Karsales (Harrow) Ltd v Wallis

In a hire-purchase transaction, where the hirer has inspected a chattel and applies for finance on that basis, the lender must deliver it in substantially the same condition and keep it in suitable order pending delivery. A broadly worded exemption clause does not protect a party whose breach goes to the root of the contract. The court must identify the express and implied obligations before assessing whether the breach is fundamental. If goods are not delivered and accepted, the lender cannot sue for instalments; its remedy is damages for failure to accept delivery.

Mr Wallis inspected a Buick motor car in excellent condition and signed blank hire-purchase forms. Mutual Finance Ltd later acquired the car through Karsales (Harrow) Ltd and hired it to him. The vehicle was eventually left outside his garage in a badly damaged condition, incapable of self-propulsion. Mr Wallis refused delivery and returned it.

Karsales, as assignee, sued for ten months’ instalments. The County Court held that clause 3(g), excluding conditions and warranties as to the vehicle’s condition and fitness, prevented liability for the car’s condition and allowed recovery. The central questions were whether the agreement contained an implied obligation as to the vehicle’s condition, whether the breach was fundamental, and whether instalments were recoverable without accepted delivery.

1. Appeal allowed unanimously, with costs in both Courts. The County Court’s decision was reversed.
2. Where a hirer has inspected a chattel and applies for hire-purchase finance on the faith of that inspection, the lender is under an implied obligation to deliver the chattel in substantially the same condition. Pending delivery, it must be kept in suitable order and repair for the purposes of the bailment. The obligation applies even where the lender is a finance company which acquired the chattel without inspecting it. The court referred to Robertson v Amazon Tug & Lighterage Company 7 Queen's Bench Division 598.
3. Clause 3(g) could not protect the lender. Exemption clauses, however widely drafted, operate only where the contract is performed in its essential respects. The court must first examine the contract apart from the exemption clause and identify the express and implied obligations. If the breach goes to the root of the contract, the clause is unavailable. The descriptions different in kind and fundamental term express the same general principle. The vehicle delivered here was incapable of self-propulsion except after substantial overhaul, which amounted to a fundamental breach. This was consistent with the reasoning in Pinnock Bros v Lewis & Peat 1923 1 King's Bench 690, Alexander v Railway Executive 1951 2 King's Bench 882, Smeaton Hanscomb & Co. Ltd. v Sassoon I Setty, Son & Co. 1953 2 All England Reports 1471, J. Spurling, Limited v Bradshaw 1956 1 Weekly Law Reports 461, and Andrews Brothers Ltd. v Singer & Co. Ltd. 1934 1 King's Bench 17.
4. The pleadings were sufficient. A party need plead the material facts, not the legal consequences flowing from them. An incomplete or inaccurate statement of those consequences does not prevent reliance on a legal argument arising from facts properly pleaded.
5. In any event, where goods are let on hire-purchase and the hirer refuses to take them, the lender’s remedy is damages for failure to accept delivery, not arrears of instalments. The assignment covered moneys payable under the agreement, not a separate claim for damages. The vehicle was not accepted when it was returned to the same agent who had purported to deliver it. The claim therefore failed on this independent ground, supported by National Cash Register Company v Stanley 1921 3 King's Bench 292 and British Stamp and Ticket Automatic Delivery Company Limited v Haynes 1921 1 King's Bench 377.

• Court of Appeal. Appeal allowed, with costs in both Courts.
• County Court. Held that clause 3(g) excluded responsibility for the vehicle’s condition and that instalments remained recoverable.