery and date of the accepted bill, with the old one?"
The present is not a case in which there has been a mere attempt to vary the written contract by parol, the situation of the parties being otherwise unchanged. The legal proceedings then pending between the parties were withdrawn, each bearing his own costs, a sum of 30l. was to be allowed to meet expenses from non-delivery, three months' credit was given to the respondents to give them the opportunity of selling the goods, and the respondents were released from the obligation to take the balance undelivered, getting an option instead. Under these circumstances it seems to me to be out of the question to hold that merely because the option is not enforceable on account of the 4th section of the Sale of Goods Act the rights of the parties are to be regarded as still governed by the original contract under which the respondents were bound to take delivery of the balance. Both parties treated the original contract as at an end until attention was called in the Court of Appeal to the case of Noble v. Ward, and the respondents throughout insisted on the option given by the new arrangement and treated the obligation to take delivery as at an end. To go back to the default in making delivery before the first action would be to ignore the settlement for 30l. of that claim, and to give damages for a subsequent default would be to treat the respondents as having been willing after the settlement to perform the original contract, which they certainly were not.
The evidence in the present case points to the conclusion that the parties intended not merely to vary the original contract but to set it aside and substitute another for it, giving a mere option to take delivery of the parcel undelivered. This is the effect of the language of the memorandum of April 22, 1915, and it was on this assumption that all the subsequent dealings and correspondence of the parties proceeded. It is true that neither party adhered to its terms. The appellant tried to get payment of the 888l. 4s. before the three months' further credit had expired, and the respondents refused to pay when it had expired, claiming to retain the money until the goods were delivered. But neither party ever referred to the original contract as governing their rights; on the contrary, they treated it as at an end.
Is the law such as to prevent effect being given to the intention of the parties to treat the original contract as rescinded?
All that Noble v. Ward decided was that it was a mistake to say that as a matter of law the original contract was rescinded, the variation being by parol and there being no change of circumstances. It did not decide that as a matter of law the first contract still existed. As was said in the judgment of the Exchequer Chamber, that would be a matter for the jury. There are some old cases in which it was held that there could not be an accord and a satisfaction by taking an unenforceable agreement in substitution for one which was enforceable (see Case v. Barber in the 33rd year of Charles II.; also Comyns' Digest, "Accord" (B 4) 4, 6, and the case there cited of Wickham v. Taylor, 33 Car. 2); but I do not think that these cases can be now regarded as good law. The non-enforceability of the new agreement would no doubt be a very material fact in arriving at a conclusion upon the question whether the new agreement without performance was taken in accord and satisfaction of the old, but it seems to me to be immaterial when once this has been established in point of fact.
In the present case the parties, in my opinion, took the new agreement such as it was with the other terms of settlement in accord and satisfaction of the original agreement, and there is nothing in law to prevent them from doing so. The respondents, therefore, must stand or fall by the agreement of April 22. It was upon that agreement that the case was brought before Bailhache J., and the learned judge held that the respondents could not recover upon it because they not only failed to pay the 888l. 4s. at the expiration of the extended credit given by that agreement, but throughout insisted that they would not pay until the further goods had been delivered under the option.
In my opinion the decision of Bailhache J. should be restored and this appeal allowed with costs here and below.