7714 All England Law Reports [1970] 2 All ER Farnworth Finance Facilities Ltd v Attryde and another COURT OF APPEAL, CIVIL DIVISION LORD DENNING MR, FENTON ATKINSON AND MEGAW LJJ gth, roth, 13th Apri. 1970 Contract ~ Breach - Fundamental breach - Affirmation of contract - Hire-purchase of motor cycle - Extensive use of motor cycle after some defects known - Repudiation of contract after further defects discovered - Defects rendering motor cycle unroadworthy - Agreement ‘excluding conditions or warranties, express or implied. By a hire-purchase agreement dated 24th July 1964 the first defendant agreed to buy anew motor cycle for (518 1s 10d, a deposit of £155 5s 10d was paid, the balance to be paid in monthly instalments, The agreement provided that the vehicle supplied was ‘subject to no conditions or warranties whatsoever express or implied’. The motor cycle was defective and was returned to the dealers, the second defendants, to correct the faults; subsequently it was returned to the manufacturers but not all the faults were remedied. In November 1964, the rear chain broke and damaged the crank case, The first defendant (who had paid four monthly instalments) repudiated the contract and the finance company, the plaintiffs, repossessed the motor cycle which they sold for {142 5s. The plaintifis claimed {149 damages for breach of che hire-purchase agreement against the first defendant and by amend- ment from the second defendants, The first defendant pleaded fundamental breach and counterclaimed the amount paid by way of deposit and instalments. The county court judge held that the first defendant was entitled to reject the machine and had not affirmed the contract. Judgment was given for the plaintiffs against the second defendants and for the first defendant against the plaintiffs on the plaintiffs’ claim, with judgment for the first defendant against the plaintiffs on the counterclaim. The second defendants appealed. Held -(i) The defects in the motor cycle were such as were likely to cause an accident or render the vehicle unsafe for use on the road and were accordingly fundamental breaches of the contract such as to disentitle the plaintiffs from relying on the exclusion clauses (see p 778 a and p 779 € and g, post). Yeoman Credit Led v Apps {196r] 2 All ER 281, Astley Industrial Trust Ltd v Grimley [1963] 2 All BR 33 and Charterhouse Credit Co Ltd v Tolly [1963] 2 All ER 432 applied. (i) The first defendant had not affirmed the contract by using the motor cycle because he had not at that time elected to go on with the contract knowing the extent of the defects (see p 778 d, and p 779 ¢ and g, post). Notes For exemption clauses in hire-purchase contracts, see 19 Halsbury’s Laws (3rd Edn) 531, 532, para 885, and for cases on the subject, see 26 Digest (Repl) 665, 666, 31-36. For implied conditions and warranties and provisions as to exclusion of implied conditions and warranties in the case of hire-purchase agreements within the Hire- Purchase Act 1965, see ss 17, 18, 45 Halsbury’s Statutes (and Edn) 1430, 1431. Cases referred to in judgments Astley Industrial Trust Ltd v Grimley (1963] 2 All ER 33, [1963] t WLR 584, Digest (Cont Vol A) 645, 36ba, Charterhouse Credit Co Ltd v Tolly [1963] 2 All ER 432, [1963) 2 QB 683, [1963] 2 WLR 1168, Digest (Cont Vol A) 649, 43b. Harbutt’s Plasticine Lid v Wayne Tank and Pump Co Ltd (970) x All BR 225, [1970] 1 QB 447, [1970] 2 WLR 198.> CA Farnworth Finance Facilities v Attryde (Lord Denning MR) 775 Karsales (Harrow) Ltd v Wallis [1956] 2 All ER 866, [1956] 1 WLR 936, 26 Digest (Rep!) 666, 35. Pollock eo Co v Macrae 1922 SC (HL) 192, 1922 SLT sro, 39 Digest (Repl) 578, *566. Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1966] 2 All ER 61, [1967] 1 AC 361, [1966] 2 WLR 944, Digest (Cont Vol B) 652, 24134. UGS Finance Ltd v National Mortgage Bank of Greece and National Bank of Greece SA [1964] 1 Lloyd's Rep 446. Yeoman Credit Led v Apps [1961] 2 All BR 281, [1962] 2 QB 508, [1961] 3 WLR 94, Digest (Cont Vol A) 648, 434. Appeal ‘This was an appeal by the second defendants, King’s Motors (Oxford) Ltd, against a decision of his Honour Judge Temple-Morris QC given at Cardiff County Court on uith July 1969 whereby the county court judge held that the first defendant, Jack Frederick Attryde, was entitled to repudiate a contract dated agth July 1964 with Farnworth Finance Facilities Ltd, the plaintiffs, for the hire-purchase of a motor cycle and was entitled to damages against the plaintifis on his counterclaim and that the plaintiffs were entitled to be indemnified by the second defendants. ‘The facts are set out in the judgment of Lord Denning MR. A W Hamilton for the second defendants. TJ F Hobley for the plaintifts. E'S Cagalet for the first defendant. LORD DENNING MR. The first defendant is a civil servant employed by the Ministry of Aviation at Aberporth in Cardiganshire. In 1964, when he was aged 23, he wanted a new motor cycle. He read an advertisement issued by the Enficld Cycle Co Ltd and decided to get a Royal Enfield Interceptor. He went to dealers, the second defendants, King’s Motors (Oxford) Ltd of Wolverhampton. They got a machine from the makers and supplied it to him on hire-purchase terms. The finance company was Farnworth Finance Facilities Ltd of Cardiff, the plaints. ‘The second defendants had the forms in their office at Wolverhampton. ‘The first defendant signed them and took delivery of the machine. The cash price was £427 58 tod, ‘The finance charges were {89 16s. Add {1 option to purchase. Thus ‘making a total hire-purchase price of ('518 1s tod. The first defendant paid £155 58 10d down, with instalments payable over the next three years of {10 18 a month. The first defendant took delivery of the machine on r1th July 1964. But he had a lot of trouble with it. He took it back to the second defendants. ‘They tried to correct the faults, but did not succeed. So he took it back to the makers, the Enfield Cycle Co Ltd at Redditch. They had it for nine days—from ast to 31st July 1964, They remedied some defects, but they did not succeed in remedying all the faults, On 13th August, the first defendant took it back again to the Enfield Cycle Co Ltd. They had it this time for some weeks, He did not get it back until 15th October 1964. They had remedied some defects, but not all. He used it for five weeks, from 15th October to 23rd November. But he found that there were still serious faults. The last straw was on Saturday, arst November 1964. As he was turning out from a drive, the rear chain broke. The broken chain knocked a hole in the crank case and caused considerable damage. It would be a very expensive repair. He decided that he would not go on with it any further. He wrote on Monday, 23rd November 1964: ‘Lam not making any further effort to get Enfields or things to put things right. Ihave tried hard enough and got nowhere. Obviously I will not continue to pay hire charges for a machine I cannot use and which has been a trouble- some burden ever since I've had it. Please come and repossess the bike you will find it at the address given at the start of this letter,’776 All England Law Reports [1970] 2 All ER ‘That was his address in Cardiganshire. So being utterly disappointed, he rejected the machine. It was a big loss to him: for he had paid £155 10s down. He had paid four instal- ments of £10 1s. So he had paid {/195 14s. The plaintiffs, or someone on their behalf, came and took possession of the machine. They sold it for {142 5s. They then sued the first defendant for a further £149 1s. He no longer had the motor cycle, and he was now being sued for a further {'r49 18. He resisted the claim on the ground that the plaintiffs had been guilty of a fundamental breach of their obligations under the contract. He put in a counterclaim for his own loss. The plaintiffs said that, if they were in breach, they could claim indemnity from the second defendants. So they joined them as defendants, The action was tried by his Honour Judge Temple-Morris QC at Cardiff. He accepted the first defendant's evidence in its entirety. The first defendant had written letters giving full details of all the troubles, These were quite accurate. The second defendants had not adduced any satisfactory evidence in answer. They had only called a spares manager who knew very little about the machine, He had only given it a road test. He had ridden it at 60 to 70 mph and said weakly that it was ‘not satisfactory’. In the light of all the evidence, the judge found that the machine was not roadworthy at the time of the purchase, The items of complaint, he said, made up a fundamental breach. He adopted the words of one of the witnesses that ‘it was disgusting for a new machine’. The judge found that the first defendant had not affirmed the contract and was entitled to reject the machine. He was not liable to the plaintiffs. On the contrary, he was entitled to damages against them on his counterclaim, He awarded him the money he had paid down—[155 5s tod—and the four instalments of £10 1s. That is £195 9s 1od in all. The judge held that the plaintiffs were entitled to be indemnified by the second defendants. Now the second defendants appeal to this court. They take up the cudgels for the plaintiffs. They say that the plaintiffs were not liable to the first defendant and so there is no call for an indemnity. The issues depend very much on the terms of the contract between the parties. The printed form contains two contracts. One is between the second defendants and the plaintiffs, whereby the second defendants sell the machines to the plaintiffs. The other is between the plaintiffs and the first defendant, whereby the plaintiffs let out the machine to the first defendant on hire- purchase terms. ‘The contract between the second defendants and the plaintiffs is at the bottom of the form: “We hereby offer to sell the »aid vehicle to you for the cash price stated above . « . The said vehicle conforms in all respects with statutory requirements and is in a roadworthy condition.’ ‘That contract by the second defendants is clear and unequivocal. They promise that the machine is roadworthy. ‘The contract between the plaintiffs and the first defendant is at the top of the form. Ie contains several conditions purporting to exempt the plaintiffs. I will read the material ones: “the [first defendant] further expressly acknowledges that: ... 2. He has examined the said vehicle and found it in good order and condition . . . 4, The said vehicle is supplied to him subject to no conditions or warranties whatsoever expressed or implied save those (if any) that are implied where the Hire Purchase price does not exceed (300! by virtue of the Hire Purchase Acts, 1 £300 was the limit for the application of the Hire-Purchase Act 1938 (repealed); see s 1 (@3 Halsbury’s Statutes (and Edn) 1021); the Hire-Purchase Act 1954, § 1 (34 Halsbury's Statutes (and Edn) 758). The Hire-Purchase Act 1965 applies where the hire-purchase price does not exceed £2,000; see s 2 (45 Halsbury's Statutes (2nd Edn) 1417)~ CA Farnworth Finance Facilities v Attryde (Lord Denning MR) 777 5. The said vehicle is not supplied subject to any condition that the same is fit for any particular purpose...” The schedule gave this description of the vehicle: “Royal Enfield Interceptor Motor Cycle c.c. 736. . . New or Secondhand. [Answer] New.” We have in this case to apply the principles about fundamental breach, which were recently considered by this court in Harbutt’s Plasticine Lid v Wayne Tank and Pump Co Ltd, The first thing to do is, no doubt, to construe the contract, remembering always the proposition of Pearson LJ? which was approved by the House of Lords in Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale+: *,.. there is a rule of construction that normally an exception or exclusion clause or similar provision in a contract should be construed as not applying to a situation created by a fundamental breach of contract.’ That rule of construction applies here. It means that we must see if there was a fundamental breach of contract. If there was, then the exempting condition should not be construed as applying to it. We look, therefore, to the terms of the contract, express or implied (apart from the exception clduses) and see which of them were broken. If they were broken in a fundamental respect, the finance company cannot rely on the exception clauses. ‘As between the plaintiffs and the first defendant, there was no express term about the condition of the machine. But there were implied terms. It has been established by a series of cases in this court that, in a hire-purchase agreement of a motor vehicle there are a number of implied terms which are of fundamental importance. These cases are: Yeoman Credit Ltd v Apps’, Astley Industrial Trust Ltd v Grimley’ and Charterhouse Credit Co Ltd v Tolly’. These cases show that it is an implied condition that the machine should correspond with the description and that it should be reasonably fit for the purpose for which it was hired; which means, of course, that it should be roadworthy. In addition, the machine in this case was expressly described as ‘new’, which adds emphasis to the implied terms. A new motor cycle should at any rate be a workman-like motor cycle which is safe to be used on the roads. There were clearly breaches of those implied terms. But were the breaches fundamental? Were they such as to preclude the plaintiffs from relying on the printed conditions which purported to exclude their liability? Counsel for the second defendants submitted that these breaches were much less serious than those in the earlier cases which have been before this court, such as Karsales (Harrow) Ltd v Wallis (where the vehicle had to be towed in) or Yeoman Credit Ltd v Apps® (where it took rf hours to get 3 or 4 miles). Counsel for the second defendants said that, although the defects here were such as to disappoint the first defendant, nevertheless they were not so grave as to amount to a fundamental breach. The judge held the contrary. I think he was right. Any defect is serious if it is likely to cause an accident or to render the vehicle unsafe on the road. It may be easily remediable, yet, until it is remedied, it is a serious defect. There were defects here which very nearly caused accidents, In August (before the return to the makers) a pannier fell off and caused » [1970] 1 All ER 225, [1970] QB 447 In UGS Finance Ltd v National Bank of Greece and National Bank of Greece SA [1964] 1 Lloyd's Rep 446 at 453 [1966] 2 All ER 61 at 68, 75, 88, [1967] 1 AC 361 at 393, 405, 426 [1961] 2 All ER 281, [1962] 2 QB 508 {1963] 2 Al ER 33, [1963] 1 WLR 584 [1963] 2 AIL ER 432, [1963] 2 QB 683 [1956] 2 All ER 866, [1956] 1 WLR 936 wane7718 All England Law Reports [1970] 2 All ER the machine to slide about the road. A headlight failed at night and at speed because the dip switch was corroded. After the return from the makers, the machine was still unstable at high speeds. He had to use it without the pannier. The headlights failed twice more at night and at speed owing to the terminals coming off the wires. The lubricating system was still at fault. Finally the rear chain broke. It was only by good fortune that there was not a serious accident. In those circumstances, I think the breaches were fundamental. They went to the very root of the contract. They disentitled the plaintiffs from relying on their exception clauses, at any rate if the first defendant had not affirmed the contract. That is made clear by Harbutt’s Plasticine Led v Wayne Tank and Pump Co Ltd?. The next question is whether the first defendant affirmed the contract. Counsel for the second defendants points out that the first defendant had ridden this bicycle for 4,000 miles, Even after he got it back from the makers on 15th October he had used it for five or six weeks till agrd November and had ridden 3,000 miles on it. Counsel said that by using it all that time the first defendant had affirmed the con- tract and it was too late for him to repudiate it. But as the argument proceeded, I think that counsel for the first defendant gave the right answer. He pointed out that affirmation is a matter of election. A man only affirms a contract when he knows of the defects and by his conduct elects to go on with the contract despite them. In this case the first defendant complained from the beginning of the defects and sent the machine back for them to be remedied. He did not elect to accept it unless they were remedied, But the defects were never satisfactorily remedied. When the rear chain broke, it was the last straw. It showed that the machine could not be relied on, This knowledge was not brought home to him until this last final incident. The first defendant was entitled to say then: ‘I am not going on with this machine any longer. I have tried it long enough.’ After all, it was a contract of hiring. The machine was not his until the three years had been completed—and the price paid. Owing to the defects, che first defendant was entitled to throw up the hiring: co say he would have no more to do with it; and to claim damages. The judge found that the first defendant did not affirm the contract and I agree with him. I may add that, even if the first defendant had affirmed the contract (so that he would be liable to pay the instalments), nevertheless counsel for the second defendants conceded quite rightly that the first defendant would still have been able to claim damages for the fandamental breach. The exception clauses would not protect the plaintiffs, But I need not go into that question because in my view there has been no affirmation. The first defendant was entitled to reject the machine and claim es against the plaintiffs. I may say that the plaintiffs supported the first defendant. They were quite ready to admit that this machine was unroadworthy, but they claimed to be indemnified by the second defendants, There is one other point, and that is on damages. Counsel for the second defendants said that the first defendant ought to give credit for the use which he had of the motor cycle for some 4,000 miles. He relied on Charterhouse Credit Co Ltd v Tolly'® when such a credit was allowed. Butit seems to me that the value of any use had by the first defendant is offset by the great amount of trouble he had. So no credit need be given for the use. I see no reason for interfering with the award of the judge on es. So the plaintiffs are liable to the first defendant. But they are entitled to claim over against the second defendants on the express promise that the machine was in a roadworthy condition. ‘They can recover against them the full amount of £149 13, and for the {(195 9s rod that they have to pay the first defendant. The judge so ordered. I find that there is no fault to be found with the judgment of the judge in this case, and I would dismiss the appeal. 9 [1970] 1 All BR 225, [1970] 1 QB 447 10 [1963] 2 All ER 432, [1963] 2 QB 683a ~ CA Farnworth Finance Facilities v Attryde (Fenton Atkinson LJ) 779 FENTON ATKINSON LJ. I agree. Tonly add a few words of my own out of deference to counsel for the second defen- dant’s very attractive and able argument. As I see it, the problem for the learned county court judge, on the authorities, was this: the motor cycle being undoubtedly a thoroughly unsatisfactory machine, could the plaintiffs rely on the exception clauses in the hire-purchase agreement, or, to use Lord Wilberforce’s words in Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale!! were the exception clauses inapplicable on the ground that the parties cannot be supposed to have contemplated such a misperformance, or to have provided against it without destroying the whole contractual substratum of the contract? Taking Lord Dunedin’s words in Pollock é Co v Macrae! to which Lord Denning MR has already referred: ‘Now, when there is such a congeries of defects as to destroy the workable character of the machine, I think this amounts to a total breach of contract, and each defect cannot be taken by itself separately so as to apply the provisions of the conditions of guarantee and make it impossible to claim damages. 1 think on the evidence this case did come very near the line; but there was a most formidable list of defects of one kind and another set out in the first defendant's various lerters. It was a question of fact and degree for the county court judge who really got no help at all from the plaintiffs, the second defendants or the manufac- turers. No attempt was made in their evidence to explain or excuse the numerous faults complained of; and for my part I am not prepared to differ from the con- clusion that he reached, that there was here a breach of a fundamental term and that this machine as delivered to the first defendant really was not a workable machine on a road, On the other matters of affirmation and damages, there is nothing I wish to add. ‘We heard interesting arguments on the true construction of cll 4 and 5 of the exception provisions of the hire-purchase agreement; but in the result those difficulties in my view do not have to be resolved, I would perhaps only say that for my part I think that cl 4 does not assist the first defendant, the hire-purchase price being over the £300! level; and certainly that the second defendants’ statement at the bottom of the document cannot form any part of the contract between the plaintiffs and the first defendant. I quite agree that this appeal should fail. MEGAW LJ. I agree. Appeal dismissed. Solicitors: Sinclair, Roche é Temperley, agents for Vaughan é Roche, Cardiff (for the second defendants); Graeme Kemp, Cardiff (for the plaintiffs); Gwilym Richards & Co, Newcastle Emlyn (for the first defendant), Rosalie Long Barrister-at-Law. 11 [1966] 2 All BR 61 at 93, [1967] 1 AC 361 at 433 12. 1922 SC (HL) 192 at 200 13. This was the limit for the application of the Hire-Purchase Act 1938, see footnote 1, P 776, ante