Morris v Baron and Co

[1918] A.C. 1

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(Judgment by: Lord Dunedin)

Between: Morris - Appellant
And: Baron and Company - Respondent

Court:

Judges: Lord Finlay LC
Viscount Haldane

Lord DunedinLord 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

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Judgment by:
Lord Dunedin

My Lords, I do not recapitulate the circumstances of the case, as they have been fully set out by the noble Lord on the woolsack. For the sake of clearness and brevity I shall call the contract of September 24, 1914, contract A and the agreement of April 20, 1915, contract B. As to contract B, there is no memorandum in writing sufficient to satisfy s. 4 of the Sale of Goods Act, if that section applies to it; and its terms have been held to be for the purposes of this case set out in the letter of April 22, 1915. It is admitted that

(1.)

the legal proceedings which had been instituted in respect of breaches of contract A, which consisted of claim and counter-claim, were withdrawn;

(2.)

the account for goods delivered under contract A was left over for three months;

(3.)

30l. was allowed in credit by the plaintiff to the defendants.

Upon these facts the case falls to be decided.

My Lords, the case raises points of law of great nicety, chiefly for the reason that there is a mass of authority, not always consistent, dealing with questions akin to the questions here raised; and that there is a great responsibility on any one in your Lordships' House who attempts to lay down general rules, and in so doing may seem to run counter to the dicta of learned judges in the past. Nor has the case been made easier by the somewhat peculiar manner in which it was treated by the parties and, in consequence of their attitude, by the Courts below.

The action is for the value of goods sold and delivered to the amount of 888l. 4s. It is not expressly founded on any contract, although the goods were doubtless delivered under contract A. The defence admits the claim as for goods sold and delivered, then sets out contract B, and averring breach counter-claims under that contract. It is true that in the pleading there is made an alternative claim as for breach of contract A, but before the trial judge the whole case for the counter-claim was put and urged on the assumption that contract B was the ruling contract and that the breach had taken place under it.

The trial judge found in fact that in terms of contract B the defendants were bound to pay 888l. at the end of July, being the date of the expiry of the three months; that they positively refused to do so; and on these facts he held that the counter-claim failed. It is a little difficult to say whether the learned judge held the counter-claim to fail because this maintained attitude of the defendants amounted to a repudiation of the contract; or upon the ground that as the defendants never asked for delivery, except coupled with the assertion that they refused to pay the 888l. until delivery was made, that was tantamount to the defendants never really asking for delivery at all. On the learned judge's announcing his decision counsel for the plaintiff said that he had a point which he had not been able to bring forward, namely, that contract B was unenforceable under the 4th section of the Sale of Goods Act, and therefore could not be the foundation of a counter-claim. To this counsel for the defendants retorted that if that were so he might go back to the original contract, to which counsel for the plaintiff replied that he was prepared to deal with that argument. The matter then dropped.

In the Court of Appeal, the learned judges having seemingly indicated that they were not prepared to agree with the view of the learned trial judge as to the application of the facts to contract B, the plaintiff brought forward his argument that s. 4 of the Sale of Goods Act applied to contract B. This was resisted by the defendants' counsel, as appears from the judgment of Swinfen Eady L.J., who says:

"The question is, was the contract of April 22 an agreement which is within the section and ought it to be in writing? Was it an agreement for the sale of goods? It is contended by the defendants that it was not."

The defendants, however, found salvation in the defeat of their argument, for the Court of Appeal, deciding against them that contract B did fall within the section, proceeded to say that the case was ruled by the case of Noble v. Ward, and gave judgment for the counter-claim upon the alternative plea for breach of the original contract A, a view which seems to have been unpressed by the defendants themselves. Accordingly, as the appeal now stands before your Lordships' House, the question to be first decided is whether, assuming that contract B is within the section, the present case really falls within the decision in Noble v. Ward.

My Lords, let me first say that I unhesitatingly accept Noble v. Ward as well decided and laying down correct law. The judgment in the Exchequer was the judgment of Pollock C.B. and Bramwell, Channell, and Pigott BB. In the Exchequer Chamber the judgment was given by Willes J., and was concurred in by Blackburn, Mellor, Montague Smith, and Lush JJ. He would be a bolder iconoclast than I am who should say that a judgment resting on the authority of such names did not correctly set forth the law of England. But now comes the question of what exactly it was that Noble v. Ward decided, and that is not so easy to determine as might be expected. For in truth there are three possible views of the true effect of Noble v. Ward. I shall examine each of them. First, there is the view, strongly contended for by the appellant at your Lordships' Bar, that, inasmuch as the transaction in that case fell within the 17th section of the Statute of Frauds, which uses the expression "No contract.... shall be allowed to be good except," & c., it was entirely void, and as such could effect nothing either by way of rescission or variation of the anterior contracts: and that as the 4th section of the Sale of Goods Act, like the 4th section of the Statute of Frauds, does not make void a contract, but only prevents enforcing it, contract B in this case, though nut enforceable, might yet serve as a defence to get rid of contract A.

My Lords, it is quite true that in the Exchequer Chamber Willes J. uses the expressions "invalid" and "void," and I confess if I could have read the case as reported in the Exchequer Chamber apart from all other authority. I should have come to the conclusion that that was the ground of judgment, and that, to say the least of it, the question was still open when you had something to which s. 4 applied and s. 17 did not. But, on the best consideration I can give, I do not think that would be a safe view. For Lord Blackburn, who was a party to the judgment, distinctly said in the case of Maddison v. Alderson in this House: "I think it is now finally settled that the true construction of the Statute of Frauds, both the 4th and the 17th sections, is not to render the contracts within them void, still less illegal, but is to render the kind of evidence required indispensable when it is sought to enforce the contract." And Brett L.J. in Britain v. Rossiter says: "In my opinion no distinction exists between the 4th and the 17th sections of the statute."

In view of these opinions I am inclined to think that although, doubtless, Noble v. Ward proceeded on the 17th section, yet the judgment would have been the same had there only been the 4th in question.

The second interpretation is that which the Court of Appeal have here given, adopting and relying on the views of Shearman and Sankey JJ. in the case of Williams v. Moss' Empires, Ld. It is most succinctly put by Sankey J. in that case:

"A contract which in compliance with the Statute of Frauds is in writing may be rescinded by a new agreement. The new agreement may be one which in order to be enforceable is required to be in writing, or it may be one which is valid though it is not in writing. If it is one which is required to be in writing and is not in writing, it is unenforceable and cannot be treated as evidence that the original contract has been rescinded, and the original contract, therefore, remains in force. But if the new agreement is in writing, or, if verbal, is one which need not be in writing, the new agreement is valid and the original contract is rescinded."

It must be kept in view that this statement of the law is given after Shearman J. had cited the series of cases Goss v. Lord Nugent, Noble v. Ward, Stead v. Dawber, Giraud v. Richmond, Marshall v. Lynn, and Stowell v. Robinson. It will be noticed at once that the learned judge ignores the distinction between variation and rescission. The contract with which he was dealing was obviously a case of variation. There had been an engagement for three years at a certain salary. A verbal arrangement was made whereby the amount of salary was altered; all other terms of the original contract remained. Indeed, the learned judge says in so many words that no such distinction exists where the alteration is a material one. He says:

"I think some confusion has arisen from the use of the words 'variation of a contract.' The result of varying the terms of an existing contract is to produce, not the original contract with a variation, but a new and different contract."

My Lords, I find myself unable to subscribe to this view. The difference between variation and rescission is a real one, and is tested, to my thinking, by this: In the first case there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist; in the second you could sue on the second arrangement alone, and the first contract is got rid of either by express words to that effect, or because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed. When I say you could sue on the second alone, that does not exclude cases where the first is used for mere reference, in the same way as you may fix a price by a price list, but where the contractual force is to be found in the second by itself.

Now each and every of the cases cited (leaving aside for the moment Noble v. Ward ) were attempts to vary; in not one of them was it a case of rescission. Noble v. Ward, though also a case of attempted variation and decided as such, yet had in it the distinction which Shearman J. ignores. In that case there were what Lord Bramwell called contracts A, B, and C. A and B were in writing, C was a parol contract. It was entered into when A and B were both extant and partially performed. Now it was held that C could not vary B, but there was no difficulty made as to its rescinding A. I do not mean that this was decided upon adverse contentions, for neither party maintained that A was to go on. But still the only thing that rescinded or abrogated A was C, and had the plaintiff in that case claimed damages under A as well as under B I do not doubt that the plea that A was abrogated would have been sustained. This brings me to the third view of Noble v. Ward, which I humbly think is the correct one. The criterion does not lie in the question of whether the later contract is itself a contract which needs to be in writing. The criterion is in the question whether what is intended to be effected by the second contract is rescission or variation. Noble v. Ward decided that if the second contract fell within the statute then it could not be appealed to to vary the former; but it did not decide that it could not be appealed to to rescind.

Willes J., in giving judgment and speaking of the later contract, and of the fact that a verbal contract to rescind simpliciter was quite good, says:

"But it would be at least a question for the jury, whether the parties did intend to rescind."

That contract B, if it falls within s. 4, is not gone altogether although not enforceable is clear from the passage already cited from Lord Blackburn, and the like is said in the same case by Lord Selborne:

"It has been determined at law (and, in this respect, there can be no difference between law and equity) that the 4th section of the Statute of Frauds does not avoid parol contracts, but only bars the legal remedies by which they might otherwise have been enforced."

If, then, the contract exists its existence must be treated as a fact, and it must be looked at to see if apart from enforceability it did or did not put an end to the former contract. For it would be an extraordinary result that although a parol contract to rescind a written contract is good, as to which there is no doubt (Goman v. Salisbury and Willes J. in Noble v. Ward ), yet the same thing cannot happen if after rescinding the first contract the parties go on to make another contract which may or may not be enforceable. Accordingly, if express words to that effect are used there can be no doubt. It seems to follow that implication may do as well as express words. But here there must be a note of warning. If the implication be no more than this, that the second contract if valid would displace the first, that by itself is not enough, for, as Willes J. says in Noble v. Ward,

"It is quite in accordance with the cases of Doe d. Egremont v. Courtenay and Doe d. Biddulph v. Poole, overruling the previous decision of Doe d. Egremont v. Forwood, to hold that, where parties enter into a contract which would have the effect of rescinding a previous one, but which cannot operate according to their intention, the new contract shall not operate to affect the previously existing rights. This is good sense and sound reasoning, on which a jury might at least hold that there was no such intention."

The cases there cited are all cases of surrenders of leases upon new leases granted in which it was held that the surrender, whether express or implied, was conditional upon the new lease being good.

I now turn to the facts in this case. There had been alleged breach of contract A on both sides, and action raised with counter-claim. Now the first term of the new contract B is to put each party to withdraw legal proceedings; then to give three months' credit to the defendants in the payment of a sum admittedly due for goods already delivered; then to allow them 30l. in satisfaction of the expenses they had incurred by reason of non-delivery under contract A; and lastly to substitute for the right of the plaintiff to supply and the duty of the defendants to take 277 pieces of cloth, an option on the defendants' part to take them if they pleased.

My Lords, it seems to me impossible to come to any conclusion on this but that the parties agreed that the old contract should be abrogated. I use the word "abrogate," because I think it is a better word than "rescind" when you deal with a contract which has been partly implemented, but as regards the authorities I might as well say "rescind." Further, as regards this arrangement there cannot be a restitutio in integrum. The defendants have had the extended credit, have had the 30l. placed to their credit, and have enjoyed an option not to take, which, if the market had been a falling one instead of a rising one, they would probably have availed themselves of; and these advantages have been enjoyed and cannot be taken away. In respect of these things the old contract was to be held abrogated. But the judgment of the Court of Appeal leaves the defendants with all these advantages and yet holds the old contract binding still.

I am fortified in my view by a passage in Fry on Specific Performance (3rd ed.). Sect. 1039 is as follows: "But where the new contract is relied on only as an extinguishment of the old one, the mere fact that it is not in writing, and so could not be put in suit, seems to be no ground for denying its effect in rescinding the original contract. The Statute of Frauds does not make the parol contract void, but only prevents an action upon it; and it does not seem to be necessary to the extinction of one contract by another that the second contract could be actively enforced. The point has never, it is believed, been matter of decision. But in point of principle it seems to stand on the same footing as a simple agreement to rescind."

I am therefore of opinion that the present case is not ruled by Noble v. Ward, because the question here is not whether contract

A was varied by contract B, but whether it was rescinded by contract B, and on the facts I hold that it was.

There remains the question whether the defendants can sue for breach of contract B in so far as that contract is a contract for sale of the 277 pieces of cloth. I think they cannot for several reasons. In the first place, I think, though with some hesitation, that it falls within the 4th section of the Sale of Goods Act, and cannot therefore, being a parol contract, be actively enforced. I say "with some hesitation," because, looking at the 4th section, I cannot help feeling that the section was meant to deal with what I may call pure contracts of sale, and not contracts dealing with other arrangements as well; and I have felt doubts as to whether when, as here, you have a composite arrangement, dealing with the getting rid of competing claims under an old contract as well as providing for the supply of goods in the future by way of sale, the section ought to apply. But on the whole I have come to the conclusion that in so far as implement of that portion which is sale is asked the section must apply.

But further and apart from that, and taking the case as it was taken by Bailhache J., I agree with the conclusion he reached. I think that the maintained attitude of the defendants under no circumstances to pay the 888l. unless delivery were first made was equivalent to repudiation, but I do not find such an unqualified acceptance on the plaintiff's part of that repudiation as to amount to rescission. But I think also that the payment of the 888l. at the end of the three months was a consideration going to the root of the contract because it was the counterpart of the plaintiff's forbearance to sue and the grant to the defendants of an option to take instead of the old duty to take, and that it was not in the position of an ordinary payment of instalment which would make the case fall within the lines of Mersey Steel and Iron Co. v. Naylor, Benzon & Co. Accordingly, being a stipulation going to the root of the contract, the defendants have all along been in breach, and cannot call on the plaintiff to implement his part; and thus there can be no damages.