\m^^i4^:^tMM&^imM: Olornrll ffiam i'rlioal IGibratg Cornell University Library KO 1605.M86 Rescission of contracts :a treatise on t 3 1924 022 490 035 The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924022490035 RESCISSION: OF CONTKACTS \ A TEEATISE ON THE PRINCIPLES GOVERNING THE RESCISSION, DISCHARGE, AVOIDANCE AND DISSOLUTION OP CONTEACTS MORISON KESCISSION OF CONTEACTS A TEEATISE ON THE PEINCIPLES GOVERNING THE RESCISSION. DISOHAEGE. AVOIDANCE AND DISSOLUTION OP CONTEACTS BY CHAELES BEUCE MOEISON, One of His Majesty's Counsel in Ntw Zealand, AtUhor of ' The Law of Limited Liability Companies in New Zealand,' LONDON : STEVENS & HAYNBS, BELL YARD, TEMPLE BAB, W.O. 1916 TO HIS HONOUK SIK EGBERT STOUT. K.C.M.G. CHIEF JUSTICE OE NEW ZEALAND THIS WOEK IS BY KIND PEKMISSION BESPECTPULLY DEDICATED PREFACE This book was undertaken in the endeavour to escape the embarrass- ment which I (in common with every practising lawyer) have experienced, in trying to spell out of the decided cases a definite and satisfactory set of principles to guide one in advising on breaches of contract. The conflict of authority on this topic, and the diffi- culties arising from a vague and unsatisfactory terminology are within the knowledge of all. Sir Frederick Pollock was good enough to find space in the Law Quarterly Review of October 1912 and January 1913 for an article written by myself, dealing in a general way with the main question discussed in these pages. In that article I was guilty of the use of the general term ' rescission ' as denoting ' discharge by breach,' but my excuse must b'fe the conventional use of that term as covering not only the whole field of ' rescission ' properly so called, but as including ' avoidance,' ' discharge,' and ' dis- solution ' of contracts. If the conclusions I have ofEered to the Profession do not convince, I trust that they may at least help. The greater part of the book was ready for the press before the commencement of the War, which has necessarily delayed publication. C. B. MOEISON. 12 Stout Stbeet, Wellington, N.Z. 2m Sept. 1916. X TABLE OF CONTENTS Chapter IV.— page Eepudiation - 34 General - 34-36 What amouats to - _ . . 36-37 The acceptance of repudiation as an offer to rescind - - 37-39 Chapter V. — Discharge of entire contracts while executory- 40 (a) Failure of consideration - 40 (6) Breach of condition precedent or concurrent 40 Entire contracts - - 44-49 Failure of inducement 49-52 Failure of condition precedent contrasted with failure of consideration - - - 52-61 Conditions precedent and concurrent and Eules in Notes to Pordage v. Cole 61-69 The principle governing discharge of executory con- tracts - 69-73 The conflict of authority 73-80 The test of importance of the stipulation broken 81-86 Alternative views of the importance of the stipula- tion broken - - - 86-97 Chapter VI. — Discharge of partly executed contracts - - - 98-106 Acceptance of benefit of partial performance - - 106-110 Discharge of substantially performed contracts - 110-127 Part II. Chapter VII. — Avoidance for misrepresentation - 128-153 Executory contracts - - 128-143 Executed contracts - - - 143-163 Chapter VIII. — Mistake - - - -154-166 Preventing obligation - 155-159 Rendering contract voidable - 159 Justifying refusal of specific performance - 160 Estoppel or presumption ? - ' . . . 160-166 TABLE OF CONTENTS xi Chapter IX.— page Dissolution by operation of the law - - - 167-178 Chapter X. — Eestitution - - - 179-198 Kestoration of status quo - 179-187 Eights of Third Parties - - 187-198 Chapter XI. — Rescission and /or Damages - 199-204 Appendix.— Copies of Judgments and Notes - 205-261 Index 262 TABLE OF CASES Aar— Beh A page Aaron's Reefs v. Twiss (1896), A.C. 273 ; 65 L.J.P.C. 54 ; 74 L.T. 794 - - . . - - 132, 197 Addie v. Western Bank (1866), L.R. 1 H.L. So. 145 184 Allen V. Cameron (1838), 1 C. & M. 832 ; 3 Tyr. 907 - - - 107, 119 Andrew v. Aitken (1882), 22 CSi. D. 218 ; 52 L.J. Ch. 294 ; 48 L.T. 148; 31 W.R. 425- - - 132 Andrew Miller & Co. v. Taylor (1916), 1 K.B. 402 ; 85 L.J. K.B. 346 ; 32 T.L.R. 161 - - - - 174 Appleby v. Myers (1867), L.R. 2 C.P. 651 ; 36 L.J. C.P. 331 ; 16 L.T. 669 - - - 115, 168, 169, 170, 171, 173 Amhold Karberg v. Blytbe Green (1916), 1 K.B. 495 ; 114 L.T. 152 ; 32 T.L.R. 186 - 174 Arnold v. Arnold (1880), 14 Ch. D. 270 ; 42 L.T. 705, 28 W.R. 635 82 Associated Portland Cement v. Cory & Son, Ltd. (1915), 31 T.L.R. 442 ... . 176 Atkinson v. Smith (1845), 14 M. & W. 695 ; 15 L.J. Ex. 59 44 Avery v. Bowden (1856), 5 E. & B. 714 ; 6 E. & B. 953 ; 26 L.J. Q.B. 3; 28L.T. 145; 5 W.R. 45; 3 Jur. N.S. 238 ; 106 R.R. 882 - - 8, 17 Azemar v. Casella (1866-7), L.R. 2 C.P. 431, 677 ; 36 L.J. C.P. 124, 263 ; 16 L.T. 571 ; 15 W.R. 998 97, 117 B Babcock v. Lawson (1880), 4 Q.B.D. 394 ; 48 L.J. Q.B. 524 ; 27 W.R. 886 ; 5 Q.B.D. 284 ; 49 L.J. Q.B. 408 ; 42 L.T. 289 ; 28 W.R. 591 - ... - 198 Baily v. de Crespigny (1869), L.R. 4 Q.B. 180 ; 38 L. J.Q.B. 98 - 174 Baldey v. Parker (1823), 2 B. & C. 37 ; 3 D. & R. 220 ; 1 L.J. K.B. 229 ; 26 R.R. 260 - - 44 Bank of China v. American Trading Co. (1894), A.C. 266; 63 L.J. P.C. 92 ; 70 L.T. 849 ... 19, 68, 95 Bannennan v. White (1861), 10 C.B. N.S. 844 ; 31 L.J. C.P. 28 ; 8 Jur. N.S. 282 ; 4 L.T. 740 ; 9 W.R. 784 ; 128 R.R. 953 - 15, 20, 49, 52, 61, 79, 80, 86, 91, 96, 97, 128, 131, 143, 212 Barnstaple, In, re (1884), 50 L.T. 424 - - - 133 Barr v. Gibson (1838), 3 M. & W. 390 ; 1 H. & H. 70 ; 7 L.J. Ex. 124 ; 49 R.R. 650 - - - - - 156 Basset v. Nosworthy (1673), Finch 102 ; 2 W. & T. L.C. 163 194 Bastin v. Bidwell (1881), 18 Ch. D. 238 ; 44 L.T. 742 - - 77 Behn v. Bumess (1863), 3 B. & S. 751 ; 32 L.J. Q.B. 204 ; 9 Jur. N.S. 620; 8 L.T. 207; 11 W.R. 496; 124 R.R. 794 54, 56, 87, 88, 89, 92, 94, 95, 99, 100, 128, 131, 134, 232 xiv TABLE OF CASES Bel— Cha paob BeUamy v. Sabine (1847), 2 Ph. 439 ; 17 L.J. Ch. 105 ; 10 L.T. 181 ; 78 R.R. 132 186 Bentley v. Vilmont (1887), 12 A.C. 471 ; 57 L.J. Q.B. 18 ; affirming S.C. sub. nom.Vilmont v. Bentley, 18 Q.B.D. 322 ; 56 L.J. Q.B. 128 ; 56 L.T. 318 ; 35 W.R. 238 ; 51 J.P. 436 - - 195 Bentsen v. Taylor (1893), 2 Q.B. 274 ; 63 L.J. Q.B. 15 ; 69 L.T. 487 ; 42 W.E. 8 ; 4 R. 510 - - - 8, 18, 30, 55, 56, 58, 79, 86, 87, 89, 90, 91, 94, 95, 105, 128, 131, 134, 240 Bettini v. Gye (1876), 1 Q.B.D. 183 ; 45 L.J. Q.B. 209 ; 34 L.T. 246 ; 24 W.R. 561 - 29, 54, 57, 58, 60, 66, 76, 84, 85, 94, 100, 226 Biggarstaff v. Rowatt's Wharf (1896) 2 Ch. 93 - 139 Bilborough v. Holmes (1877), 5 Ch. D. 255 ; 46 L.J. Ch. 446 ; 35 L.T. 75 ; 25 W.R. 297 , - ... . . 27 Blackburn y. Smith (1848), 2 Ex. 783 ; 18 L.J. Ex. 187 ; 2 C. & K. 561 ; 76 R.R. 785 - - - 181, 182, 183, 187 Blackiwell v. Nash (1721), 1 Str. 535 - - 66 Blakeley v. Muller (1903), 2 K.B. 760 n. ; 88 L.T. 90 ; 67 J.P. 51 173 Bond V. Walford (1886), 32 Ch. D. 238 ; 56 L.J. Ch. 667 ; 54 L.T. 672 - - - .... - 24 Boone v. Eyre (1777), 1 H. Bl. 273 n. (a) ; 2 W. BI. 1312 ; 2 R.R. 768 - 43, 99, 101, 102, 104, 105, 106, 109, 111, 112, 113, 114, 115, 116, 118, 119, 121, 122, 124, 181, 206 Bowenv. Kimbell (1909), 203 Mass. 364; 133 Am. S.R. 302 - -102 Bowes V. Shand (1877), 2 App. Cas. 455 ; 46 L.J. Q.B. 561 ; 36 L.T. 857 ; 25 W.R. 730 - 20, 46, 79, 86, 90, 91, 92, 96, 124, 126 Bradford v. WilUams (1872), L.R. 7 Ex. 259 ; 41 L.J. Ex. 164 ; 26 L.T. 641 ; 21 W.R. 782 - - - - 79 Bridgman v. Breen (1755), 2 Ves. Sen. 627 ; Wilm. 58 - - - 192 Brigg V. Thornton (1904), 1 Ch. 386 ; 73 L.J. Ch. 301 ; 90 L.T. 307 ; 52 W.R. 276 190 British American Telegraph Co., Ltd. v. The Albion Bank, Ltd. (1872), L.R. 7 Exch. 119 ; 41 L.J. Exch. 67 - - ' . - 164 Brogden v. The Metropolitan Railway Co. (1877), 2 App. Cas. 666 - 24, 139 BrownUe v. Campbell (1880), 5 App. Cas. 925 - - 147 Burkinshaw v. Nicholls (1878), 3 App. Cas. 1004 ; 48 L.J. Ch. 179 ; 39 L.T. 308 ; 26 W.R. 819 . 140 C Campbell v. Jones (1796), 6 T.R. 570 ; 3 R.R. 263 - - - 102, 207 Carolan v. Brabazon (1846), 2 Jon. & L. 200 - - 16, 23 Carpenter V. Cresswell (1827), 4 Bing. 409; 29 R.R. 587 - -102,106 Carter v. Scargill (1876), L.R. 10 Q.B. 564 ; 32 L.T. 694 - 104, 105, 106 Casamajor v. Strode (1834), 2 Myl. & K. 706, 730 ; Coop. t. Biough, 248 ; 39 R.R. 339 - - - - - 45 Champion v. Short (1807), 1 Camp. 63 ; 10 R.R. 631 - - 107, 126 Chandler v. Webster (1904), 1 K.B. 493 ; 73 L.J. K.B. 401 ; 90 L.T. 217 172, 173, 203 TABLE OF CASES xv Cha— Dav page Chanter v. Hopkins (1838), 4 M. & W. 399 ; 51 R.R. 650 - 8, 97, 150 Caianter v. Leese (1839), 5 M. & W. 698 ; 9 L.J. Ex. 327 ; 61 R.R. 598 - - - - . - - 42, 59, 101, 127 CJhapel V. Hicks (1833), 2 C. & M. 214 ; 4 Tyr. 43 - - 107 Civil Service Co-op. Society, The, v. The General Steam Navigation Co. (1903), 2 K.B. 756 ; 72 L.J. K.B. 933 ; 89 L.T. 429 - - 173, 203 Clarke v. Dickson (1858), E.B. & E. 148 ; 27 L.J. Q.B. 223 ; 4 Jur. N.S. 832 ; 113 R.R. 583 - 179, 182, 183, 184 Clifiord V. Tiirrell (1845), 9 Jur. 633 ; 1 Y. & C.C.C. 138 ; 14 L.J. Ch. 390 ; 57 R.R. 275 - ... 50 Clough V. The London & North Western Railway Co. (1871), L.R. 7 Ex. 26 ; 41 L.J. Ex. 17 ; 25 L.T. 708 ; 20 W.R. 189 30, 191, 194, 195, 197, 198 Coddington v. Paleologo (1867), L.R. 2 Ex. 193 ; 36 L.J. Ex. 73 ; 15 L.T. 581 ; 15 W.R. 961 . - - 80 Colonial Insurance Co. of N.Z. v. The Adelaide Marine Insurance Co. (1886), 12 App. Cas. 128 ; 56 L.J. C.P. 19 ; 56 L.T. 173 ; 35 W.R. 636 ; 6 Asp. M.C. 94 - . . . . 108 Connor v. Potts (1897), 1 Ir. R. 534 . - 139, 140, 142 Cooper V. Phibbs (1867), L.R. 2 H.L. 149 ; 15 L.T. 678 ; 15 W.R. 1049 - - - - - 133, 156 ComwaU v. Henson (1900), 2 Ch. 298 ; 82 L.T. 735 ; 29 W.R. 42 - 38, 39 Cort V. The Ambergate Railway Co. (1851), 17 Q.B. 127 ; 20 L.J. Q.B. 460 ; 15 Jur. 877 ; 85 R.R. 369 - - - - 21 Couturier v. Hastie (1853), 9 Ex. 102 ; 22 L.J. Ex. 299 ; 96 R.R. 598 ; afE. 5 H.L.C. 673 , 155 Cowan V. Milbourn (1867), L.R. 2 Ex. 230; 36 L.J. Ex. 124; 16 L.T. 290 ; 15 W.R. 750 - - - - 9 Cumber v. Wane (1719), 1 Str. 426 ; 1 Sm. L.C., 11th Edn. 338 - 25, 26 Cundyv. Lindsay (1876-8), 1 Q.B.D. 348 ; 2 Q.B.D. 96; 45 L.J. Q.B. 381 ; 24 W.R. 730 ; 25 W.R. 417 ; 36 L.T. 345 ; 3 A.C. 459 ; 47 L. J.Q.B. 481 ; 38 L.T. 573 ; 26 W.R. 406 157, 158, 195 Curlewis v. Clarke (1849), 3 Ex. 375 ; 6 D. & L. 455 ; 18 L.J. Ex. 144 ; 77 R.R. 651 - ... .25 Cutler V. Close (1832), 5 C. & P. 337 ; 38 R.R. 824 ... 119 Cutter V. Powell(1795), 6 T.R. 320 ; 2 Sm. L.C. 11th Edn. 1 ; 3 R.R. 185 - 78, 79, 98, 99, 100, 101, 104, 106, 108, 112, 114, 121, 122 D Dagenham (Thames) Dock Co., In re; Ex parte Hulse (1873), L.R. 8 Ch. 1022 ; 43 L.J. Ch. 261 ; 21 W.R. 898 - - 31 Dakin V. Lee (1916), 1 K.B. 266; 84 L.J. K.B. 2031; 113 L.T. 903 ; 59 S.J. 650 - - - - 120 Davey v. Durrant (1857), 1 DeG. & J. 535 ; 26 L.J. Ch. 830 ; 118 R.R. 213 ... 186 Davis V. Bomford (1860), 6 H. & N. 245 ; 30 L.J. Exch. 139 ; 3 L.T. 279 ; 123 R.R. 490 - - - ■ , . . 24 xvi TABLE OF CASES Dav— Far paqh Davis & Cavey, In re (1888), 40 Ch. D. 601 ; 58 L.J. Ch. 143; 60 L.T. 100 - 83 Day V. Singleton (1899), 2 Ch. 320, 328 ; 68 L.J. Ch. 593 ; 81 L.T. 306 ; 48 W.R. 18 - - - .... 181, 202 De Bussche v. Alt (1878), 8 Ch. D. 286 ; 47 L.J. Ch. 386 ; 38 L.T. 370 164 Deny v. Peek (1889), 14 A.C. 337 ; 58 L.J. Ch. 864 ; 61 L.T. 265 ; 38 W.R. 33 204 Devaux v. Connolly (1849), 8 C.B. 640 ; 19 L.J. C.P. 71 ; 79 R.R. 659 129, 139 Dillon V. Macdonald (1902), 21 N.Z. L.R. 45 ; 375 (C.A.) - - 72, 200 Dimech v. Corlett (1858), 12 Moore P.C.C. 199 ; 124 R.R. 26 - 88 Dominion Coal Co., Ltd. v. Dominion Iron & Steel Co., Ltd. (1909), A.C. 293 ; 78 L.J. P.O. 115 ; 100 L.T. 245 ; 25 T.L.R. 309 - - .... 37, 39, 199, 203 Downes v. Ship (1868), L.R. 3 H.L. 343 ; 37 L.J. Ch. 642 ; 19 L.T. 74 ; 17 W.R. 34 150, 151 Duddell V. Simpson (1866), L.R. 2 Ch. 102 ; 36 L.J. Ch. 70 ; 15 L.T. 305 31 Dudding v. Dalrymple (1894), 12 N.Z. L.R. 698 (C.A.) ... 25 Duke of St. Albans v. Shore (1789), 1 H. Bl. 271 - 41, 219 Duke of Leeds v. Amherst (1846), 2 PhiU. 117 ; 16 L.J. Ch. 5 ; 78 R.R. 47 - - - 164 Duncan Fox & Co. v. Schrempft (1915), 3 K.B. 355 ; 113 L.T. 600 ; 20 Comm. Cas. 337 ; 59 Sol. J. 578 ; 31 T.L.R. 491 - - 174 Dykes v. Blake (1838), 4 Bing. N.C. 463 ; 6 Scott 320 ; 7 L.J. N.S. C.P. 282 ; 44 R.R. 761 44 E Edwabd Geby & Co. V. ToLMB & RuNGB (1915), 31 T.L.R. 551 - 174 Ehrensperger v. Anderson (1848), 3 Ex. 148; 18 L.J. Ex. 132 ; 77 R.R. 563 - - 34, 201, 202 Ellen V. Topp (1851), 6 Ex. 424 ; 20 L.J. Ex. 241 ; 15 Jur. 451 ; 17 L.T. 52 ; 86 R.R. 353 - 88, 102, 104, 106, 112, 118, 122, 126, 181 Elliott V. Crutchley (1903), 2 K.B. 476 ; (1904) 1 K.B. 565 ; (1906) A.C. 7 ; 72 L.J. K.B. 927 ; 89 L.T. 417 - - - - 167 Erlanger v. New Sombrero &c. Co. (1878), 3 A.C. 1218 ; 48 L.J. Ch. 73 ; 39 L.T. 269 ; 27 W.R. 65 179, 184 Esposito V. Bowden (1855-7), 4 E. & B. 963 ; 7 E. & B. 763 ; 27 L. J. Q.B. 17 ; 3 Jur. N.S. 1209 ; 5 W.R. 732 ; 29 L.T. O.S. 295; 110 R.R. 822 - - ... 168,174 Evans v. Powis (1847), 1 Ex. 601 ; 11 Jur. 1043 ; 74 R.R. 777 - 25 F Fabquhaeson v. King (1901), 2 K.B. 711 ; 70 L.J. K.B. 985 ; 85 L.T. 264 ; 49 W.R. 673 ; (1902) A.C. 325 ; 71 L.J. K.B. 667 ; 86 L.T. 810 ; 51 W.R. 94 195 TABLE OF CASES xvn FAGB F.A.T— Gop F. A. Tamplin Steamship Co. & The Anglo-American Petroleum Co. (1916), 1 KB. 485 ; 85 L.J. K.B. 241 ; 32 T.L.R. 201 ; 60 S.J. 209 - - 176 Fawcett & Holmes's Contract, In re (1889), 42 Ch. D. 150 ; 61 L.T. 105 - . 83 Flight V. Booth (1834), 1 Sc. 190 { 1 Bing. N.C. 370 ; 4 L.J. (N.S.) C.P. 66 ; 41 R.R. 599 - - - 20, 49, 51, 61, 72, 80, 82, 83, 84, 85, 86, 91, 95, 128, 134, 136, 159, 16P, 181, 202, 212 Foiman v. The Ship " Liddeadale " (1900), A.C. 190 ; 69 L.J. P.O. 44 ; 82 L.T. 331 ; 9 Asp. M.C. 45 106, 123 Forman v. Wright (1851), 11 C.B. 481 ; 20 L.J. C.P. 145 j 15 Jur. 706 ; 87 R.R. 731 - 51, 52, 128, 131. 133, 138, 139, 140, 141, 143, 217 Foster v. McKinnon (1869), L.R. 4 C.P. 704 ; 38 L.J. C.P. 310 ; 20 L.T. 887; 17 W.R. 1105 157 Franklin v. Miller (1836), 4 A. & E. 599 16, 120 Freeman v. Cooke (1848), 2 Ex. 654 ; 6 D. & L. 187 ; 18 L.J. Ex. 114 ; 12 Jur. 777 ; 76 R.R. 711 - 163 Freeth v. Burr (1874), L.R. 9 C.P. 91 ; 29 L.T. 773 ; 22 W.R. 370 36 Frith V. Frith (1906), A.C. 254 ; 75 L.J. P.C. 50 ; 94 L.T. 383 ; 54 W.R. 618 ; 22 T.L.R. 388 60, 133 FiDst V. Knight (1870), 23 L.T. 714 ; 19 W.R. 77 ; L.R. 5 Ex. 322 ; (1872) L.R. 7 Ex. Ill, 41 L.J. Ex. 78 ; 26 L.T. 77 ; 20 W.R. 471 - - - 34, 36, 38, 203 G Gbnebal BiLLPOSTiNa Co. V. Atkinson {1909), A.C. 118 ; [1908) 1 Ch. 537 ; 77 L.J. Ch. 411 ; 78 L.J. Ch. 77 ; 98 L.T. 482 ; 99 L.T. 943 ; 24 T.L.R. 285 ; 26 T.L.R. 178 ; 52 Sol. J. 240 - - 34, 183, 204 George D. Emery Co. v. Wells (1906), A.C. 515; 75 L.J. P.C. 104; 95 L.T. 589 - 37 Gibson v. D'Este (1843), 2 Y. & C.C.C. 542 ; 8 Jur. 94 ; see 1 H.L.C. 605 ; 60 R.R. 262 - . - . ... 187 Gibson v. Spurrier (1796), Peak's Add. Cas. 49 ; 4 R.R. 887 - - 45 Giles V. Edwards (1797), 7 T.R. 181 ; 4 R.R. 414 ... 129, 201 Glaholm v. Hays (1841), 2 Man. & Gr. 267 ; 2 Scott N.R. 471 ; 10 L.J. C.P. 98 ; 58 R.R. 399 56 Glazebrook v. Woodrow (1799), 8 T.R. 366 ; 4 R.R. 700 - 41, 66, 102 Glubb, In re (1900), 1 Ch. 354 ; 69 L.J. Ch. 278 ; 82 L.T. 412 - 132 Goddard v. Jeffreys (1882), 51 L.J. Ch. 57 ; 45 L.T. 675 ; 30 W.R. 270 - - - - .... 159, 161 Goman v. Salisbury (1684), 1 Vem. 240 .... 25 Gompertz v. Bartlett (1853), 2 E. «5 B. 849 ; 2 C.L.R. 396 ; 23 L.J. Q.B. 65; 18 Jur. 266; 2 W.R. 43; 22 L.T. O.S. 99; 95 R.R. 851 8, 144, 150 Gordon v. Street (1899), 2 Q.B. 641 ; 69 L.J. Q.B. 45 ; 81 L.T. 237 ; 28 W.R. 158 13* b xviii TABLE OF CASES Go8— Hoc PAGE Goss V. Lord Nugent (1833), 5 B. & Ad. 68 ; 2 N. & M. 28 ; 2 L.J. N.8. K.B. 127 ; 39 R.R. 392 25 Gravely v. Barnard (1874), L.R. 18 Eq. 518 ; 43 L.J. CSi. 659 ; 30 'L.T. 863 59 Graves v. Legg (1864), 9 Ex. 709 ; 23 L.J. Ex. 228 ; 2 C.L.R. 1266 ; 23 L.T. O.S. 254 ; 96 R.R. 931 - - 54, 57, 58, 99, 100 Grimston v. Cunningham (1894), 1 Q.B. 125 - - - - 191 Gurney v. Wormersley (1864), 4 E. & B. 133 ; 24 L.J. Q.B. 46 ; 1 Jut. N.S. 328 ; 3 C.L.R. 3 ; 99 R.R. 390 - 8, 144, 150 H HadlSy v. Baxbndalb (1854), 9 Ex. 341 ; 23 L.J. Ex. 179 ; 18 Jur. 358; 2 C.L.R. 517; 2 W.R. 302; 23 L.T.O.S. 69; 96 R.R. 742 - - - - - 93 Hall V. Flockton (1851), 16 Q.B. 1039 ; 20 L.J. Q.B. 201 ; 15 Jur. 600 25 Halsey v. Grant (1806), 13 Ves. 73 ; 9 R.R. 143 - - 81, 135 Hamlyn v. Wood (1891), 2 Q.B. 488 ; 60 L.J. Q.B. 734 ; 65 T.L. 286 ; 40 W.R. 24 - - ... 170, 188 Hart V. Alexander (1837), 2 M. & W. 484 ; 1 M. & H. 63 ; 7 C. & P. 746 ; 6 L.J.N.S. Ex. 129 ; 46 R.R. 666 - - 27 Hayles & Gurney's Contract, In re (1912), 134 L.T. 25 - - 31 Head V. Baldrey (1837), 6 A. & E. 459 ; 2 N. & P. 217 ; W.W. & D. 664 - - 59 Head v. Tattersall (1871), L.R. 7 Ex. 7 ; 41 L.J. Ex. 4 ; 25 L.T. 631 ; 20 W.R. 115 - - - - - 29 Heilbutt V. Buokleton (1913), A.C. 30 ; 82 L.J. K.B. 245 ; 107 L.T. 769 ; 20 Manson 64 129, 140 Heilbutt V. Hickson (1872), L.R. 7 C.P. 438 ; 41 L.J. C.P. 228 ; 27 L.T. 336 ; 20 W.R. 1035 96, 182 Henderson v. The Royal British Bank (1858), 7 El. & Bl. 356 ; 1 H. & N. 685 n. ; 26 L.J. Q.B. 112 ; 3 Jur. N.S. Ill ; 5 W.R. 286 ; 110 R.R. 629 - - - •■ - - 196 Henty v. Schroder (1879), 12 Ch. D. 666 ; 48 L.J. Ch. 792 ; 27 W.R. 833 - 199, 200 Heme Bay Co. v. Hutton (1903), 2 K.B. 683 ; 72 L.J. K.B. 879 ; 89 L.T. 422 - ... 171, 176, 177 Heyworth v. Hutchinson (1867), L.R. 2 Q.B. 47 ; 36 L.J. Q.B. 270 117 Hickman v. Berens (1895), 2 Ch. 638 ; 64 L.J. Ch. 785 ; 73 L.T. 323; 12 R. 602 - - - - - 168 Hill V. Gomme (1839), 5 Myl. & C. 250 ; 9 L.J. Ch. 64 ; 4 Jur. 165 ; 49 R.R. 438 - - - - . 190 Hipgrave v. Case (1886), 28 Ch. D. 366 ; 54 L.J. Ch. 399 ; 52 L.T. 242 ... 200 Hitchcock V. Giddings (1817), 4 Price 135 ; Wils. Ex. Eq. 32 ; 18 R.R. 725 -156 Hoare v. Rennie (1859), 5 H. & N. 19 ; 29 L.J. Ex. 73 ; 8 W.R. 80 ; 120 R.R. 453 .... 20, 73, 74, 75, 86, 246 Hochster v. de la Tour (1853), 2 E. & B. 678 ; 22 L.J. Q.B. 456 ; 17 Jur. 972 ; 22 L.T. O.S. 171 ; 95 R.R. 747 - - 3, 37 TABLE OF CASES xix Hon — Ken page Honck V. Muller (1881), 7 Q.B.D. 92 ; 50 L.J. Q.B. 529 ; 45 L.T. 202; 29W.R.830 - - - .... 57,74,75 Horlock V. Beal (1916), A.C. 486 ; 32 T.L.R. 251 ; 60 S.J. 236 - - 176 Hotham v. The East India Co. (1787), 1 Doug. 272 ; 1 T.R. 638 ; 1 R.R. 333 .... .... 66 Howe V. Smith (1884), 27 Ch. D. 89 ; 53 L.J. Ch. 1055 ; 50 L.T. 573 ; 32 W.R. 802 ; 48 J.P. 773 - ... 32, 202 Howell V. Coupland (1874), L.R. 9 Q.B. 642 ; 30 L.T. 677 ; 22 W.R. 691 ; 1 Q.B.D. 268 ; 46 L.J. Q.B. 147 ; 33 L.T. 832 ; 24 W.R. 470 170, 171 Huddersfield Banking Co. v. Henry Lister & Son, Ltd. (1895), 2 Ch. 273 ; 64 L.J. Ch. 523 ; 72 L.T. 703 ; 43 W.R. 567 ; 12 R. 331 156 Huguenin v. Basely (1807), 14 Ves. 273 ; 9 R.R. 276 ; 1 W. &T.L.C. 259 - - 191 Hunt V. Silk (1804), 5 East 449 ; 2 Smith 15 ; 7 R.R. 739 - 180, 182, 183, 187, 202 Hunt V. South Eastern Railway Co. (1876), 45 L.J. C.P. 87 - - 25, 190 I Isaacs v. Towell (1898), 2 Ch. 285 ; 67 L.J. Ch. 508 ; 78 L.T. 619 31 J Jackson & Haden's Contbact (1905), 1 Ch. 603 ;. (1906), 1 Ch. 412 ; 74 L.J. Ch. 389 ; 25 L.J. Ch. 226 ; 92 LT. 591 ; 94 L.T. 418; 53 W.R. 428; 54 W.R. 434 - - 31 Jackson v. The Union Marine Insurance Co. (1873), L.R. 8 C.P. 572 ; 42 L. J. C.P. 254 ; 22 W.R. 79 ; L.R. 10 C.P. 125 ; 45 L.J. C.P. 27 ; 31 L.T. 789 ; 23 W.R. 169 - - - 8, 18, 175, 193 Jacobs V. Revell (1900), 2 Ch. 858 ; 69 L.J. Ch. 879 ; 83 L.T. 629 ; 49 W.R. 109 84 Jager v. Tolme & Runge (1916), 31 T.L.R. 381, rev. ; 32 T.L.R. 291 174 Johnstone v. Milling (1886), 16 Q.B.D. 460 ; 66 L.J. Q.B. 162 ; 54 L.T. 629 ; 34 W.R. 238 ; 60 J.P. 694 - - - 8, 17, 35 Jonassohn v. Young (1863), 4 B. & S. 296 ; 32 L.J. Q.B. 385 ; 11 W.R. 962; 129 R.R. 760 - - . . 80 Jones V. CUfEord (1876), 3 Ch. D. 779 ; 45 L.J. Ch. 809 ; 36 L.T. 937 ; 29 W.R. 979 156 Jone8V.Daniell(1894), 2Ch. 332 ... r - - - 80 K Kabbbbg's Case (1892), 3 Ch. 1 ; 61 L.J. Ch. 741 ; 66 L.T. 700 - . - - - 118, 147, 148, 149, 150, 151, 152 Kemp V. Bird (1877), 5 Ch. D. 549 ; 46 L.J. Ch. 828 - - - - 190 Kennedy v. The Panama, etc.. Mail Co. (1867), L.R. 2 Q.B. 580 ; 36 LJ. Q.B. 260; 17 L.T. 62; 15 W.R. 1039; 8 E. & S. 571 - 7, 8, 41, 84, 85, 94, 144, 145, 147, 148, 150, 151, 152, 220 XX TABLE OF CASES Kil— lium PAGE KiliHer v. The British Colunibia Orchard Lands, Ltd. (1913), A.C. 319 ; 82 L.J. P.O. 77 ; 108 L.T. 306 ; 67 S.J. 338 ; 29 T.L. R. 319 32, 33, 120 Kingsford v. Merry (1856), 11 Ex. 577 ; 25 L.J. Ex. 166 ; 1 H. & N. 503 ; 26 L.J. Ex. 83 ; 5 W.R. 151 ; 3 Jur. N.S. 68 ; 108 R.R. 694 198 Kingston v. Preston (1772), cited Dougl. 665,4th Ed. p. 689 61, 63, 66 Knatchbull v. Grueber (1815), 1 Madd. 153 ; 2 Madd. 156 ; 3 Mer. 124; 17 R.R. 35 82 Krell V. Henry (1903), 2 K.B. 740; 72 L.J. KB. 794; 89 L.T. 328 - - 6, 171, 175, 177 La Bakqub Jacques Cabtibe v. La Banqub d'Epabgne, etc. (1888), 13 A.C. 111 ; 57 L.J. P.O. 42 - - - - 164 Lagunas Nitrate Co. v. Lagunas Syndicate (1899), 2 Ch. 392 ; 81 L.T. 334 ; 48 W.R. 74 185 Lamare v. Dixon (1873), L.R. 6 H.L. 414 ; 43 L.J. Ch. 203 ; 22 W.R. 49 - 182 Lambum v. Cnlden (1841), 2 M. & G. 253; 10 L.J. C.P. 121; 2 Scott (N.R.) 533 - - - - - - 203 Lazarus v. The Cairn Steamship Co. (1912), 106 L.T. 378 ; 17 Com. Cas. 107 ; 56 Sol. J. 345 ; 28 T.L.R. 244 - - - - 188 Leoky v. Walter (1914), 1 L.R. Ir. 378 - - - 147, 149 Lindsay Petroleum Co. v. Hurd (1874), L.R. 5 P.C. 221 ; 22 W.R. 492 184 Lloyd V. Lloyd (1837), 2 Myl & Cr. 192, 204 ; 6 L.J. Ch. 135, 137 - HI Lodder v. Slowey (1904), A.C. 442 ; 73 L.J. P.C. 82 ; 91 L.T. 211 ; 20 T.L.R. 597 ; 53 W.R. 131 34, 38, 204 London Gaslight Co. v. Vestry of Chelsea (1860), 8 C.B.N.S. 215 ; 8 W.R. 416 ; 2 L.T.N.S. 217 ; 125 R.R. 630 - - - -111,121 London & Leeds Bank, In re ; Carting's Case (1887), 56 L.J. Ch. 321 ; 35 W.R. 345 - - - - - - - 135 London & Northern Estates Co. v. Schlesinger (1916), 1 K.B. 20 177 London and Westminster Loan & Discount Co.,The, v. Drake (1859), 6 C.B.N.S. 798 ; 28 L.J. C.P. 297 ; 5 Jur. N.S. 1407 ; 120 R.B,. 380 189 Lovelock V. Franklyn (1846), 8 Q.B. 371 ; 15 L. J.Q.B. 146 ; 10 Jur. 246 ; 70 R.R. 520 38 Low V. Bouverie (1891), 3 Ch. 82 ; 60 L.J. Ch. 594 ; 65 L.T. 533 ; 40 W.R. 50 - - - 139, 160 Lucas V. Godwin (1837), 4 Scott 502, 3 Bing N.C. 737 ; 3 Hodges 114 - - 107, 120 Luddy's Trustee v. Peard (1886), 33 Ch. D. 500 ; 55 L.J. Ch. 844 ; 55 L.T, 137 ; 35 W.R. 44 - - - - - 132 Lumley v. Wagner (1854), 1 DeG.M. & G. 604 ; 21 L.J. Oh. 898 ; 19 L.T.O.S. 264 ; 91 R.R. 193 - - - - 191 TABLE OF CASES iri McI — NiO PAGE M MclNTYRE V. Beloheb (1863), 14 C.B.N.S. 654 ; 32 L.J. C.P. 254 ; 10 Jur. N.S. 239 ; 8 L.T. 461 ; 11 W.R. 889 ; 135 R.R. 860 188 Mair v. The Rio Grande, etc., Co. (1913), A.C. 853 ; 83 L.J. P.O. 35 ; 20 Manson 342 ; 57 S.J. 728 ; 29 L.T.R. 692 - - 143, 147, 152 Malins v. Freeman (1836). 2 Keen 25 ; 6 L.J. N.S. Ch. 133 j 1 Jur. 19 ; 44 R.R. 178 - - - . . . . _ 165, 166 Marsden v. Sambell (1880), 43 L.T. 120 ; 28 W.R. 952 30 Mattock V. Kinglake (1838), 8 A. & E. 795 ; 1 P. & D. 46 ; 1 W.W. & H. 667 ; 8 L.J. N.S. Q.B. 56 ; 47 R.R. 731 - - - 19, 64 Melbourne Banking Corporation v. Brougham (1882), 7 A.C. 307 ; 51 L.J. C.P. 65 ; 46 L.T. 603 ; 30 W.R. 925 . - - 132 Mersey Steel, etc., Co. v. Naylor, Benzon & Co. (1882-4), 9 App. Cas. 434 ; 53 L.J. Q.B. 497 ; 32 W.R. 989 ; 9 Q.B.D. 648 ; 51 L.J. Q.B. 576 ; 47 L.T. 369 ; 31 W.R. 80 - - 36, 38, 46, 110 Metropolitan Electric Supply Co. v. Ginder (1901), 2 Ch. 799 ; 49 W.R. 508 ; 84 L.T. 818 191 Michael v. Hart (1902), 1 K.B. 482; 71 L.J. K.B. 265; 86 L.T. 474 ; 50 W.R. 308 - 17 Moorcock, The (1889), 14 P.D. 64 ; 58 L. J.P. 73 ; 60 L.T. 654 ; 37 W.R. 439; 6 Asp. M.C. 373 - - - - 170 Moore v. Crofton (1846), 3 Jon. & L. 438 - - - - 15, 16 Morgan v. Bain (1875), L.R. 10 C.P. 15 ; 44 L.J. C.P. 47 ; 31 L.T. 616 ; 23 W.R. 239 24 Morley v. Loughnan (1893), 1 Ch. 736 ; 62 L.J. Ch. 515 ; 3 R. 592 ; 68 L.T. 619 - - - 191 Morison v. The Universal Marine Insurance Co. (1873), L.R. 8 Ex. 197; 42 L. J. Ex. 115; 21 W.R. 774 30 Morrison v. Robertson (1908), So. Ct. of Sess. Cas. 332 - - - 134 Mortlock V. Buller (1804), 10 Ves. 292 - - - - - 81, 135 Morton v. Lamb (1797), 7 T.R. 125 ; 4 R.R. 395 - - - - 66 Munro v. Butt (1858), 8 E. & B. 738 ; 4 Jur. N.S. 1231 ; 112 R.R. 752 - - - 78, 104, 106, 113, 115, 121, 122, 124, 181, 183 N Nash v. Aemsteong (1861), 10 C.B.N.S. 259 ; 30 L.J. C.P. 286 ; 9 W.R. 782 ; 128 R.R. 702 - - - - - - 26 National Provincial Life Assurance Society, In re (1870), L.R. 9 Eq. 306 ; 39 L.J. Ch. 250 ; 22 L.T. 463 ; 18 W.R. 398 - - 27 Nelthorpe v. Holgate (1844), 1 Coll. 203 ; 8 Jur. 551 ; 66 R.R. 46 - 31 Newbigging v. Adam (1886), 34 Ch. D. 582 ; 56 L.J. Ch. 275 ; 55 L.T. 794; 35 W.R. 597; 13 A.C. 308 149,201 Netreon v. Smythies (1858), 3 H. & N. 840 ; 28 L.J. Exch. 97 ; 117 R.R. 1001 - - U2, 119, 121 Nickoll v. Ashton (1900), 2 Q.B. 298 ; 69 L.J. Q.B. 640 ; 82 L.T. 761 ; 5 Com. C. 252; (1901), 2 K.B. 126; 70 L.J. K.B. 600; 84 L.T. 804 ; 49 W.R. 513 ; 9 Asp. M.C. 209 ; 6 Com. Cm. 150 - 171, 175 xxii TABLE OF CASES Nob— Ran page Noble V. Ward (1866), L.R. 1 Ex. 117 ; 35 L.J. Ex. 81 ; 12 Jur. N.S. 167; 13L.T.639; 14W.R. 397; 4H.&C. 149 ... 25 Nocton V. Lord Ashburton (1914), A.C. 932 ; 83 L.J. Ch. 784 ; 111 L.T. 641 ; 30 T.L.R. 602 - ... 204 O Oakes v. Tubqtjand (1867), L.R. 2 H.L. 325 ; 36 L.J. Ch. 949 ; 16 L.T. 808 - - - . . . . _ 195, 196 Oberlies v. BalUnger (1892), 132 N.Y. 598 103 Ogilvie V. Currie (1868), 37 L.J. Ch. 541 ; 18L.T. 593; 16W.R. 769 197 Oxendale v. Wetherell (1829), 9 B. & C. 386 ; 4 M. & R. 429 ; 33 R.R. 207 - - 108, 109 Pacaya, etc., Co., In re (1914), 1 Ch. 642 ; 83 L.J. Ch. 432 ; 110 L.T. 578; 21Mansonl86; 58 S.J. 269; 30 T.L.R. 260 ... 133 Panama, etc. , Telegraph Co. , v. India Rubber, etc. , Telegraph Works (1875), 10 Ch. 515 ; 32 L.T. 238, 517 ; 23 W.R. 583 - - 10 Paradine y. Jane (1648), Aleyn 26 177 Parker y. Lewis (1873), L.R. 8 Ch. 1035 ; 29 L.T. 199 ; 21 W.R. 928 - - - - ... 164 Patmore V. Colbum (1834), 4 Tyr. 840; 1 CM. & R. 65 - - 25 Pearce v. Stevens (1905), 24 N.Z.L.R. 357 (C.A.) ... 9 Pease v. Gloahec (1866), L.R. 1 P.C. 219 ; 35 L.J. P.C. 66 ; 15 L.T. 6; 15 W.R. 201; 3 Moo P.C. N.S. 556; 146 R.R. 180 - 198 Peeters v. Opie (1671), 2 Wms. S£|,und. 1871 Ed. 742 - - - 98 Pinches v. Swedish, etc. (1887), 55 Conn. 183 ... 103 Pitcaithlyfe Co. V. McLean (1912), 31 N.Z.L.R. 648 (C.A.) . 188 Pleasant d. Hayton v. Bensen (1811), 14 East. 234 ; 12 R.R. 507 191, 193 Pordage v. Cole (1669), 1 Wms. Saunders 1871 Ed. 548 41, 66, 57, 62, 63, 65, 66, 67, 76, 78, 87, 90, 98, 99, 100, 101, 104, 105, 109, 111, 112, 113, 115 Porter v. Shephard (1796), 6 T.R. 665 ; 3 R.R. 305 - . 63 Poussard v. Spiers (1876), 1 Q.B.D. 410 ; 45 L.J. Q.B. 621 ; 34 L.T. 572 ; 24 W.R. 819 - 42, 64, 68, 66, 75, 78, 86, 87, 88, 89, 90, 94, 228 Powell V. ElUot (1875), L.R. 10 Ch. 424 ; 33 L.T. 110 ; 23 W.R. 777 136 Powell V. Marshall(1899), 1 Q.B. 710 ; 68 L.J. Q.B. 477 ; 80 L.T. 509 ; 47 W.R. 419 ; 6 Hanson 157 ; 15 T.L.R. 289 . . 181, 202 Puokett & Smith's Contract, In re (1902), 2 Ch. 258 ; 71 L.J. Ch. 666 ; 87 L.T. 189 ; 60 W.R. 532 . 84 Pust V. Dowie (1863), 32 L.J. Q.B. 179 ; 5 B. & S. 20 ; 34 L.J. Q.B. 127 ; 13 W.R. 459 ; 136 R.R. (1) 468, (2) 476 . 47, 99, 100, 121 R Rapples v. WicHEijiAtrs (1864), 2 H. & C. 906 ; 33 L.J. Ex. 160 ; 133 R.R. 853 - - - - - - - - 157, 166 Rann v. Hughes (1764), 7 T.R. 350 (».) ; 4 Bro. P.C. 27 ; 53 R.R. 262 60 TABLE OF CASES ZZlll PAGE Red— Sim Redgrave v. Hurd (1881), 20 Ch. D. 1 ; 51 L.J. C!h. 113 ; 45 L.T. 485 ; 30 W.R. 251 - . 128, 135, 148, 149, 151, 153, 186 Reed v. Deere (1827), 7 B. & C. 261 ; 2 C. & P. 624 ; 31 R.R. 190 25 Reese River Mining Co. v. Smith (1867), L.R. 2 Ch. 604 ; 16 L.T. 549 ; 36 L.J. Ch. 618 ; 15 W.R. 440, 882 ; (1869), L.R. 4 H.L. 69 ; 39 L.J. Ch. 849 - - 148, 149 Renter v. Sala (1879), 4 C.P.D. 239 ; 48 L.J. C.P. 492 ; 40 L.T. 476 ; 27 W.R. 631 - - - . . . 80 Rhodes v. Forwood (1876), 1 A.C. 256 ; 47 L.J. Ex. 396 ; 34 L.T. 890 ; 24 W.R. 1078 - - ... Rhymney Railway Co. v. Brecon Railway Co. (1900), 83 L.T. Ill ; 69 L.J. Ch. 813 ; 49 W.R. 116 - .... Riddiford v. Warren (1902), 20 N.Z.L.R. 572 (C.A.), 4 Gaz. L.R.N.Z. 183 (S.C.) ; 66 (C.A.) . - ... Ritchie v. Atkinson (1809), 10 East. 295, 530 ; 10 R.R. 307 - Roberts, In re (1905), 1 Ch. 70 ... . . Roberts v. Brett (1865), 11 H.L.C. 337 ; 34 L.J. C.P. 241 ; 145 R.R. 223 - . - ' 19, 53, 57, 63, 65, 68 Roberts v. Bury Commissioners (1870), L.R. 4 C.P. 755; 5 C.P. 310 ; 38 L.J. C.P. 367 ; 22 L.T. 132 ; 18 W.R. 702 - - 38 Roberts v. Havelock (1832), 3 B. & Ad. 104 ; 37 R.R. 452 - 109, 124 Rouse V. The Bradford Banking Co. (1894), A C. 586 ; 63 L.J. Ch. 890 ; 6 R. 349 ; 71 L.T. 522 ; 43 W.R. 78 - - - . 27 Rutherford v. Acton- Adams (1915), A.C. 866 ; 84 L.J. P.C. 238 ; 33 N.Z.L.R. 774 ... . - . 129, 137, 138, 140 188 37 152 47 156 77, 105 Saint v. Pillby (1875), L.R. 10 Exch. 137 ; 44 L.J. Exch. 33 ; 33 L.T. fl3 ; 23 W.R. 753 - - - - - 190 Scarf V. Jardine (1882), 7 A.C. 345 ; 51 L.J. Q.B. 612 ; 47 L.T. 258 ; 30 W.R. 893 4, 26, 27 Scott V. Coulson (1903), 1 Ch. 453 ; (1903), 2 Ch. 249 ; 88 L.T. 653 ; 51 W.R. 394 166 Scriven v. Hindley (1913), 3 K.B. 564 ; 83 L.J. K.B. 40 ; 109 L.T. 526 - 158 Seddon v. The North Eastern Salt Co. (1905), 1 Ch. 326 ; 74 L.J. Ch. 199; 91L.T.793; 21T.L.R. 118 - - - 7,147,149 Serraov. Noel (1885), 15 Q.B.D. 549 201 Ship's Case (1865), 2 DeG. J. & S. 544 ; 12 L.T. 256 ; 13 W.R. 599 ; 11 Jur. N.S. 331 ; 139 R.R. 228 .... 150, 151 Shipton, Anderson & Co. v. Harrison Bros. & Co. (1915), 3 K.B. 676 ; 84L.J. K.B. 2137; 31 T.L.R. 698 - - - 174 Shipton V. Casson (1826), 5 B. & C. 378 ; 8 Dowl. & Ry. 130 ; 4 L.J. K.B. 199 - - - .... 107, 124 Short V. Stone (1846), 8 Q.B. 358 ; 15 L.J. Q.B. 143 ; 10 Jur. 245 ; 70 R.R. 514 38 Simpson v. Crippin (1872), L.R. 8 Q.B. 14 ; 42 L.J. Q.B. 28 ; 27 L.T. 546 - - - - - 54, 58, 66, 73, 74, 76, 86, 100 ixiv TABLE OF CASES Sin— Tay page Sinclair v. Bowles (1829), 9 B. & C. 92 ; 4 M. & E. 1 ; 7 E.J. Q.B. 178; 32R.R. 689 109 Slowey V. Lodder (1900), 20 N.Z.L.R. 321 204 Smitliv.Brady{1858), 17N.Y. 173; 72Aiii.Dec.!(Aii. Ed.)442 - 103 Smith V. C!hadwiok (1882-4), 20 CJh. D. 27 ; 51 L.J. Cli. 597 ; 46 L.T. 702 ; 38 W.R. 661 ; 9 A.C. 187 ; 53 L.J. Ch. 873 ; 50 L.T. 697; 32W.R.687; 48J.P.644 . - - . - 135 Smith V. Hughes (1871), L.R. 6 Q.B. 597 ; 40 L.J. Q.B. 221 ; 25 L.T. 329 ; 19 W.R. 1059 157 Smith V. Wallace (1895), 1 Ch. 385 ; 64 L.J. Ch. 240 ; 71 L.T. 814 ; 43 W.R. 539 ; 13 R. 201 30 Southallv. Rigg (1851), 11 C.B. 481 ; 20 L.J. C.P. 145 ; 15 Jur. 706 ; 87 R.R. 731 42, 69, 133 Bpence v. Ham (1900), 163 N.Y. 220 103 Sprague v. Booth (1909), A.C. 576 ; 78 L.J. B.C. 164 ; 101 L.T. 211 32, 33, 202 Stanley Stamp Go. v. Brodie (1915), 34 N.Z.L.R. 129 (C.A.) - 130, 131, 168, 187 Starr-Bowkett Building Society and Sibun's Contract, In re (1889), 42 Ch. D. 375 ; 58 L.J. Ch. 651 ; 61 L.T. 346 ; 38 W.R. 1 - 30 Steedman v. Drinkle [1916), A.C. 275 ; 85 L.J. B.C. 79 ; 32 T.L.R. 231 33, 120 Steeds v. Steeds (1889), 22 Q.B.D. 537 ; 58 L.J. Q.B. 302 ; 60 L.T. 318 ; 37 W.R. 378 26 Stepney v. Biddulph (1865), W.R. 576 ; 12E.T. 176; 145R.R.783 186 Stevenson v. Newnham (1853), 13 C.B. 286 ; 22 L.J. C.P. 110 ; 17 Jur. 600 ; 93 R.R. 632 198 Stewart's Case (1866), L.R. 1 Ch. 674 ; 36 L.J. Ch. 738 ; 14 L.T. 817 151 Stewart v. Kennedy (1890), 15 A.C. 108 158, 161, 164 Stirling v. Maitland (1864), 5 B. & S. 840 ; 34 L.J. Q.B. 1 ; 11 L.T. N.S. 337 ; 13 W.R. 76 ; 136 R.R. 776 - - - 188, 189, 191, 193 Street v. Blay (1831), 2 B. & Ad. 456 ; 36 R.R. 626 - 52, 96, 116, 117, 118, 146 Sumpter v. Hedges (1898), 1 Q.B. 673 ; 67 L.J. Q.B. 646 ; 78 L.T. 378 ; 46 W.R. 454 - - - 78, 103, 107, 108, 112, 114, 115, 121, 122, 123, 181, 183, 204 Swaisland v. Dearsley [1861), 29 Beav. 430; 30 L.J. Ch. 652 ; 9 W.R. 526; 4L.T.N.S.432; 131R.R. 666 165 Swan V. The North British Australasian Co, {1863), 2 H. & C. 175 ; 32 L. J. Exoh. 273 ; 126 R.R. 617 163 T Tampun v. Jambs [1880), 15 Ch. D. 215 ; 43 L.T. 520 ; 29 W.R. 311 169, 161, 162, 163, 164, 166, 166 Tarling v. O'Riordan (1878), 2 L.R. L-. 82 125 Taylor v. Caldwell (1863), 3 B. & S. 826 ; 32 L.J. Q.B. 164 ; 8 L.T. 366; 11 W.R. 726; 129 R.R. 573 - - 6,156,168, 169. 170, 171, 172, 177, 178 TABLE OF CASES xxv Tel— Iffii p^gj; Telegraph Despatoli Co. v. McLean (1873), L.E. 8 Ch. 658 - - 188 Thomas v. CadwaUader (1744), Willis's Eep. 496 - - - - 66 Thomas v. The Harrowing Steamship Go. (1915), A.C. 58 ; 83 L.J. KB. 1662 ; 111 L.T. 653 ; 12 Asp. M.C. 532 ; 19 Com. Cas. 454 ; 30 T.L.E. 611 - - . . . 106 Thorn v. The Mayor of London (1876), 1 A.C. 120 ; 45 L.J. Ex. 487 ; 34 L.T. 545 ; 24 W.R. 932 - - 188 Thornton v. Place (1832), 1 M. & Rob. 218 ; 42 R.R. 781 107, 119 Thorpe v. Thorpe (1702), 1 Ld. Raym. 662 ; Salk. 171 ; Holt 29, 96 67 Towers v. Barrett (1786), 1 T.R. 133 - - - 129, 201 Tredegar L-on Co. v. Hawthorn Bros. (1902), 18 T.L.R. 716 - - 8, 17, 35 Turner v. Goldsmith (1891), 1 Q.B. 644 ; 60 L.J. Q.B. 247 ; 64 L.T. 301 ; 39 W.R. 547 - 170 Van Pbaaqh v. Eveeidge (1902), 2 Ch. 266 ; (1903), 1 Ch. 434 ; 71 L. J. Ch. 598 ; 87 L.T. 42 - - - 163, 165, 166 Varley v. Whipp (1900), 1 Q.B. 513 ; 69 L.J. Q.B. 333 ; 48 W.R. 363 97 Venezuela Railway Co. v. Kisch (1867), L.R. 2 H.L. 99 ; 36 L.J. Ch. 849 ; 16 L.T. 500 ; 15 W.R. 821 - - - 196 Vezey v. Rashleigh (1904), 1 Ch. 634 ; 72 L.J. Ch. 422 ; 52 W.R. 442 26 W Watbtwhight's Case (1890), 63 L.T.N.S. 429 - 151 Walker v. Creaven (1906), 25 N.Z.L.R. (C.A.) 329 - 23 WaUis V. Day (1837), 2 M. & W. 273 ; 1 M. & H. 222 ; 1 Jur. 73 ; 6 L.J. N.S. Ex. 92 ; 46 R.R. 602 ... 40, 59, 66 WaUisv. Pratt (1911), A.C 394; (191Q),2K.B. 1003; 79 L.J. K.B. 1013; 80 L.J. K.B. 1058; 105 L.T. 146; 27 T.L.R. 431; 55 Sol. J. 496 52, 61, 70, 80, 88, 112, 145 Walters v. Morgan (1861), 3 DeG. F. & J. 718 ; 4 L.T. 758 ; 130 R.R. 309 128, 132 Warde v. Dixon (1858), 28 L.J. Ch. 315 ; S.C. s.n. Warde v. Dickson, 7 W.R. 148; 118 R.R. 817 31 Weston V. Savage (1879), 10 Ch. D. 736 ; 48 L.J. Ch. 239 ; 27 W.R. 654 - 19 Whitcher v. Hall (1826), 5 B. & C. 269 ; 8 D. & R. 22 ; 4 L.J. K.B. 167 ; 29 R.R. 244 - - - - - 46 White V. Beeton (1861), 7 H. & N. 42 ; 30 L.J. Ex. 373 ; 7 Jur. N.S. 735 ; 4 L.T. 474 ; 9 W.R. 751 ; 126 R.R. 319 - - 105, 106 White V. Garden (1851), 10 C.B. 919 ; 20 L.J. C.P. 166 ; 15 Jur. 630 ; 84 R.R. 846 .... - - 198 Whittakerv.rox(1865),14W.R. 192 - - 15,16 Whittington v. Seale-Haye (1900), 82 L.T. 49 ; 16 T.L.R. 181 - 201 Whitwood Chemical Co. v. Hardman (1891), 2 Ch. 416 ; 60 L.J. Ch. 428; 64 L.T. 716; 39 W.R. 433 191 Wilde V. Gibson (1848), 1 H.L.C. 605 ; 12 Jur. 527 ; 73 R.R. 191 . 145, 146, 147, 187 xxvi TABLE OF CASES ■Hfil— Woo PAGE Wilding V. Sanderson (1897), 2 Ch. 534 ; 66 L.J. Ch. 684 ; 77 L.T. 57 ; 45 W.R. 675 158, 161, 164, 166 Wilkinson v. Clements (1872), L.R. 8 Ch. 96 ; 42 L.J. Ch. 38 ; 27 L.T. 834 ; 21 W.R. 90 - - - - 48, 123 Williams v. Moss's Empires, Ltd. (1915), 3 K.B. 242 ; 84 L.J. K.B. 1767; 113L.T. 560; 31 T.L.R. 463 - - - 26 Wilhnott V. Barber (1880), 15 Ch. D. 96 ; 43 L.T. 95 ; 28 W.R. 911 164 Withers v. Reynolds (1831), 2 B. & Ad. 882 ; 1 L.J. K.B. 30 ; 36 R.R. 782 - .... - 36 Woodward v. Fuller (1880), 80 N.Y. 312 - - 103 Woolcott V. Peggie (1890), 15 A.C. 42 ; 59 L.J. P.O. 44 ; 61 L.T, 845 ; 38 W.R. 465 29 INTEODUCTIOIS In this small volume I have endeavoured to extricate some threads of principle from a maze of precedent. The book is designed more as a tool for the hand of the worker than as a supply of mate- rial. It does not aim at being a collection of cases in point. The difficulties to be met with in any classification of the cases coming imder the general term ' rescission ' are familiar to every practising lawyer. The use of one name for a variety of things is not less confusing than the use of different names for the same thing. The difficulties which arise in any treatment of the topic ' rescission ' are largely due to the use by writers and judges alike of a loose and vague terminology leadiug to a confusion of principles. If a law student, puzzled, as he must be, by the different views expressed in, say, the judgments in Honck v. Mulkr ^ were to ask the first half-dozen lawyers he met — ^What breach of an executory contract will discharge the party not in default ? — ^he would, as likely as not, get half a dozen different answers. The first might be, that the term broken must be a condition,^ the second, that it must be a condition precedent,* the third, a term going to the whole consideration/ the fourth, a term going to the root of the contract,^ the fifth, an essential term,* the sixth, an important term,' and so on. He might even be told merely that the im- portance of the breach is the test * ; or, it might even be suggested, that the breach must amoimt to a repudiation.^ It must be con- ceded that, with all this information, the sum of the student's . knowledge would not, for practical purposes, be largely increased. Although the form of action in special assumpsit is of quite respect- 1 7 Q.B.D. 92. 2 Wallis v. Pratt (1910), 2 K.B. 1003, 1012. » Bettini r. Oye, 1 Q.B.D. 183 ; Behn v. Burness, 3 B. & S. 751 ; Bentsen v. Taylor i[1893), 2 Q.B. 274. 4 Bastin v. BidweU, 18 CD. 238, 245, 246. ^ Bettini v. Oye ut sup.. Bank of China v. The American Trading Co. j;i894), A.C. 266, per Lord Watson, p. 271. * 2 S.L.e. 12th Edn. 41. ' Behn v. Burness, ut sv/p. * Poussard v. Spiers, 1 Q.B.D. 410. » Cornwall v. Henson j[1900), 2 Ch. 298, per Collins, L.3., 303, 304. xxviii INTRODUCTION Introduction able antiquity, and the doctrine of failure of consideration is reputed to be its early offspring, the principles on which that doctrine is applied seem to be, even in this, the twentieth century, still in a state of uncertainty. Having regard to the fact that in the re- ported decisions of centuries, contracts are " more honoured in the breach than the observance " it surprises the plain business man who makes contracts daily (breaking them perhaps less fre- quently), that the lawyers of the world's greatest commercial commimities are not agreed as to matters which, to the layman, must appear rudimentary. It is indeed strange that, on an every- day question, such as was raised in Hoare v. Rennie,^ the difference of opinion illustrated, in England, by Simfson v. Crippin,^ and in America, by Norrington v. Wright ' should at this time of day be possible. Naturally and properly, the technical rules of law have, some of them, bent or broken under the pressure of equity, but the effect and influence of the Judicature Acts have, in some respects, fallen short of what might have been reasonably expected- The topic of ' discharge by breach ' is the only subject dealt with in this book which presents real difficulties. These are traceable, primarily, to a confusion of the principles governing actions in covenant with those governing actions in special assumpsit, and to a disregard of the rule that failure of consideration, while a good plea in an action on a simple contract, " is nothing in the case of a contract under seal."* From the tendency (revealed by many decisions) to treat actions on simple contracts by analogy to actions in covenant, seems to have arisen the use of the expression ' condition precedent ' as denoting ' important stipulation,' and the consequent use of the term ' condition ' as indicating, not a contingency on which Uability depends, but an important part of the consideration. The disregard of the distinction between executory contracts and contracts substantially executed is also responsible for some confusion. When one reads the judgment of the Court of Exchequer Chamber in Bekn v. Burness,^ in the light of the more recent decisions on the effect of an innocent misrepre- sentation inducing a contract, one is forced to the conclusion that the process of reasoning adopted in that judgment was unneces- sarily laboured. I have bee unable to find any satisfactory reason why a represei tation or promise embodied in a contract as part ^ 5 H. & N. 19. See Note on judgment in Hoare v. Bennie in Appendix, p. 246 post. 2 L.E. 8 Q.B. 14. » 115 U.S. Rep. 188. * Per Baron Parke in WalKs v. Day, 2 M. & W. 273, 277. > 3 B. & S. 751. INTRODUCTION xxix of the consideration or inducement, should, when unfulfilled, introduction afford a ground for discharge, only if it can be viewed as a condition precedent, or a condition, or a term going to the whole considera- tion, while the same representation or promise not so embodied, may, if untrue or unfulfilled, justify avoidance of the contract if it be material to, and has operated as part of the inducement. If the reader will compare Behn v. Burness ^ and Bentsen v. Taylor ^ with Flight V. Booth ^ and Bannerman v. White * and with the cases in equity of avoidance for iimocent misrepresentation, he will per- ceive that, if failure of consideration or failure of inducement be not confused with ' condition precedent,' a simple solution of the question in Behn v. Burness ^ presents itself. Let it be assumed that the representations in Behn v. Burness ^ and Bentsen V. Taylor ^ had not been actually embodied in the contract, but had, in each case, been made during the negotiations, and had operated as an inducement to the contract, it is surely plain that the contract would, in each case, have been voidable. The fact that a representation is expressly part of the consideration cannot place the party in default in a stronger, or the party not in default in a weaker position. I respectfully recommend this point to the consideration of those who may think this volume worthy of notice. Another anomaly, and a very startling anomaly, is to be found on comparing the different modes in which substantial performance of a contract is treated for the purposes of one form of remedy as compared with another. Let us assume the case of any executory contract of which specific performance with compensation would be ordered at the suit of a vendor. If the vendor is unable to perform completely what he has promised, and the difference between what he has promised and what he can perform is unimportant, even though his failure be in the performance of a condition precedent or con- current, i.e. in respect of part of the very subject-matter of the contractT-the thing sold, he may compel the purchaser to take and pay for what he can give with an abatement of price. Com- pare the position of the vendor in such a case with that of the contractor who has actually performed the substantial part of his contract, and is, for one reason or another, imable to complete the performance. If complete performance is a condition precedent 1 3 B. & S. 751. = (1893), 2 Q.B. 274. ' 1 Bing. N.C. 370. * 10 C.B. N.S. 844. XXX INTRODUCTION IntTodnction to his legal right to recover the contract price, he is without remedy, though the other party may obtain, gratis, the full benefit of sub- stantial performance, notwithstanding that the imperformed part may be relatively unimportant. The unfortunate contractor for- feits all his work and materials and can recover nothing : Cutter v. Powell,''- Munro v. Butt,^ Sumpter v. Hedges,^ Forman v. The Ship " Liddesdale.^' * In order to recover, the contractor must prove waiver of the condition precedent as such. It is interesting to note the reluctance with which the judges in Cutter v. Powell ^ came to the conclusion that the plaintiff could recover nothing. In sharp contrast with this decision was Lord Mansfield's judgment in Boone v. Eyre,^ an effort to bend the law in cases of this kind so as to square it with ' common sense and justice.' ^ If it be just and equitable that a party, who has done nothing under a contract which he is unable to perform completely, is permitted to compel the other party to accept what he can give him, with an abatement of purchase-money, it is surely a plain injustice that oiie, who has actually given the other party the benefit of substantial performance, can recover nothing, even though a small reduction of the contract price would compensate the party not in default for the shortage in performance. Equity treats an unimportant failure in the performance of a condition precedent as matter for adjustment of price, by allowing abatement or com- pensation. The law, after forty years of the Judicature Acts, treats the failure of part of a condition precedent as a failure of the whole. Though Lord Mansfield's judgment in Boone v. Eyre ^ has had a definite and easily traceable influence through the notes to Pordage v. Cole,'' that influence, so far as regards substantially executed contracts, seems to have expired with the decision in Munro v. Butt,^ which appears to have been based on Cutter v. Powell.^ Boone v. Eyre ^ was, apparently, not cited. It is curious, however, that the notes to Pordage v. Cole ' based on Boone v. Eyre * (which was the case of a substantially executed contract), should have had such an influence on the decisions in cases of breach of an executory contract, as may be seen from the judgments 1 2 S.L.C. 1. 2 8 E. & B. 738. » (1898), 1 Q.B. 673. * (1900), A.C. 190. 6 1 H.Bl. 273 n. (a). « Newson v. Smythies, 3 H. & N. 840, per Pollock, O.B. ' 1 Wm. Saunders, 1871 Edn. 548. INTRODUCTION xxxi in Simpson v. Griffin ^ and Bettini v. Gye.^ The grounds of the introduction decision in Boone v. Eyre^ rather than the decision itself, have been considered unsatisfactory ; see the observations of Pollock, C.B., in Ellen v. Topp,* and of Lord Shaw of Dumfermlvne in Wallis v. Pratt ^ and of Williams, J., in Behn v. Burness.^ It should not be a difficult matter to frame a formula which would embrace cases of substantial performance whether the con- tract is executory or executed, having due regard to the necessity for providing against bad faith or a deliberate breach of the terms of the contract. The recent decision of the Court of Appeal in Dakin v. Lee ' raises hopes of a variation of the rigid rule of law based on Cutter v. Powell,'^ so as to harmonize it with the principle of specific performance with compensation. The actual grounds of the decision in Dakin v. Lee ' are perhaps less satisfactory than the principle on which the American rule as to substantial per-' formance proceeds.* In discussing the discharge by breach of executory contracts I have striven to avoid the treacherous ground of ' warranty ' and ' condition ' and have endeavoured to reach the underlying realities which these terms, when used synonymously, represent, viz. failure of consideration or inducement. I have tried to dis- tinguish ' condition ' from ' condition precedent. ' A warranty may be a condition while the contract is executory : Street v. Blay ''■" ; a representation may be a condition : (Bannerman v. White,''^^ Behn v. Burness ^^), where it operates as an inducement to contract, but both of these terms may be expressed in terms of ' failure of consideration ' or failure of inducement ; and, if a term of a contract, be it a warranty, representation, or promise, be material to the inducement and operated as an inducement to the contract, its failure or non-fulfilment, while the contract is executory, will discharge the party not in default. The importance of the term broken is ascertained by reference to its operation as an induce- ment to the making of the contract. In that sense it is a con- dition.^* That the views expressed in this book will be considered open 1 L.R. 8 Q.B. 14. ' 1 Q.B.D. 183. 3 1 H.B1. 273 n. (a). * 6 Exch. 424, 441. 5 (1911), A.C. 394, 400. " 3 B. & S. 751, at p. 758. ' (1916), 1 K.B. 566. « 2 S.L.C. 1. 9 /Sfeenote7,pp. 102-103 fost. " 2 B. & Ad. 456. " 10 C.B. N.S. 844. 12 3 B & g 751, " Bannerman v. White, 10 C.B. N.S. 844. xxxii INTRODUCTION Introdnction j^ criticism I have no doubt. I venture to hope they may be con- sidered worthy of it. To those who may disagree with me, may I suggest that the examination of what may be rejected as an erroneous hj^othesis, may, at least, afford a stepping-stone to a sound and satisfactory conclusion 1 The task of keeping the track of principles, often elusive — appear- ing in one decision in one garb, and in others disguised variously — has been less easy than the size of this book would suggest. I trust that, at all events, I have helped to carry the discussion of the subject a step in the right direction. For the convenience of readers I have printed, as an Appendix to the text, copies of the reported judgments in Boone v. Eyre ^ and Campbell v. Jones,^ actions in covenant, cited in the notes to Pordage v. Cole,^ discussed in the text as being in conflict with the principles of Cutter v. Powell ; * Flight v. Booth^ Bannerman v. White* Forman v. Wright ' and The Duke of St. Albans v. Shore,^ as illustrating the discharge of executory contracts for failure of inducement or consideration ; Kennedy v. The Panama Mail Co.,^ Bettini v. 6^6,^" and Poussard v. SfiersP- as illustrating the principle apphcable as to discharge or avoidance of a contract substantially executed and (as to the two cases last mentioned) as illustrating the treatment of a simple contract, claimed to be discharged for failure of consideration, as if it were a contract under seal ; Behn v. Bur- ness ^^ and Bentsen v. Taylor ^^ as illustrating the presumption that every term of a contract is of importance to the party not in default until the contrary appears, and as illustrating the use pf the term ' condition precedent ' in a secondary or extended sense ; Hoare v. Renniej^* Simpson v. Crippin,^^ and Honch v. Muller,^^ as illustrat- ing the difference in judicial opinion as to the principle governing the discharge by breach of a contract while executory. 1 1 H.Bl. 273 n. (a). = 6 T.R. 573. ' 1 Wm. Saunders, 1871 Edn. 648. * 2 S.L.C. 1 ; see pp. 98 etaeq. post. 5 1 Bing. N.C. 370. « 10 C.B. N.S. 844. 7 11 C.B. 481. 8 1 H.Bl. 273. » L.R. 2 Q.B. 580. «• 1 Q.B.D. 183. " 1 Q.B.D. 410. " 3 B. & S. 751. " (1893), 2 Q.B. 274. >« 5 H. & N. 19. " L.R. 8 Q.B. 14. 1" 7 Q.B.D. 92. PRELIMINAEY Before attempting to examine in detail the subject of rescission Preliminary of contracts, it is necessary to appreciate the different senses in which the term 'rescission' is used.^ The word comes to us in meaning as in form from the Koman lawyers. To ' rescind ' is to annul, abrogate, vacate, set aside, or make void, and it may be added, the word in its primary meaning, as applied to contracts, conveys the idea of an avoidance ab initio. We speak of rescinding a resolution as well as of rescinding a contract. In view of the variety of uses to which the term ' rescission ' is put, it is difficult if not impracticable to define the term concisely with any degree of accuracy. To say that rescission is the avoidance or dissolution according to law of a contractual ob- ligation, really conveys a meaning no more specific than does the word itself ; moreover the word is used as meaning more than the avoidance or dissolution of a contract : for example, we find it applied as indicating the remedy to which a party, induced to enter into a contract by fraud, is entitled, even after complete performance of the contract, viz. the assertion of the right to relief by obtaining restitution of the property with which he has been induced to part. The idea of framing a definition of the term at once concise and useful, must therefore be abandoned in favour of a classification of the various kinds of cases to which the term is applied in practice. The cases to which the term is applied resolve themselves, for the present purpose, into two main classes, viz. contracts which are executory, and contracts which have been performed. There are, of course, cases which fall partly into one and partly into the other category, i.e. contracts which have been partly performed, but under which obligations still remain outstanding to be performed by one or both parties.* ^ See Benjamin on Sale, 5th ed., p. 935. ^ It maybe of importance in some of these casea to consider in the particular circumstances, whether partial performance does or does not amount to sub- stantial performance, or in other words whether the contract is to be treated as in efEect an executory or an executed contract, see Ellen v. Topp, 6 Exch. 424. This branch of the subject will be considered presently. (All citations other than one of each decision will be found in the Index of Cases.) J B 2 RESCISSION OF CONTRACTS Preliminary Speaking generally, the term when appUed to the case of the avoidance of an executed contract conveys the idea of the abroga- tion of what may be called the status of the parties, created or effected in relation to the subject matter of the contract by its performance, and the restoration of their status quo ante, and in such a case, it is not strictly accurate to speak of the rescission of ' the contract,' inasmuch as, the contract having been performed, there is no obligation left on which rescission can operate. The phrase ' rescission of the sale ' or ' rescission of the purchase ' is sometimes used as applying to the case of an executed contract, and is the more accurate expression, and more in accordance with what was apparently the early use of the word ' rescissio ' (see note, p. 10, post). When the term is appUed to the case of an executory contract, it denotes the determination of unperformed contractual obligation, and in this sense it is applied to a comparatively wide variety of cases arising in the most diverse circumstances, and involving considerations differing from each other, not only so far as regards the grounds and mode of rescission, but also as regards the rights and obligations of the contracting parties arising on rescission. When the term is apphed to the case of an executed contract, avoided on the ground of fraud or the like, the remedy of rescission (so-called) is available only if the status quo ante of the parties can be substantially restored, i.e. the status of the parties, created in relation to the subject matter of the contract by performance, is abrogated if, and only if, restitutio in integrum can be effected. Where a contract is partly performed and partly executory, it will be seen that rescission involves the determination of the outstanding obhgations, and such rehef on adjustment in respect of the part performance as circumstances require — ^it may be restitution, it may be compensation in damages, consequent on rescission, for loss of the contract, or it may be (in a particular class of cases) that the law leaves the parties in their respective situations at the time of rescission. The term is therefore used to denote, according to circumstances, either (a) the determination of contractual obligation ^ or (b) the abrogation of the status of parties, created by the performance of a contract which was or has ^ The term ' rescission ' is often applied, though not with aptness, to cases in which the breach or default of one party absolutely discharges the other from his contractual obligation and puts an end to the contract. In such a case the party not in default may immediately bring his action for damages without any formal act of rescission on his part. Cases of this kind will be considered post. PRELIMINARY 3 become voidable or determinable, and the restoration of the status PreUminary quo ante. In the case of a contract partly executed and partly executory, the term may be applicable in both senses. For ex- ample, A by fraud induces B to enter into a contract to exchange properties ; B, while the contract is wholly executory avoids the contract on the ground that it was induced by fraud : that avoid- ance or rescission determines all contractual obligations. If, however, conveyances have been executed and the estates have passed and the contract performed before B discovers the fraud, then if B avoids the transaction he can hardly be said, with accuracy, to ' rescind the contract ' ; he may be said to ' rescind the exchange,' but the idea conveyed in these circumstances by that expression, is an abrogation of the status created or eiiected by the conveyances on exchange in relation to the subject matter of the contract, and a restoration of the status quo ante. In the third position, if A has conveyed to B, but B has not conveyed to A, the contract is partly performed and partly executory, and if B avoids the transaction there is, in the strict sense, a rescission of B's outstanding contractual obligation and also a divesting of B's estate in the property conveyed by A to B, so that if the term ' rescission ' be applied, it is in such a case used partly in one sense and partly in the other. It will be seen, therefore, that the word ' rescission,' as applied in practice, is in reality a generic term, and the foregoing observa- tions show that the word is used somewhat loosely, and may serve to preface a warning to the student against accepting, as of general application, statements to be found, not only in the text-books but in reported decisions, in the form of quite general propositions of law, which will in many instances be found on closer examination to apply to a limited class of cases only. For example, in Hochster V. de la Tour,^ Crompton, J., said : That word ' rescission ' implies that the parties have agreed that the contract shall be at an end as if it had never been. The words ' as if it had never been ' had reference in that case to a contract which was wholly executory. It is plain that where a contract has been partly performed — where one or both parties acting in pursuance of the contract have, it may be irrevocably, altered his or their position — the mere rescission of the contract can neither restore the status quo ante of the parties, nor adjust the rights arising from the alteration effected in the circumstances 1 2 E. & B. 678, at p. 685. b 2 4 RESCISSION OF CONTRACTS Preliminary of the parties by the part performance. Again, the proposition ' That word rescission impUes that the parties have agreed,' etc. has no appHcation to the rescission of a contract by one party on the ground of fraud. Where a contract is rescinded by express consensus, the parties themselves usually provide how the rights and obligations under or arising out of the contract are to be adjusted. Where the contract is rescinded by one party in exercise of the right to rescind arising, for example, on the repudiation of obHgation by the other, the law supplies and applies the principles of adjustment. It will be seen that there may be a rescission of a wholly executory or partly executed contract ab initio, conditional or unconditional ; there may be a rescission of a partly executed contract qua future performance only, conditional or unconditional. Indeed, in the sphere of rescission by the acts of the parties themselves and express consensus, the only limits that can be placed to the possible in- cidents of rescission of a contract are the limits to the power of making one. It may be observed here that an important branch of ' rescission by the act of the parties ' may be considered under the head of Novation — the Novatio inter easdem personas of the Roman lawyers.^ In dealing with this subject, it will be necessary from the outset to avoid as far as possible the confusion arising from the wide application of the word ' rescission,' and to arrive at a clear con- ception of the different classes of circumstances under which, and the various modes in which unperformed contractual obligation may be put an end to (a) by the parties, or (6) at the instance of a party to the contract, or (c) by operation of the law. It is also necessary to differentiate between (a) the rescission of contracts absolutely or contingently binding, and (6) the avoidance of trans- actions executory and executed which are voidable at the election of one or either party, whether in order to obtain discharge from contractual obligations, if the contract be executory, or restoration of the status quo ante (restitution), if the transaction be wholly or partly executed. The writer therefore proposes in the light * See under title " Extinction des Obligations," Girard, Manuel SUmentaire de Droit Bomain, 4th ed., p. 681. " ' Novation,' which, as I understand it, means this — the term being derived from the civil law — that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties ; the consideration mutually being the discharge of the old contract." Per Lord Sdborne, Scarf v. Jardine, 7 A.C., at p. 361. PRELIMINARY 5 of the following general classification of cases to attempt a de- Preliminary finition, if not with logical, at least with practical accuracy, of such words as ' rescission,' ' discharge,' ' dissolution,' ' avoidance,' ' restitution,' using these distinctive terms as indicating the deter- mination of obligation, or abrogation of status, in the particular classes of contracts to which they respectively apply with aptness. It is not supposed that these terms will ever, in general use, be substituted for the word ' rescission ' ; nevertheless the use of these separate terms to signify the different uses of the word will, it is hoped, assist the student in following the writer's classification and treatment of the subject. For this purpose contracts may be divided into four classes : 1. Contracts which are absolutely or contingently ^ binding on both parties from their inception, or have so become by the election of a party, having a right of avoidance, to affirm the contract, so that the obhgations thereunder cannot be varied or terminated by the parties without the consensus expressed, impUed, or constructive of both. (It will be seen that the rescission of a contract by one party by reason of the repudiation of obUgation by the other, is treated as a termination of obhgation by con- structive consensus of both.) 2. The term ' rescission ' is often appUed to cases where one party is discharged from his obligation or promise, (a) By the failure or non-fulfilment of a condition (whether precedent or concurrent) which renders the obhgation on such promise contingent ; (6) By actual breach, or by failure or inabihty (whether voluntary or involuntary) of the other party to perform the whole consideration supporting such promise or obhgation. It will be submitted tiiat ' rescission ' is not a term properly apphcable in such circumstances, for the reason that notice to the party in default, (however expedient in order to negative waiver of the breach if the contract be a continuing contract or the like,) is not necessary in order to discharge effectually from his obligation the party not in default. The obligation is determined by the act of one party, not by the consensus of both. 1 A contract by which the liability of one party depends on the perform- ance of a condition precedent by the other, or on the happening of some contingency (the suspensive condition of Roman law) is a contract contiri- gently binding on the party whose liability is suspended, 5 RESCISSION OF CONTRACTS Preliminary 3. Contracts which are, from their inception, voidable until the party having the right to avoid elects to affirm or debars himself from avoiding. This class does not include contracts containing an express power of rescission exercisable in a given contingency (resolutive condition),^ but includes — (a) Contracts induced by fraud, etc., and all con- tracts voidable ab initio for any reason at the instance of one party, and (&) Contracts voidable at the election of either yarty, as, for example, a contract based on mutual mistake. 4. Contracts which are based on the mutual assumption of the continued or future existence of some state of things contemplated by both parties as essentially the basis of the contract, so that on the failure, without default of either party, of such assumed state of things such a contract is or may be treated at the instance of either party as rescinded (dissolved) by operation of the law.^ As regards the first, second and third classes of contracts, it will be seen that the right to rescind and the incidents of discharge or rescission may depend on diverse sets of circumstances, ac- cording as the particular contract is or is not wholly executory, and according as the ground of discharge or rescission is the default of one party or the express consent of both, and the right may be exercisable only subject to the practicability of replacing parties in their original position, and may be taken away by the fact of rights having in the interim been acquired by third parties. The writer proposes to treat contracts which have been wholly performed but are nevertheless voidable, as not being within the strict application of the term ' rescission of contract,' for the reason already stated, that there is, in such a case, no contractual ob- ligation left on which rescission can operate. The obUgations under a contract which has been wholly performed are said to be ' discharged by performance.' Contracts voidable on the ground ^ Where a contract reserves to one or either party a right of rescission in a given event (the resolutive condition of Roman law) the contract is effectual to bind both parties absolutely as from its inception, but is liable to be dissolved by the act of one of them. ' Cases based on principle of Taylor v. Caldwell, 3 B. & S. 826, and KreU v. Henry (1903), 2 K.B. 740. PRELIMINARY 7 of fraud may be set aside after performance ; as performance of Preliminary the contract, though it may and does operate as a discharge of all contractual obligations, does not affect the collateral duty which the party guilty of fraud owes to make reparation to the other party. That reparation may be either ' restitution ' where that is practicable, or, where restitution is not practicable, damages in an action for deceit, by which, however, the contract is affirmed and not rescinded. That restitution, where it is available as a remedy, is a remedy /or the fraud is clear from the fact, that at law the remedy of rescission of the status effected by the performance or execution of a contract and consequent restitution, is not open where the party complaining has been induced by innocent mis- representation, i.e. in the absence of fraud, to enter into the con- tract which has been executed.^ There is, however, a class of cases in which the parties have purported to make a contract and have performed what they be- lieved to be its terms, and it has subsequently turned out that the contract intended to be performed by the parties has never been performed at all. Thus, where a person asked a banker to discount A's bill and gave the banker a document believed by both parties to be A's biU, but the bill actually given and discounted turned out to be a forgery : in such a case there is an essential and complete difference between what was bargained for and what was given, so that what is done by the parties is not a performance of the contract at all, and money paid under such circumstances may be recovered back as on a total failure of consideration, the contract not having in reahty ever been executed ; and though the contract may be rescinded after the assumed performance, it is not accurate to say that such rescission is the rescission of an executed contract on the ground of innocent misrepresentation. Where a contract induced by innocent misrepresentation has been executed, as by the vesting of the real subject matter of the contract in the purchaser and the payment of the price, and the purchaser has received the thing he bargained for, his right to rescind for innocent mis- representation has gone — at all events, at law, in cases where the performance is accomplished by the doing of a definite act or acts. The cases of contracts involving continuous performance, such as the relation of partnership, will be considered later. Compare Kennedy 1 Kennedy v. The Panama, etc.. Mail Co., L.B. 2 Q.B. 580. Cf. Seddon V. The North-Eastern Salt Co. (1905), 1 Ch. 326. Under what circumstances the rescission of an executed contract on the ground of innocent misrepresentation may be obtained in equity, will be considered presently. 8 RESCISSION OF CONTRACTS Preliminary v. The Panama, etc., Mail Co.,^ with Gompertz v. Bartlett,^ Gurney v. Wormersley,^ and Chanter v. Hopkins,* per Lord Abinger, C.B. To revert to the definition of terms, it is conceived that the term ' rescission ' in its modern meaning is pecuharly appUcable to cases coming within the first class, i.e. cases of determination by act (consent) of the parties. Though the term ' rescission ' is frequently appUed to cases of the second class, it is submitted that it is not strictly applicable, as the breach or failure to perform by one party actually discharges the other without the necessity for any act or notice by the party not in default. In other words, where there has been such a failure of consideration on the part of one of the contracting parties that the promise of the other ceases to be a binding or enforceable obUgation, there is an end of the contract. Similarly, where the obligation of one party is dependent or contingent on the fulfilment of a condition proper, and the condition fails or is not fulfilled, the obhgation ceases. In practice, however, the party not in default is careful to notify the other party that the contract is at an end — not that such notice is necessary for the purpose of rescinding the contract, but for the purpose of negativing a waiver of the breach. If the party not in default were to permit the other party to pro- ceed with further performance on the assumption that the contract was not at an end, he would be held to have waived the breach, as in Bentsen v. Taylor.^ Where, however, the breach or failure is so far reaching that the object of the parties to the contract has been frustrated, as in the case of Jackson v. The Union Marine Insurance Co.,^ no question of waiver can arise. Where, on the other hand, there is not an actual breach, but merely repudiation, i.e. actual or constructive refusal by one party to perform before the time for performance arrives, the other party, in order to terminate his obligation, must by words or conduct treat the repudiation as an offer to rescind and accept it, otherwise the contract remains in force, as in Avery v. Bowden'' ; and see Tredegar and Co. v. Hawthorn * and Johnstone v. Milling.^ Again, where a party erroneously treats a contract as discharged by breach or failure, he may, in an action on the contract brought by the other party, rely on a default of which he did not purport to avail himself, and of which he may have been ignorant : Cowan v. » L.R. 2 Q.B. 580. = 2 E. & B. 849. » 4 B. & B. 133. ' 4 M. & W. 399, 404. ' (1893), 2 Q.B. 274. « L.R. 10 C.P. 125. ' 5 B. & B. 714 ; 6 E. & B. 955. « 18 T.L.R. 716. » 16 Q.B.D. 460, 467. PRELIMINARY 9 Milbourn ^ ; Pearce v. Stevens.'^ In the old form of action on the Preliminary contract (assumpsit), the plaintiff in order to succeed had to allege and prove the performance of the whole of an executory consideration and the fulfilment of every condition on which the defendant's liability was contingent. While the word ' rescission ' is also commonly apphed to the third class, the term ' avoidance ' better indicates the reason for which a contract coming within this class is determinable, and is specially applicable so far as the contract is executory. If the contract be executed, the term ' restitution ' sufficiently indicates the remedy of what may be described as the rescission of ' the status ' created by the performance — indeed, that restitutio in integrum is practicable is the essential condition of the right to relief by (so- called) rescission in this class of case, i.e. the status quo ante of the parties must be practically capable of restoration. As to restitution in the absence of fraud see post, ' Restitution.' As to the fourth class of case, it is suggested that the expression ' dissolved by operation of the law ' is preferable to ' rescinded by operation of the law,' for the reason that in such cases the ob- ligation of further performance terminates automatically on the failure of the contemplated conditions without any necessary act of the parties. It may be here observed that cases coming within the fourth class are akin to cases of contract based on mutual mistake, with this important and, for the purposes of this subject, essential difference, viz. the expression ' mutual mistake ' is applied only to cases where facts are by both parties erroneously assumed to exist at the time of making the contract, whereas in cases coming within the fourth class, the mutual assumption is that a state of things existing at the inception of the contract will in the future continue to exist, or that a certain contemplated new state of things will come into existence. Rescission proper may therefore be defined as the determina- tion of an unperformed contractual obligation by the act of the parties, either by the express or implied consensus of both, or by one party acting on the repudiation of obligation by the other, and treating the contract as at an end. Discharge hy Failure of Consideration, or by Failure or non- fulfilment of Condition includes all cases of breach, or failure or inability to perform, sufficient to preclude the party in default from maintaining an action on the contract. The discharge of 1 t.R. 2 Exch. 230, = 24 N.Z.L.R. 357 (C.A.). 10 RESCISSION OF CONTRACTS Preliminary one party by breach, means simply that the other party is, by reason of his own default, disabled from enforcing the contract, and the contract, being no longer enforceable by one party, ceases to be an obligation binding on the other. Avoidance may be defined as the termination of an unper- formed contractual obligation voidable ab initio, by reason of its having been induced by fraud or naisrepresentation, or based on mutual mistake or the like. [A contract originally of absolute obligation may become voidable by the act of one of the parties (without actual breach or failure to perform), as, for example, by one of the parties entering into a surreptitious dealing with the agent of the other to the prejudice of the other's rights under the contract.^] Restitution may be defined as the remedy to which a party induced by fraud or the like to enter into a contract (which he has performed wholly or partly) is entitled, if the contract be set aside or avoided on the ground of fraud, or the like, provided that restitutio in integrum be practicable. Dissolution by operation of the law is the determination of un- performed contractual obligation by reason of the failure, without the default of either party, of some state of things which the parties on the making of the contract contemplated as the basis of the contract and essential to its performance. Repudiation is sometimes used to denote a legally justifiable refusal to perform an obligation. It is suggested that this use of the word does some violence to its natural meaning. It will be used in these pages as applying only to cases of refusal to perform where that refusal is not legally justifiable, if only for the reason that it is difficult to find a term more suitable to express this idea. Note The word ' rescission ' is from the Latin rescissio (Ft. rescision), rescvndere meaning, primarily, to (physically) cut ofi, cut loose, cut, or break down, to cut or tear open, and figuratively, in Roman law, to annul, abrogate, or repeal a law, decree, agreement, etc., and appa- rently, a personal status ; e.g. " Quod semel ordo decrevit non oportere (id) rescindi * * * nisi ex causa, id est, si ad publicam utilitatem respiciat rescissio priojis decreti." — Callistratus, Dig., 50. 9. 5 ; " Bt si rescissio emptionis in alterius arbitrium conferatur idem erit pro- bandum," etc. — Ulpian, Dig., 43. 24. 11 § 13. " Si emancipatus filius, uxore non ex voluntate patris ducta, fiUum fuerit sortitus, dein nepos * Panama, etc.. Telegraph Co. v. India Rubber, etc., Telegraph Works, 10 Ch. 526. PRELIMINARY 11 patre jam mortuo ad bonorum possessionem avi velit venire,- admit- Preliminary tendus est ad earn: non enim per rescissionem is, qui filius Justus est, efficietur non filius : cum rescission quo magis admittantur, non quo minus, adhibeatur." — Ulpian, Dig., 37. 4. 3. § 5. It will be observed that, in the fiist of the foregoing instances, the term rescissio is used to signify the repeal of a general law, in the second the annulling of a purchase, in the third the abrogation of a personal status {rescissio emancipationis). It would seem that in the earlier period of Roman jurisprudence the completed transaction was recognised rather than the rights under the executory contract. "The Bmptio-Venditio was originally a parting with and appropriation of a thing in consideration of the price paid ; so that the real and the obligatory element coalesced." ^ The judicial rescission of executed contracts procured by fraud, force, or fear in all probability preceded the dissolution of unperformed contractual obligations, i.e. the status (using the term as signifying estate) created by the performance of the contract was probably the subject of judicial rescission before the remedy was afiorded in respect of the unperformed contract. Sir Henry Maine says : ^ "At first nothing is even like the interposition of law to compel the performance of a promise." And again : * " We have indications not to be mistaken of a state of social aSairs in which conveyances and contracts were practically confovmded ; nor did the discrepance of the conceptions become perceptible tiU men had begun to adopt a distinct practice of contracting and conveying." And : * " There seems to have been one solemn ceremonial at first for all solemn transactions, and its name at Rome appears to have been nexum. Precisely the same forms which were in use when a conveyance of property was effected seem to have been employed in the making of a contract." Sir Frederick Pollock in his notes to Chap, ix of Sir Henry Maine's work ^ refers to the author's argument as showing : " that the law of contract, or, to be exact, any comprehensive doctrine of contract, appears everywhere only at an advanced stage of legal develop- ment," and adds " even the classical Roman law in its final form never attained a really general theory of contracts." Turning to the history of BngHsh law we find that the form of action in assumpsit was a comparatively recent innovation.^ While 1 Saikowski's Roman Law, by Whitfield, p. 591. Citing Dig. 18. 1. 1, pr. §79 ad init. " Ancient Law (1907), p. 327. » p. 329. * p. 331. = p. 376. « Reeve's History of English Law, Vol. II, p. 508 ; Vol. Ill, pp. 182, 403. Holdsworth's History of English Law, Vol. II, pp. 379, 442 ; Vol. Ill, ch. 3, pp. 346, 347. 12 RESCISSION OF CONTRACTS Preliminary the principles governing the rescission of executed contracts in BngKsh law are to a great extent analogous to the principles applied in similar cases under the Civil law (see Kennedy v. The Panama Mail Go.)} we turn in vain to Roman law for any real assistance in ascertaining the principles governing the rescission of executory contracts. Under the title Quando Liceat ah Emptione Discedere, C. 4. 45. 2 we find a statement of the broad principle as to rescission by consent of the parties, but the right to rescind a contract for breach seems to have depended on an express jjactum — e.g. ' lex commissoria,' excepting in cases of warranty against latent defects interfering with the enjoyment of the thing purchased.* As the Roman jurists failed " to apprehend and apply the principle of valuable consideration " * as that doctrine has developed and is understood in English law, it follows that so far as the principles governing the rescission of executory contracts under English law depend on that doctrine, Roman law can he of no practical assistance. In Roman law the terms rescindere, resolvere, dissolvere seem to have been used more or less indifierently ; see C. 4. 44, Title " De Rescindenda Venditione," though it appears not improbable, from a comparison of the instances cited under that title with those cited under the title " Quando Liceat ah Emptione Discedere," C. 4. 45, that rescissio was applied rather to the avoidance of the completed transaction than to the dissolution of the mere obligation to sell or purchase. See D. 18. 5. 3, " emptio et venditio sicut consensu contrahitur ita contrario consensu resolvitur ; " D. 18. 5. 5, " emptio nuda conventione dis- Bolvitur si res secuta non fuerit." A contract for sale to take effect only in a certain event is referred to by Ulpian (D. 18. 2. 2) as emptio conditionalis ; while a sale which, though taking effect at once is liable to be abrogated on the happening of a certain event is referred to as " pura emptio quae sub conditione resolvitur" (note the use of resohere, the sale being annulled in pursuance of a term of the contract). These instances illustrate the distinction in Roman law between suspensive and resolutive conditions, which have their analogues in English law — the suspensive condition corresponding to condition precedent, and the resolutive condition to the express right, reserved in some contracts to one or either party, to rescind on a given contin- gency. Provisions in contracts enabUng rescission in certain specified events came under the generic name of pacta.* The ' in diem addictio ' enabled the seller if he had a better offer within a certain time to rescind the contract (D. 18. 2), and the ' lex commissoria ' provided ' L.B. 2 Q.B. 580. * See Moyle's Contract of Sale in the Civil Law, 175 et seq., 189. But, as to the view that nexum is not the parent contract from which the other forms of contract in Roman law are descended, see Hunter's Roman Law, 4th ed., p. 525. " Hunter's Roman Law, 4th ed., p. 545. * See Sandars' Justinian, 7th ed., 367. " The generic name for the accessory agreements which modified the principal contract was pacta," PRELIMINARY 13 for rescission if either party violated the terms of the contract, particu- Preliminary lady where the price was not paid by a certain day (D. 18. 3). Where a thing was sold with certain undisclosed defects, the purchaser, on discovering the defects, might either have his actio aestimatoria for compensation, or his actio redhibitoria by which the contract was rescinded and the thing returned {redhibere est facere ut rursus haheat venditor quodhabuerit.—T). 21. 1. 21). According to English law the right to rescind for breach of warranty is available only while the contract is executory, and fails with the execution of the contract or the passing of the property, and in such case the purchaser's sole remedy is compensation : Street v. Blay.^ The actio redhibitoria corresponds to rescission of the sale and restitutio in integrum of English law, which obtains where a contract is avoided for fraud or the Uke. Solutio, literally ' payment,' applied mainly to discharge by pay- ment or performance, which is in no sense rescission. One form of solutio was acceptilatio, a solemn acknowledgment of payment which operated to discharge the obligation, whether there had, in fact, been payment or not. It was in substance a rescission, though not in form, as it assumed the performance of the obligation. Novatio inter easdem personas operated as a rescission of the pre-existing obligation by the substitution of a new obhgation between the same parties relating to the same subject matter. In modern practice the term ' rescission ' is applied as well to the case of the vacation of an executory obligation as to the abrogation of the status or condition effected by the completion of a sale, and the restoration of the status quo ante, but the expression ' rescission of the contract ' as applied to the latter case is not unusual, notwithstanding that the contractual obligation has been discharged by performance. 1 2 B. & Ad. 456. PART 1 CHAPTER I (A) Rescission proper, i.e. by the act of both parties. (B) Discharge by breach or non-!ulflhnent of condition pre- cedent or concurrent, or by breach, or failure or inabiUty to perform, amounting to a sufficient failure of consideration. CLASSIFICATION OF CASES Part I Proceeding according to the classification outlined in the fore- Chapter I going pages, it is proposed in this part of the book to treat generally of the rescission and discharge of contracts which are absolutely or conditionally binding on the parties, whether : (a) As from their inception, or (6) As from the affirmance of (or loss of right to avoid) con- tracts voidable on their inception. This branch of the subject does not include cases of the avoidance of voidable contracts,^ nor cases of dissolution of contracts by operation of the law, but comprises, 1 Although we have for the present purpose distinguished between con- tracts which are voidable by one party, as having been induced by fraud, misrepresentation, etc., and contracts determinable only by the act of both parties, it wiU be seen, presently, that as regards contracts induced by innocent misrepresentation, where the representation is not embodied in the contract itself but forms a basis or one of the bases of the contractual relation, and the contract is executory, the distinction is more apparent than real, when we consider the principle which governs the right to rescind. For example, A induces B to enter into a contract for the purchase of hops by a representa- tion, made without fraud, that sulphur has not been used in growing them. Although the representation is not embodied in the contract it is an essential part of the transaction, and forms a basis of the contractual relation between the parties. On discovering that the representation is untrue, B may rescind the contract, on the ground that he was induced to enter into it by A's material representation which has proved to be untrue. But suppose that the contract itseH contains a stipulation or undertaking that sulphur has not been used in growing the hops ; or the hops are described in the contract as having been grown without the use of sulphur, and A tenders a parcel of hops in the growing of which sulphur has been used, B may treat the contract as 14 CLASSIFICATION OF CASES 15 (1) All cases wkere the contract is rescinded by the act and Part I consensus (either actual or constructive) of the parties : Chapter I (2) All cases of the discharge of the contractual obUgation by. (a) The breach or non-fulfilment of a condition precedent or concurrent. (6) Failure of consideration. (A) Rescission Proper, i.e. by Consensus of the Parties CLASSIFICATION OF CASES Rescission of a contract by the act of the parties may be effected by agreement, express, implied, or constructive : 1. New Agreement, where the parties make a new agreement or contract,^ either (1) Rescinding the existing contract simpliciter as to all its provisions, (2) Rescinding the existing contract as to some only af its terms, or (3) Substituting new rights and obHgations either wholly or partly in lieu of those created by the former contract, and impliedly, or it may be expressly res- cinding the former contract or some of its terms accordingly. 2. Resolutive Condition, where one party rescinds a contract pursuant to a term thereof conferring a right on such party to rescind in a certain specified event (resolutive condition). discharged on the ground that A has failed to perform an essential stipulation of the contract. It will be seen that, in substance, there is no difference between the two transactions, but that in the former case the representation or inducement must be proved by evidence outside the contract, and the plaintiff must prove as a fact that he was induced by the representation to enter into the contract. While in the latter case the representation or stipula- tion being embodied in the contract is proved by the contract itself, and appears ex facie to be part of the consideration for the contract. It is sub- mitted, for reasons which will be considered presently, that although the grounds of rescission or discharge in the respective cases may be differently expressed, they are, in effect, identical in principle. See observations on Eannerman v. White, p. 91, post. ^ " Abandonment of a contract, according to the law of this court is a contract in itseH " : Moore v. Grafton (per Sir Edward Sugden, Lord Chancellor), 3 Jon. & L. 438, 445 ; Whitaker v. Fox, 14 W.R. 192. 16 RESCISSION PROPER AND DISCHARGE Part I 3- Repudiation, where one party, (a) By his refusal to be bound by the contract, or some essential term thereof, or (b) By his conduct evincing an intention no longer to be bound by the contract or some essential term thereof, or (c) By preventing the other party from performing the contract (or, in other words, where one party by actually or constructively repudiating or renouncing his obhgation), sets the other party at Uberty to rescind, and the other party rescinds the contract accordingly. Cases coming under 3 (a) or (b) are sometimes called cases of anticipatory breach, and in these cases the intention of the party making default, or the natural inference of his intention from his conduct, is material. With regard to including ' prevention ' as a form of repudia- tion, it should be observed that effective prevention operates to discharge the contract, and, in such a case, it would seem that notice of rescission is not necessary in order to determine the obligation ; see p. 38, post. A contract may be rescinded by the act of the parties only when they are agreed expressly, impliedly, or constructively that the contract shall be determined and put an end to, either ab initio or sub nwdo. " The rule is," said Cohridge, J., in FrankUn v. Miller,^ " that in rescinding, as in making a contract, both parties must concur." The rescission of a contract by express agreement is, strictly speaking, a new contract, and the parties must be at one — there must be a consensus ad idem, so that, if the contract is to be rescinded con- ditionally, all parties to the contract must agree as to the condition.* Rescission by the constructive consent of the parties may be illustrated by the case of one party refusing absolutely to be bound by the contract, or by some essential term of the contract, in which case the other party may treat such refusal or renunciation as an offer to rescind and a dispensation of future performance, and he may elect to rescind accordingly ; but the mere wrongful refusal » 4 A. & E. 599. " Moore v. Orofton ; Whitaker v. Fox, ante Carolan v. Brabazon, 3 Jon. & L. 200, 209. CLASSIFICATION OF CASES 17 by one party to be bound does not of itself operate as a rescission.* Part I In Johnstone v. Milling,'^ Lord Esher, M.R., said: "When one Chapter I party assumes to renounce the contract, that is, by anticipation refuses to perform it, he thereby, so far as he is concerned, declares his intention then and there to rescind the contract. Such a re- nunciation does not, of course, amount to a rescission of the con- tract, because one party to a contract cannot by himself rescind it, but, by wrongfully making such a renunciation of the contract, he entitles the other party, if he pleases, to agree to the contract being put an end to." In Michael v. Hart,^ Collins, M.R., said : " There must be two parties to a rescission." These observations apply only to rescission as distinguished from — (a) Avoidance of a contract for fraud, misrepresentation, etc., and (&) Discharge by breach or non-fulfilment of condition pre- cedent or concurrent, or by failure of consideration, where the breach or failure itself puts an end to the legal obligation by disabling the party in default from enforcing the contract. (B) Discharge by (a) Breach of Condition Proper ; (b) Failure o£ Consideration 4. Discharge by breach or non-fulfilment of condition precedent or concurrent. Some of the decisions in cases of this class treat discharge of obligation by breach or non-fulfilment of condition precedent or concurrent as cases of rescission. It is submitted that they are not properly so treated. The effect of the non-fulfilment of a con- dition precedent or concurrent in a simple contract is precisely the same as the effect of failure to perform a condition precedent or concurrent in a contract under seal. In the latter case the party in default is disabled from enforcing the dependent covenant, and the party not in default is discharged accordingly without having to do any act or intimate his consent. The party not in default may, of course, waive the strict performance of a condition, and should the party in default act upon such waiver by proceeding with the performance of the contract, the party who has waived » Avery v. Bowden, 6 El. & Bl. 953 ; Tredegar & Co. v Hawthorn, 18 T.L.R. 716. 2 16 Q.B.D. 460, at p. 467 (C.A.). » (1902), 1 K.B. 482, 490. 18 RESCISSION PROPER AND DISCHARGE Part I strict performance will be held bound by the contract, as in Bentsen Chapter I y Taylor.^ (Although the party waiving strict performance may thus render himself unable to treat his obligation as discharged, he may still be entitled to recover damages for breach.) It is therefore of the utmost importance that the party not in default, if he desires to be released, should, on the non-fulfilment of a con- dition, notify the party in default that the contract is at an end. It is conceived, however, that such notice is not required for the purpose of completing a rescission, but only for the purpose of negativing waiver. In cases where the breach or failure to perform is such that the whole or the main object of the parties to the contract has been frustrated, as in Jackson v. The Union Marine Insurance Co.,^ there is no necessity to give notice for any purpose. Conditions Proper (1) Where the liabiUty of one party under a contract is not absolute and enforceable on the making of the contract, but is suspended by, in other words, is contingent on the performance of a condition precedent, i.e. depends on the prior performance of something by the other party, or by some third person, or is con- tingent on the happening of some event, the party whose liability is so suspended or contingent is discharged from his obligation whenever the condition is broken, or has become irrevocably incapable of fulfilment according to the contract. The test of such discharge is the inability of the party in default to enforce the contract — he, being, by reason of his own default or failure, unable to prove performance or fulfilment of the condition, is there- fore disabled from maintaining an action on the contract. The contract, having become unenforceable, thereby ceases to be an obligation. (2) Where it is to be gathered from the terms of the contract or from the nature of the transaction that the parties intended their mutual obligations to be performed at the same time : there the right of either party to call upon the other to perform his promise depends or is conditional upon his having ofiered and being ready and willing to perform his own obligations (concurrent condition) ; so that (a) If, when the time for performance arrives, either party has not offered and is not ready and willing to perform his obligation, or 1 (1893). 2 Q.B. 274. ^ L.R, 10 C.P. 125. CLASSIFICATION OF CASES 19 (6) If either party, before the time for performance arrives, part I becomes wholly unable to perform his obligation,^ Chapter I the other party is discharged, for the simple reason that, the contract not being enforceable against him, he is no longer under any legal liability in respect thereof. The question whether a particular stipulation is a condition in the strict sense depends on the intention of the parties to be gathered from the terms of the contract, or from the order of time in which the nature of the transaction requires the respective obligations of the parties to be performed. The rules laid down in the notes to Pordage v. Cole * afford a guide to the intention of the parties.^ Where mutual promises extend to or cover the whole con- sideration on both sides, as, for example, where A agrees to convey to B a piece of land and B to pay therefor a certain price, the intention of the parties is taken to be that the mutual promises are to be performed at the same time (concurrent condition) unless a contrary intention is to be gathered from the contract.* But it does not follow that a stipulation extending to part only of the consideration may not amount to a condition precedent or con- current if it is to be gathered from the contract that such is the intention of the parties.^ It is immaterial whether the non-fulfil- ment of the condition be voluntary or involuntary ; and to that extent the intention of the parties is unimportant. So far as regards the legal effect of the breach or non-fulfilment of a condition proper, there is no difference between the principle which governs the discharge from an obligation under seal and that which governs the discharge of an obligation by simple contract. It is submitted therefore that if the term ' rescission ' connotes the consensus of both parties to the discharge of contractual obli- gation, that term is strictly inapplicable to discharge through failure or non-fulfilment of a condition proper (i.e. precedent or con- current). The term ' rescission ' is never applied to the discharge by breach of an obhgation by covenant, and it is equally inappUcable to a discharge by breach of an obhgation by simple contract. 5. Discharge by Failure of Consideration. Where one party, by his breach of, or failure or inability to perform the contract, 1 Weston V. Savage, 10 CD. 736. ' 1 Wms. Saunders 548. 3 Eoberts v. Brett, 11 H.L.C. 337. * Notes to Pordage v. Cole, I Wms. Saunders 548, Rules 3 and 4 ; Mattock V. Kinglake, 10 A. & E. 60 ; 2 P. & D. 343. 6 Bank of China v. American Trading Co. (1894), A.C. 266, at p. 27L c2 20 RESCISSION PROPER AND DISCHARGE Part I or some term thereof not amounting to a condition precedent or Chapter I concurrent, but constituting a material part of the consideration or inducement to the making of the contract by the other party, disables himself from enforcing the contract, he thereby discharges the other party from his obligation,'^ if the contract is executory. It is conceived that in cases of this class also the discharge of the party not in default depends on and is tested by the inability of the party in default to enforce the contract. There is a fundamental difference in cases of this class between contracts under seal and simple contracts. A contract under seal does not require consideration to support it, and an action will lie for the breach of an independent covenant, although the plaintiff himself may be in default, the defendant's remedy being by cross action. Consideration is necessary, on the other hand, to give binding force to a promise not under seal, and when the considera- tion fails, the promise, being no longer supported, ceases to be a legally binding obhgation. In the old form of action in assumpsit the plaintiff was required to allege and prove the performance of the whole of an executory consideration, and if he failed to do so he failed in his action, and the defendant was discharged. Hence the old rule : "A failure of part of the consideration is a failure of the whole," which applies in the case of an entire executory contract. It thus appears that the principle which applies in the case of the breach or non-fulfilment of what may be called an ' inde- pendent stipulation ' in a simple contract is different from that which applies in the case of the breach of an independent covenant. It is submitted therefore that where one party to a simple contract is, by his own default, disabled from enforcing the obhgation of the other, such other party is ipso facto discharged, his promise having become as a nudum pactum through failure of consideration. The term ' rescission ' is not strictly applicable to such a case. There is a very definite conflict amongst the authorities on this question, which will be discussed at length in Chapter V, p. 73, post. To summarise the classification attempted in the foregoing pages, it will be seen that there are five classes of cases in which contractual obhgation may be discharged by the act of the parties. To three of these classes the term ' rescission ' is properly applicable, since the consent of both parties is required, the rescission being in effect a new contract. In the remaining two classes of cases » Hoare v. Bennie, 5 H. & N. 19 ; Flight v. Booth, 1 B.N.C. 370 ; Banner- man V. White, 10 C.B.N.S. 844 ; Bawea v. Shand, 2 A.C. 455 ; and see p. 22, post, Failure of Consideration. CLASSIFICATION OF CASES 21 the discharge of obligation depends simply on the inability of Parti one party (usually by reason of his own actual default) to enforce Chapter I the contract, and the contract, being no longer an enforceable obligation, ceases to have any binding force or effect as regards the party not in default. These five classes of cases may be shortly summarised as follows : Cases of Rescission Proper by the acts of the parties (1) Where the contract reserves no express power of rescission, i.e. is not subject to a resolutive condition, but the parties come to an agreement, either express, or to be inferred from conduct, to rescind the contract, at the same time fixing the terms and con- ditions (if any) on which, and the extent to which the contract shall be rescinded, i.e. whether it is to be rescinded ab initio or only sub modo. ( ) Where the contract itself reserves to one or both parties a right or power to rescind, or, in other words, is subject to a resolu- tive condition. In cases of this class the consent of one party to the rescission by the other is given antecedently, and is usually a consent to a rescission on a given contingency. (3) Where one party to a contract refuses absolutely to be boimd by the contract, or so conducts himself with reference thereto as to evince an intention no longer to be bound by the contract — thus justifying the other party in concluding that he repudiates or renounces the contract. In such case the party repudiating may be said to consent constructively to a rescission of the contract by the other party. The repudiation is an offer to rescind, which must be accepted by words or conduct in order to constitute a rescission. (In cases of repudiation the right to recover damages for loss of the contract remains to the party not in default, as will be seen presently.) ^ Failure of Condition Proper (4) Where, by reason of the non-performance or non-fulfilment of a condition precedent or a concurrent condition, the party in 1 It may be observed that, in cases of repudiation, the determination of obligation, if the contract has been partly performed, extends to future performance only : see, for example, Gort v. The Ambergate Railway Co., 20 L.J.Q.B. 460. 22 RESCISSION PROPER AND DISCHARGE Part I default is unable to enforce the contractual obligation of the other, ^^P*^" ^ and such other party is therefore discharged from his obligation. Failure of Consideration (5) Where one party commits a sufficient breach of contract or in other words fails or becomes unable, though involuntarily, to perform the whole consideration or inducement which he promised or held out to the other party, and without which the other party might never have entered into the contract at all, the contract, if executory, ceases to be enforceable by the party in default, and the other party is therefore, ipso facto, discharged. A default in complete performance of a contract substantially executed stands on a somewhat different footing where complete performance is not a condition precedent to the right to payment. The question whether a contract is or is not substantially executed, seems to be a mixed question of law and fact, turning on the prin- ciple of failure of consideration, and on the relation of the unper- formed part to the performed part viewed in the light of that principle. What is a sufficient failure of consideration will be considered presently. See Chapter V, p. 40, post et seq. In the following chapters each of these five groups of cases will be separately discussed, with a view to ascertaining the principles governing the power or right to rescind (or the principles governing the discharge of obligation, as the case may be) in each class of case. CHAPTER II Rescission by new agreement of the parties Under this head may be grouped : Part I 1. Cases of simple rescission either where the contract is wholly executory, or where it is partly executed, as e.g. on an agreement for sale, where part of the purchase money has been paid, and the repayment of the deposit is accepted by the purchaser and the agreement put an end to. 2. Cases where a new substantive contract is entered into, involving new obligations, and either — (a) Embodying an express term rescinding the original contract, or (6) Dealing wholly or partly with the subject- matter of the original contract rmder circumstances justifying the inference that the original contract is at an end, or is rescinded, as to all or some only of its provisions. Under this head is included ' novation ' inter easdem personas. 3. Novation, by which the obligation of a third party is with the consent of all parties substituted for the obligation of one of the parties to an existing contract and the obligation of such party is determined. 1. As to cases of simple rescission by express agreement, it will be sufficient to say that the rescission must be proved by evidence as clear as that required to establish the making of a contract ; there must be the same consensus ad idem : see per Lord St. Leonards in Carolan v. Brabazon.^ Rescission may be inferred from the conduct of the parties in the absence of proof of any express agreement for rescission. In such a case the question is one of fact, and the difficulty of inferring rescission from any given set of facts is no less and no greater than » 3 Jon. & L. 200-209 ; Waiker v. Oreaven, 25 N.Z. L.R. 329 {C.A.j 23 24 RESCISSION BY NEW AGREEMENT Part I the difficulty of inferring an ' implied contract ' from conduct. Chapter n Jq Davis v. Bomford ^ the plaintiff sued for breach of promise of marriage. It was proved that the defendant, having written a letter to the plaintiff desiring to terminate the engagement, called at her father's house and a conversation took place respecting the return of letters. The defendant returned the plaintiff's letters ; the plaintiff said : " No, I can't give up your letters ; it would be like giving you up altogether." The plaintiff left her home and went to reside with an aunt for a long period, and no correspondence took place between the parties for a period of two years. It was held that this was evidence from which the jury might infer that the plaintiff had exonerated the defendant from his promise before any breach, and on the motion for a new trial a rule was refused. In delivering judgment, Channell, B., said : " From the expressive silence and the plaintiff's change of residence, I should infer that there had been a mutual exoneration." Wilde, B., said : " Then the question is whether the conduct of the parties was such that the jury might infer from it a rescission of the contract . . . without saying that I should have found the same verdict, the question was one for the jiu;y and they have decided it ; therefore there will be no rule." See also Morgan v. Bain,^ Bond v. Walford,^ and cf. Brogden v. The Metrofolitan Railway Co.* 2. (a) In cases where a new substantive contract between the parties is relied on, the question presents no difficulty where express provision is made for the rescission of the original contract. It may be observed, however, that the provision for rescission in the new contract may or may not operate at once, i.e. the rescission of the old contract may depend, not on the making of the new contract, but on its performance—as where an agreement for the sale and purchase of a parcel of land, is made, and a subsequent agreement is made between the same parties for the sale and purchase of another parcel, the first agreement to be rescinded on the vendor making out a title to and conveying the land in the second agreement. In such a case the rescission of the earlier agreement by virtue of the later is contingent on the performance of the obligation imposed by the later ; if the later contract be not performed the earUer contract remains operative. The question 1 6 H. & N. 246. - L.R. 10 C.P. 16. » 32 CD. 2.38. '2A.C.666. RESCISSION BY NEW AGREEMENT 25 is one of construction of the later agreement. It may be useful Parti to consider this branch of the subject in the light of the principles Chapter n of ' accord and satisfaction.' The learned editors of Smith's leading Cases say, in the notes to Cumber v. Wane : ^ "If the promise be received in satisfaction it is a good satisfaction ; but if the performance, not the promise, is intended to operate in satis- faction there will be no satisfaction without performance." It is said in Evans v. Povns ^ that it would be a question for the jury whether the agreement or the performance of it was accepted in satisfaction, but if the question depends on the construction of a written contract it will be for the court. See also Hall v. Flockton,^ Curlems v. Clark,* Budding v. Dal/rymple.^ (fe) As to cases where the new contract is silent as to the rescission of the earher contract, the question whether there is an implied rescission, either absolute or contingent, of the earlier contract, either partly or wholly, wiU depend in most cases on whether the subject-matter of the two contracts is essentially or substantially the same, and if so, whether, or how far the two contracts can reasonably stand together. If a contract be entered into for the sale and purchase of a parcel of land at a fixed price and upon definite terms, and the same parties subsequently enter into a new contract for the sale and purchase of the same parcel of land at a different price and upon different terms, then, in the absence of any express provision in the later contract rescinding the first, the rescission of the earlier contract by the later must be implied. See Reed v. Deere,^ Patmore v. C alburn,'' Hunt v. South-Eastern Railway Co.^ An agreement in writing, whether required by law to be in writing or not, may be rescinded by express verbal agreement, i.e. in terms rescinding the agreement in writing ; but if rescission is claimed as implied from a new contract dealing with the same subject-matter, then, if the original agreement was one required by law to be in writing, the new contract, to operate as a rescission, must also be in writing : Goman v. Salisbury,^ Goss v. Lord Nugent.^° So also an agreement required by law to be in writing cannot be modified by a subsequent verbal agreement ; Noble v. Ward,^^ 1 IS.L.C, 11th ed., 349. » lExch.601. »3Exoh.375. ' 16Q.B. 1039. 6 12 N.Z.L.R. 698 C. A. « 7 B. & C. 261 . ' 1 Cr. M. & R. 66. « 45 L. J.C.P. 87, H.L. • 1 Vem. 240 " 6 B. & Ad. 66. " L.R.2Exch. 136. 26 RESCISSION BY NEW AGREEMENT Parti Vezey v. Rashleigh,^ although, as we have just seen, it may be Chapter n wholly rescinded expressly by verbal agreement. But if, at the time the new contract is made, the existing obligations under the original contract are such that a contract to perform them would be binding and enforceable though not in writing, the original contract may be varied by the new contract whether it is in writing or not : Williams v. ilfoss' Empires, Ltd.^ And it seems to follow that if there is a valid and effective verbal contract inconsistent with a previous written contract it may vary the written contract even though the written contract is required by law to be in writing. A verbal contract, if performed, may operate to discharge even an obligation under seal :' Nash v. Armstrong, ^ Steeds v. Steeds.^ As to exoneration, satisfaction, or discharge of debts or demands before and after breach, see notes to Cumber v. Wane.^ NOVATION ' Novation ' is a term derived from the Civil law and is applied to two classes of cases. 1. Where the parties to a contract make a new contract (with new obligations) impliedly rescinding an existing contract — the Novatio inter easdem personas of the Roman lawyers. 2. Tripartite agreements : (a) Where the obligation of a third person is by express agreement accepted by one party to an existing contract with the consent of such third person and of the other party to the contract, in lieu of the obligation of such other party, who, by the new contract, is released from his obligation under the original contract. (6) Cases where novation is to be inferred from conduct, as, for example, on dissolution of partner- ship where a creditor cease^ to look for payment to a retired partner and elects to accept exclusively the liabihty of the continuing or new partners in lieu of the original Hability. The essence of novation in each class of case is that there is a rescission or determination of an existing contractual obligation and the substitution of a new obligation for the old. » (1904), 1 Ch. 634. » 31 T.L.R. 463. ' IOC.B.N.S.359. • 22Q.B.D 537. = S.L.C.,llthed., pp. 349 et sea. NOVATION 27 In Scarf v. Jardine} Lord Selborne, L.C., said : ^^ * „ . . ' ' Chapter n Novation,' which as I understand it means this — the term being derived from the CivU law — that, there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties ; the consideration mutually being the discharge of the old contract. A common instance of it in partnership cases is where upon the dissolution of a partnership the persons who are going to continue in business agree and undertake, as between themselves and the retiring partner, that they will assume and discharge the whole liabilities of the business, usually taking over the assets ; and if in that case they give notice of that arrangement to a creditor, and ask for his accession to it, there becomes a con- tract between the creditor who accedes and the new firm, to the effect that he wUl accept their UabiUty instead of the old Uability, and on the other hand that they promise to pay him for that con- sideration." Since novation is a contract imposing new obligations and, at the same time, is a rescission of an existing contract, the ordinary principles governing the making of a contract apply in ascertaining whether there has been, in fact and law, a new contract. Where the novation is not effected by an express contract, the intention of the parties may be inferred from conduct. A creditor continuing to deal with the new partners on a dissolution, if he knows of the change of partners, and making no claim on the retired partner or his estate for a long time, will, in most cases, be held by his conduct to have agreed to a novation : Hart v. Alexander,^ Bil- borough v. Holmes.^ A retired partner may be released by time being given by a creditor to the new firm after the creditor is aware of th* alteration in the firm. The reason is that a retired partner being, as between himself and the remaining partners, in the position of a surety, he is discharged from obligation to the creditor who has notice according to the ordinary principles which govern the rights of a creditor as against a surety : see Rouse v. The Bradford Banking Co.* Where it is claimed that novation is to be inferred from conduct, the facts must be such as to warrant an inference of an intention on the part of the creditor to look exclusively to the continuing or new partners : Scarf v. Jardine," Re National Provincial Life Assurance Society.^ This involves an intention to relinquish any 1 7 A.C. 345, 351. ' 2 M. & W. 484. 8 L.R. 5 CD. 255. " (1894), A.C. 586. ' L.R. 7 A.C. 345. « L.R. 9 Eq. 306. 28 RESCISSION BY NEW AGREEMENT Part I claim against the retired partner. Although the latter intention Chapter n jg g, necessary element in tripartite novation, it is seldom that there is direct evidence of such intention. In the majority of cases the dealings between the creditor and the continuing or new partners must be looked to, and they must be such as to justify the inference that the retired partner is released. The principle of novation as applied on dissolution of partner- ship is now embodied in Section 17 (3) of The Partnership Act, 1890,^ as follows : " A retiring partner may be discharged from any existing liabilities by an agreement to that efiect between himself and the members of the firm as newly constituted and the creditors, and this agreement may be either express or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted." » Vide Section 20 (3) of The Partnership Act, 1908 (N.Z.). CHAPTER III Rescission of a contract pursuant to a power expressly reserved to one or either party (resolutive condition) In contracts of this class the right to determine the obHgation is Part I usually reserved as exercisable on the happening of some specified Chapter HI contingency. The contingency may be a particular default ; it may be the inability to perform of the contracting party having the right to rescind, as in the case of a vendor stipulating that he may rescind the contract for sale if the purchaser makes a requisi- tion on title with which the vendor is unable or unwilling to comply ; and the contingency may be the happening of an event or the act of a third party.^ As the consent of the other party has been given antecedently, i.e. by the terms of the contract itself, the rescission of the contract is a rescission proper, i.e. by consent of both parties. In general no question can arise as to the importance or sufficiency of the ground of rescission agreed upon.^ The parties themselves have by their agreement made their obligations determinable by the act of one or either of them, and, subject to the considerations to be noticed presently, the court will not go behind that agreement. When the court has construed the contract the main question for decision will be : Do the facts alleged prove the existence of the agreed ground of rescission ? Subsidiary questions may, however, arise in considering whether the contract has been, in fact, rescinded, for the law places some limit to the exercise of an express power of rescission ; thus, it must be exercised in good faith : Woolcott v. Peggie ; ^ it must ^ In Head v. TattersaU, L.R. 7 Exch. 7, a contract for the sale of a horse contained a term enabling the purchaser to return it within a certain time if it did not answer the description. After delivery the horse was injured without default on the buyer's part. It was held that he was nevertheless entitled to exercise his right of rescission. 2 See observations of Blackburn, J., in Bettini v. Oye, 1 Q.B.D. 183, at p. 187, as to the power of the parties to make any term of a contract essential. Although the learned judge's observations are expressly with reference to condition precedent, they are equally applicable to resolutive condition. » 15A.C.42. 29 30 RESCISSION PURSUANT TO EXPRESS POWER Part I be exercised reasonably and not arbitrarily or capriciously : see Chapter m p^j p^y^ L.J., In re Starr-Bowkett Building Society and Sibun's Contract.^ A right of election to rescind must be exercised within a reason- able time, or, at all events, not after the party against whom it is claimed has been allowed to alter his position on the faith of the continuance of the contract : Marsden v. Samhell.^ Compare Bentsen v. Taylor,^ in which a breach operating as a discharge was waived and the party in default was in effect invited to proceed with the contract on the footing that damages only would be claimed for the breach. The power to rescind expressly reserved to one party must be strictly exercised, inasmuch as it involves the determination of the other party's rights, it may be, without default on his part, and it may (as in the case of a determinable lease) involve a divest- ing of legal interests. Thus, a vendor is bound to exercise the power fairly and, when the circumstances have arisen entitling him to rescind, to determine promptly whether he will exercise the power or not. He must not play fast and loose with the purchaser. If a vendor wilfully and for his own purposes outside the contract, by the abuse of the power of rescission, prevents completion on the day fixed, he cannot, after he has opened negotiations with a third person, be heard to say he was ready and willing to complete the contract, and the purchaser may treat the vendor's conduct as an election to rescind, and act accordingly : Smith v. Wallace.* In the absence of any evidence of caprice or mala fides, the court will not assume that a party purporting to exercise a right of rescission has acted unreasonably or in bad faith for not stating his reasons for rescinding : In re Starr-Bowkett Building Society and Sibun's Contract, ante. The party having the right to deter- mine the contract may elect not to do so. He may waive his right to rescind, and treat the breach as merely entitling him to recover damages : Bentsen v. Taylor and Sons.^ As to whether the application of the principles of election is the same, in the case of an election not to rescind, as in the case of an election to affirm a contract voidable on the ground of fraud qucBre : see Clough v. London and North-Western Railway Co.,* and Morrison v. The Universal Marine Insurance Co.'' It has been held that the com- 1 42 CD. 375, 388. » 43 L.T. 120. » (1893), 2 Q.B. 274. ♦ (1895), 1 Oh. 385. ' (1893), 2 Q.B. 274. « L.R. 7 Exch., at p. 34, ' L.R.8Exch. 197. RESCISSION PURSUANT TO EXPRESS POWER 31 mencement of an action for specific performance of a contract, Parti after the right to rescind under express condition has arisen, is Chapter m strong, but apparently not conclusive, evidence of an election not to rescind, or in other words is not necessarily a waiver of the vendor's right to rescind : Warde v. Dixon,^ Isaacs v. Towell.^ A. further limitation which equity places on the right to take advantage of an express resolutive condition is illustrated by the decision in Jackson and Haden's Contract. ^ In that case the contract reserved to the vendor a right to rescind in case the purchaser should make any requisition with which the vendor should be unwilHng to comply. The Master of the Rolls (Sir Richard Collins), after referring to the judgments in Duddell v. Simpson^ and Nelthorpe v. Holgate,^ said : " Now, what is the element that the Vice-Chancellor is seeking for there which determines the case ? It seems to me to be an element of something on the part of the vendor less than the law requires of him in such cases. It may stop short of fraud, it may be consistent with honesty ; but at the same time there must be a falling short on his part— he must have done less than an ordinarily prudent man having regard to his relations to another person, when dealing with him, is boimd to do ; and therefore where knowing the exact facts he has recklessly made a description of them which would mislead another person who did not know as much as himself (even if he thought that person might know as much as himself), there is a clear failure of duty on the part of the vendor which fairly disentitles him to say that a clause introduced into the contract for his benefit is introduced to meet such a case as has risen here, namely, a reckless disregard by the vendor of his duty as to accuracy of statement when he is making a statement with a view to other people acting on it as correct." * And even in cases where an express power of rescission is con- ferred, exercisable in the event of default in performance, the court will refuse to give efiect to the expressed agreement of the parties if the exercise of the power would, by reason of part pay- ment of purchase money, work a forfeiture in the nature of a penalty. In the case of In re Dagenham (Thames) Dock Co., Ex parte Hulse,'' Mellish, L.J., expressed himself as follows : " I have always understood that where there is a stipulation that if on a certain day an agreement remains either wholly or in part 1 28 L.J. Ch. 316. * (1898), 2 Ch., at p. 292. 3 (1906), 1 Ch. 412. • L.R. 2 Ch. 102. = 1 CoU. 203. « And see In re Ilayles and Gwney^s Contract decided by Mr. Justice Eve on October 31, 1912, and discussed in the Law Times, vol. 134, p. 25. ' L.R. 8 Ch. 1022. 32 RESCISSION PURSUANT TO EXPRESS POWER Part I unperformed — in which case the real damage may be either very large Chapter in or very trifling — there is to be a certain forfeiture incurred, that stipula- tion is to be treated as in the nature of a penalty." The principle just stated was adopted and acted upon by the Judicial Committee of the Privy Council in the case of Kilmer v. British Columbia Orchards Lands, Ltd.^ The appellant in that case had agreed to purchase certain lands from the respondent on terms that the purchase money should be paid in semi-annual instalments extending over a period of years. It was expressly declared in the contract that time should be considered the essence of the agi?eement, and further, that " unless the payments are punctually made at the times and in the manner above mentioned, these presents shall be null and void and of no effect." In delivering the judgment of the Judicial Committee, Lord MouUon said : " The circumstances of this case bring it entirely within the ruling of The Dagenham Docks case. It seems to be even a stronger case, for the penalty, if enforced according to the letter of the agreement, becomes more and more severe as the agreement approaches completion, and the money liable to confiscation becomes larger." As to the nature and incidents of part purchase money paid by way of deposit, and its forfeiture in the event of default in completion, see Howe v. Smith,^ approved by the Judicial Committee in Sprague v. Booih.^ It is conceived that in order to bring a contract within the class of cases now under consideration, the contract must either in express terms or by necessary implication require an act or notice of rescission by the party entitled to rescind. On the specified contingency arising, the position is as if the other party had offered to rescind, and that offer must be accepted. The case is not analogous to discharge by breach ; it is a rescission proper by the consent of both parties. One frequently finds in contracts a declaration by the parties that a certain stipulation is to be deemed to be of the essence of the contract, or to be an essential term of the contract. • If the contract expressly gives a power of rescission on the non-fulfilment of such stipulation, it is submitted that the contract must be actually rescinded, as the contract indicates that the parties intend that there shall be an actual rescission. If, on the other hand, the contract does not expressly require an actual rescission it is conceived that the effect of the declaration that a particular term shall be deemed essential is that the parties 1 11913), A.C. 319. "270.0.89. » (1909), A.C. 576, 580. RESCISSION PURSUANT TO EXPRESS POWER 38 have agreed that the breach or non-fulfilment of such a term shall Part I be a sufficient failure of consideration to discharge the party not Chapter III in default. The party in default is, by his default, disabled from enforcing the contract, and it ceases to be an obligation on the other party. Cases of this kind therefore fall properly within the class of cases grouped under " Discharge by Failure of Considera- tion," p. 40, post. The question whether the breach or non- fulfilment is to be deemed a sufficient failure of consideration to discharge the party not in default, has been settled by the agreement of the parties that the term in question is an essential term. Unless, therefore, notice of rescission is expressly or necessarily required by the contract, it is conceived that no notice of rescission is neces- sary effectually to discharge the party not in default on the breach of a stipulation declared to be of the essence of the contract. Such notice may, however, be highly expedient, if not necessary, for the purpose of negativing waiver of the breach. The question whether a condition is a condition precedent or a resolutive condition may affect the onus of proof in an action on the contract. If a defendant seeks to escape liability (discharge) on the ground that the plaintiff has not performed some condition precedent, the onus of proving performance is on the plaintiff. Where, how- ever, a defendant relies on an alleged rescission in pursuance of a resolutive condition, it lies with the defendant to establish such rescission. Note. — In Steedman v. Drinkle^ it was held that where default has been made in the punctual payment of an instalment of purchase money (the parties having expressly agreed that time is to be of the essence of the contract), and the vendor has not waived his right to treat time as of the essence, the Court will not order specific perform- ance by the vendor. The order for specific performance made in Kilmer v. British Columbia, etc? was explained as depending on the fact that the vendor had waived the right to treat time as of the essence. But if the contract provides for forfeiture of paid instalments upon default, such forfeiture being in the nature of a penalty, the Court will relieve against such forfeiture on proper terms. It may be ob- served that the only payment which had been made under the contract in Steedman v. Drinhle ^ was the payment of the deposit. As to this, compare the judgment with that in Sprague v. Booth.^ 1 1916 A.C. 275. ^ 1913 A.C. 319. ^ 1909 a.C. 576. CHAPTER IV Repudiation Part I Repudiation — ^that is, the unjustifiable refusal to perform a Chapter IV contractual obligation — differs from breach as a ground of discharge of the party not in default. Repudiation is a ground of rescission proper. In the case of an actual breach discharging the party not in default, the intention of the party in default is unimportant. In the case of repudiation the main question is, Does the party in default evince an intention no longer to be bound by the contract ? In the case of a breach, the breach itself (if of sufficient importance) discharges the party not in default, by disabhng the party in default from enforcing the contract. Mere repudiation, on the other hand, is tantamount only to an offer to rescind, and the party not in default must act upon the repudiation so as to accept the offer, otherwise the contract remains in force. Rescission based on repudiation, while depending on the consent of both parties (being in this respect within the class of cases of rescission by agreement of the parties), differs from rescission by express agreement, in that the party who accepts the repudiation as an offer to rescind, retains the right, notwithstanding the rescis- sion, to sue the party repudiating for damages for loss of the contract, or he may recover for work done under the contract as on a quantum meruit, Ladder v. Slowey ; ^ and he may, of course, recover any money paid under the contract as money had and received to his use on a consideration which has failed : Eliren- sperger v. Anderson.^ On the other hand, the party in default cannot enforce any stipulation in his favour, as, by the rescission, the whole of the other party's obHgations are at an end : General Billposting Co. v. Atkinson.^ In these respects, and in these respects only, does rescission based on repudiation resemble dis- charge by breach. Repudiation is often called anticipatory breach. It was said in Frost v. Knight * (as in other cases) that repudiation 1 (1904), A.C. 442. " 3 Exch. 148. » (1909), A.C. 118. * L.R. 7Exch. llh 34 REPUDIATION 85 ' amounts to a breach ' of contract, if so treated by the other party, Part I but repudiation is plainly not an actual breach, and it is conceived Chapter IV that the real meaning of the phrase, there, is, that repudiation has the consequences of a breach if it is treated as such. It is plain from all the authorities that repudiation, in order to have the consequences of a breach, must be treated first as an offer to rescind, and must be accepted as such by the party not in default. In Tredegar and Co. v. Hawthorne,^ Sir Richard Collins, M.R., said (as reported) : " It was clear law that the repudiation was a nuUity unless it was accepted by the other party to the contract " ; and Mathew, L.J., said : " Repudiation was of no effect unless it was acted upon by the other party. If acted upon by the other party there was what was called an anticipatory breach of contract, and the damages were to be calculated as on the date of the acceptance of the repudiation." In Johnstone v. Milling,^ Lord Esher, M.R., summarises the law on this topic as follows : " A renunciation of a contract, or, in other words, a total refusal to perform it by one party before the time for performance arrives, does not, by itself, amount to a breach of contract, but may be so acted upon and adopted by the other party as a rescission of the contract as to give an immediate right of action. When one party assumes to renounce the contract, that is, by anticipation refuses to perform it, he thereby, so far as he is concerned, declares his intention then and there to rescind the contract. Such a renunciation does not, of course, amount to a rescission of the contract, because one party to a contract cannot by himself rescind it, but by wrongfully making such a renuncia- tion of the contract he entitles the other party, if he pleases, to agree to the contract being put an end to, subject to the retention by him of his right to bring an action in respect of such wrongful rescission. The other party may adopt such renunciation of the contract by so acting upon it as in effect to declare that he, too, treats the contract as at an end, except for the purpose of bringing an action upon it for the damages sustained by him in consequence of such renunciation. He cannot, however, himself proceed with the contract on the footing that it still exists for other purposes, and also treat such renunciation as an immediate breach. If he adopts the renunciation the contract is at an end except for the purposes of the action for such wrongful renunciation ; if he does not wish to do so he must wait for the arrival of the time when in the ordinary course a cause of action on the contract would arise. He must elect which course he will pursue." If he elects not to accept the repudiation as an offer to rescind, " he keeps the contract ahve for the benefit of the other party as well 1 18T.L.R.716 ' 16Q.B.D.460,467. d2 36 REPUDIATION Part 1 as his own ; he remains subject to all his own obligations and liabilities Chapter IV under it, and enables the other party not only to complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstance which would justify him in declining to complete it " : Frost v. Knight^ per Cockhurn, C.J. What amounts to repudiation The repudiation may, of course, be a refusal, in unqualified terms, to perform the contract. Such a case presents no difficulty. The repudiation may also be inferred from words and conduct, or from conduct only. In Freeth v. Burr,^ Lord Coleridge, C.J., stated as his view of the result of the decisions : " That the true question is whether the acts and conduct of the party evince an intention no longer to be bound by the contract." In Mersey Steel, etc., Co. v. Naylor, Benzon, and Co.,* Lord Selborne said : " I am content to take the rule as stated by Lord Coleridge in Freeth v. Burr,* which is in substance, as I understand it, that you must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other ; you must examine what that conduct is in order to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind, and whether the other party may accept it as a reason for not performing his part." In the same case Lord Blackburn said : "As to the first point, I myself have no doubt that Withers v. Reynolds ^ correctly lays down the law to this extent, that where there is a contract which is to be performed in future, if one of the parties has said to the other in efEect, ' If you go on and perform your side of the contract I will not perform mine ' (in Withers v. Reynolds ^ it was ' You may bring your straw, but I will not pay you upon deUvery as under the contract I ought to do. I will always keep one bundle of straw in hand so as to have a check upon you '), that in efEect amounts to saying, ' I will not perform the contract.' In that case the other party may say, ' You have given me distinct notice that you will not perform the contract. I will not wait until you have broken it, but I wiU treat you as having put an end to the contract, and if necessary I wiU sue you for damages, but at all events I will not go on with the 1 L.B. 7 Exch. HI. " L.R. 9 C.P. 208. » 9 A.C. 434. * Utsup. »2B.&Ad.882. 'Ibid. s REPUDIATION 37 contract.' That was settled in Hochster v. De la Tour ^ in the Queen's Part I Bench and has never been doubted since, because there is a breach Chapter IV of the contract although the time indicated in the contract has not arrived. . . . That is the law as laid down in Withers v. Reynolds.^ . . . In Freeth v. Burr » it was also so laid down." In Rhymney Railway Co. v. Brecon Railway Co.,*- Lord Aher- stone, M.R., in delivering the judgment of the Court of Appeal, said : " It wUl be well to consider in the first instance what conduct on the part of one party to a contract justifies the other party in treating it as at an end. If there is a distinct refusal by one party to be bound by the terms of a contract in the future, the other party may, in our opinion, treat the contract as at an end : see Withers v. Reynolds, Hochster v. De la Tour,^ and the judgment of Lord Blackburn in Mersey Steel and Iron Co. v. Naylor.'' Short of such refusal we think the true principle to be deduced from all the cases is that you must ascertain whether the conduct of the party who has broken the contract is such that the other party is entitled to conclude that the party breaking the contract no longer intends to be bound by its provisions." In that case, as in the Mersey case, there had been an actual breach of a stipulation which was held not to be of sufficient import- ance to discharge the party not in default. In each case also the court held that the circumstances did not warrant the inference that the party in default intended to repudiate the contract. A refusal to perform seems to be none the less a repudiation because the party refusing to perform believes that the terms of the contract justify his action. A party may place an erroneous construction on some important stipulation in a contract, and if, on the faith of such construction, he refuses to perform the contract (and it turns out that his construction was erroneous), his refusal may amount to a repudiation. Thus a party, while intending to be bound by the contract (as he understands it), may be held to have renounced it. Compare Dominion Coal Co., Ltd., v. Dominion Iron and Steel Co., Ltd.,^ with Oeorge D. Emery Co. v. Wells.^ The acceptance of repudiation as an offer to rescind The cases are numerous i" which establish the principle that mere repudiation affords a ground for rescission only if the other 1 2E. &B. 678. '' 2 B. & Ad. 882. ' L.K. 9 C.P. 208 * 69 L. J. Ch. 813. ^ Utsiip. " Utsup. ' 9 A.C. 434. ' (1909), A.C. 293. " {1906), A.C. 515. w EeeFrostY.Knight,'L.^.TE,%6h.l\\. 38 REPUDIATION Part I party to the contract elects to treat it as such. There may, of Chapter IV course, be an actual breach involving repudiation, but in such a case, if the breach is, of itself, sufficiently important to discharge the party not in default, then it becomes unnecessary to treat the repudiation as an ofier to rescind. Again, there may be cases where one party, before the time for performance arrives, irrevocably disables himself from performing the contract, and though such cases may involve the element of repudiation, the other party's cause of action is complete without treating the repudiation as an offer to rescind : Lovelock v. Franklyn,^ Short v. Stone.^ These cases establish " That where a party bound to the performance of a contract at a future time puts it out of his own power to fulfil it an action will at once lie " : Frost V. Knight.^ Similarly, where one party to a contract prevents the other party from performing, an action will lie at once : Ladder V. Slowey,* Roberts v. Bury Commissioners.^ In these cases the conduct of the party in default, though it may involve repudiation, actually makes performance impossible and frustrates the object of the parties to the contract. In such a case it is submitted that no notice of rescission is necessary to determine the contract. There are indications in some of the more recent decisions of a confusion between the principle of rescission based on repudiation, and the principle of discharge by breach other than breach of a condition proper (i.e. breach amounting to a sufficient failure of consideration) : see particularly the observations of Collins, M.R., in Cornwall v. Henson.^ If a breach is to operate as a discharge only where it is of such a nature as to justify the inference of an intention to repudiate, then the principle of discharge by breach on the ground of failure of consideration may be treated as obsolete. It is conceived that there is no warrant whatever, either on principle or authority, for this suggestion. The confusion seems to be a result of efforts to escape from the difficulties created by the un- fortunate use of the ambiguous term ' condition ' as signifying ' important breach.' It is obvious that a party to a contract may commit a breach fatal to his rights under it, in spite of every effort on his part to perform the contract. In such a case not only is there no intention to repudiate, but the intention is, definitely, not to repudiate, and yet the breach may discharge the other party from his obligation. In The Mersey Steel, etc., Co. v. Naylor, Benzon, 1 8 Q.B. 371. "8 Q.B. 358. » L.R. 7 Exoh. 111. « (1904), A.C. 442. " L.R. 5 C. P. 310. • i;i900),2Ch.298. REPUDIATION 39 and Co.} referred to in Cornwall v. Henson,^ the breacli, which Part I consisted in the failure to pay punctually an instalment of purchase Chapter IV money, was considered from three points of view : (1) It was held not to be the breach of a condition precedent, and (2) was not treated as of sufficient importance to discharge the appellants, and (3) the circumstances of the breach were not such as to warrant the inference of an intention to repudiate. Indeed, a party may commit a breach of contract in the honest belief that he is performing the contract, as where a contractor interprets his obligations under the contract erroneously and proceeds according to such wrong interpretation : Dominion Coal Co. V. Dominion Iron and Steel Co.^ The questions raised by these observations are more fully discussed in the next chapter. 1 9 A.C. 434. » (1900). 2 Ch. 298. ^ [1909), A.C. 293. CHAPTER V Discharge of entire contracts while executory ^ Discharge of contractual obligation by : (a) Failure of consideration. (b) Breach of condition precedent or concurrent. Part I " Consideration is necessary to the validity of every promise not Chapter V un^er seal." Sir William Anson, Law of Contracts, 13th ed., 95. " It [consideration] gives to the promise a binding force." — Ibid. " The name of Consideration appears only about the beginning of the sixteenth century, and we do not know by what steps it became a settled term of art. The word seems to have gone through the follow- ing significations : first, contemplation in general ; then deliberate decision on a disputed question (hence the old form of judgments in the Common Law Courts, ' It is considered ') ; then the grounds as well as the act of deliberation ; and lastly, in particular that which induces a grant or promise.^ If we wish to form a probable opinion as to the origin or origins of this final modification, we must inquire how far anything like the thing signified was to be found in the old action of debt, or was involved in the necessary elements of the new action of assumpsit." Sir Frederick Pollock, Principles of Contract, 8th ed., 177. " The failure of consideration is nothing in the case of a contract under seal." Baron Parke, Wallis v. Day, 2 M. & W. 273, 277. "It is plain that a total failure by A to do that which was the entire consideration for the promise of X, and which should have been done before the performance of X's promise fell due, will exonerate X. But it may be that A has done something, though not all that he promised ; or the performance of the contract may extend over a considerable time during which something has to be done by both parties, as in the case of delivery of goods and payment of their price 1 " ' Executed contract ' means a contract performed wholly on one side, while an ' executory contract ' is one which is either wholly unperformed or in which there remains something to be done on both sides." — Sir William Anson, Law of Contract, 13th ed., 21. " The italics are the writer's. 40 teXECUTORY CONTRACTS : DISCHARGE BY BREACH 41 by instalments. Here we deal with questions of degree. Has one Part I party so far made default that the consideration for which the other Chapter V gave his promise has in efiect wholly failed ? " Sir William Anson, Law of Contracts, 13th ed., 343. " Where there has been an innocent misrepresentation or mis- apprehension, it does not authorise a rescission unless it is such as to show that there is a complete diSerence in substance between what was supposed to be and what was taken so as to constitute a failure of consideration." ^ Blackburn, J., delivering the judgment of the Court {Cochhurn, C.J., BlacJcburn, Mellor, and Shee, J.J.) in Kennedy v. Panama, etc.. Mail Co., L.R. 2 Q.B. 580. " There may be cases where the timber growing on an estate is the chief inducement to a purchase of that estate. But it is not necessary to inquire whether it he the chief inducement to a purchase or not ; for if it may be in any sort a consideration ^ to the party purchasing to have the timber, the party selling ought not to be permitted to alter the estate by cutting down any of it." Lord Loughborough, The Duhe of St. Albans v. Shore, 1 H. Bl. 271, 280. " No person shall call upon another to perform his part of the contract until he himself has performed all that he has stipulated to do as the consideration of the other's promises." Le Blanc, J., Glazebrook v. Woodrow, 8 T.R. 366, 374, citing Lord Mansfield in Kingston v. Preston. " Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to "result from the enj oyment of every part of the considera- tion jointly, so that the money payable is neither apportioned by the contract nor capable of being apportioned by a jury, no action is main tainable if any part of the consideration has failed, for being entire, by failing partially it fails altogether." ^ Notes to Pordage v. Cole, 1 Williams^ Saunders, 1871 ed., 548, 554-555. " Where the failure of consideration is only partial, the buyer's right to recover the price paid wUl depend on the question whether the contract is entire or not. And here it should be pointed out that a distinction is drawn between a failure of part of the consideration for a contract, and a partial failure of consideration. A failure of part of an entire consideration is a failure of the whole consideration ^ unless part performance has been accepted, in which case it becomes a partial failure of the whole consideration." Benjamin on Sale, 5th ed., 432. 1 The italics are the writer's. 42 EXECUTORY CONTRACTS : DISCHARGE fiY ^REACrf Part 1 " The fourth question is, no doubt, found by the jury for the Chapter V plaintiff ; but we think in finding it they must have made a mistake in law as to what was a sufficient failure of consideration to set the defendants at liberty,^ which was not a question for them." Blackburn, J., delivering the judgment of the Court {Blackburn, Quain, and Field, JJ.) in Poussard v. Spiers, 1 Q.B.D. 410, 416. " Where there is a promise to pay a certain sum, all being, as in this case, supposed to be due, each part of the money expressed to be due is the consideration for each part of the promise ; and the considera- tion as to any part failing, the promise is pro tanto, nudum pactum." Per Gresswell, J., Southall v. Rigg, 11 C.B. 481, 494. The foregoing quotations from the works of learned authors and from the judgments of eminent judges (and these may be multiplied almost indefinitely), are sufficient to indicate (1) that the principle of discharge of obligation (by simple contract), by breach, failure, or inability to perform, is based on the doctrine of failure of consideration, i.e. where the breach is not the breach of a condition precedent or concurrent ; and (2) that ' consideration ' is properly to be regarded from the point of view of ' inducement.' In this chapter it is proposed to treat of discharge of executory simple contracts by (a) failure of consideration, and (&) breach of condition precedent and concurrent, so that both classes of cases may be compared and contrasted. The reason for treating these topics together is in order to relieve the confusion of ' condition ' and ' consideration ' apparent in so many of the decisions. So far as regards discharge by failure of consideration, the discussion will, in this chapter, be limited to the case of entire contracts while executory. Before considering the principle on which we are to ascertain whether a contract is, for the purposes of discharge by breach, entire or divisible, we may illustrate the application of the principle of the discharge of an entire executory contract for failure of part of the consideration, from the judgment of the Exchequer Chamber in Chanter v. Leese,^ delivered by Tindal, C.J. The action was brought on a simple contract to enforce the payment of an annuity promised in consideration of a licence to manufacture and sell inventions under six patents. The judg- ment on the point of failure of consideration is as follows : " There is no assignment of the patents by deed in this case ; no interest in them passed to the defendants, but the whole matter rests in contract. The defendant is not in a situation with respect to the 1 The italics are the writer's. i" 5 M. & W. 698, 700. EXECUTORY CONTRACTS : DISCHARGE BY BREACH 43 plaintifi similar to ttat of a tenant towards his landlord, and is in no Part I way estopped from showing any faUure of the consideration for his Chapter V promise to pay the annuity to the plaintifi, which may be sufficient to bar the plaintiff of his action. It is admitted by the demurrer that a partial failure of consideration has taken place, namely, that one out of the six patents is void. The learned counsel for the plaintifi argued that, as no fraud is alleged, the defendant may have known that it was void, and yet have entered into the agreement. We dissent, however, altogether from this reasoning. The patent being void, no benefit in respect of it could accrue to the defendants ; and we think we are not to presume that any such improvident bargain took place. But it was further contended that it must be taken on these pleadings that the other five are good, and also that the defendants have enjoyed the use of them, and consequently that they are bound to perform their part of the agreement by paying the annuity, and must bring a cross action for damages in respect of the one void patent. This reasoning would undoubtedly apply if the consideration had been divisible, and the money payable by the defendants had been appor- tioned by the contract to the different parts of the consideration ; in which case the principles laid down in Boone v. Eyre,^ and other authorities of that class, would have governed the present decision. But here it is plain that the enjoyment of all the six patents is the consideration for every part of the defendants' promise, and that the annuity to be paid is neither apportioned by the contract, nor capable of being apportioned by a jury. And this is apparent by reading the agreement itself as stated in the declaration, in which the six patents are so closely connected with each other that the benefit expected by the defendants under the agreement is obviously to result from the use of all of them jointly, in such manner as the defendants may think fit, and the inabihty to use any one would manifestly endanger a great x^ part, if not the whole, of that benefit. All the patents but one are admitted by the pleadings to be valid, but there is no admission that they have been enjoyed by the defendants, no averment to that effect being introduced into the declaration. We see, therefore, that the consideration is entire, and the payment agreed to be made by the defendants is entire, and we see also a failure of the consideration, which being entire, by f aiUng partially fails entirely ; and it follows that no action can be maintained for the money. Even if it had appeared affirmatively that the other five patents had been enjoyed, we are of opinion that no action could have been maintained on the agreement for the annuity, whatever question might be raised in some other form as to some right of compensation for such enjoyment. Upon the whole we are of opinion that the judgment of the Court of Exchequer must be affirmed." It wiM be observed that the action was brought on the contract (in assumpsit) to enforce payment of the annuity, and the plaintiff, 1 1 H. Bl. 273, note ; 2 W. Bl. 1312. 44 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I by reason of his own inability to perform the whole consideration Chapter V ^bich he had promised, was disabled from enforcing the contract. The defendants' obligation was, by that disabihty, discharged. The Court points out that the " benefit expected by the defendants under the agreement is obviously to result from the use of all " the patents jointly. In other words, the benefit of all the patents was the consideration or inducement for the promise to pay the annuity, and ' the inability to use any one ' affected the whole consideration. ENTIRE CONTRACTS It is often difficult to frame the definition of a legal term so that it may be taken as accurate and complete for all the purposes for which the term is used. It is conceivable that a contract which might be held to be ' entire ' from one point of view, say for the purpose of the Statute of Frauds, might be held to be ' divisible ' from another point of view, as, for example, having regard to discharge for failure of consideration. But be that as it may, it is submitted that the authorities justify, at all events, this proposition — If the consideration is entire the contract is entire, and if, in a transaction involving two or more sets of mutual obliga- tions, it appears that the obligations created by one part of the transac- tion were induced by the promise of or expectation of benefit from the performance of the other, the contract is entire. It may be that this test is not wide enough to include every contract which may be held from any point of view to be entire, but, so far as regards the principle of discharge by breach, and for the purposes of the apphcation of that principle, the test proposed, being based on the doctrine of ' consideration ' regarded as ' induce- ment,' seems to involve all that is material to be considered. In Atkinson v. Smith,^ the plaintiffs sold the defendants certain wool at a price and agreed to buy certain noils at a price. Baron Parke said : " They are not independent contracts, but the whole is one entire contract ; and if the plaintifis do not supply the fleeces the defendant is not bound to supply the noils." In Baldey v. Parker,^ the purchase of a number of articles at one time in a shop was held to constitute an entire contract for the purpose of the Statute of Frauds, though the price of each article was separately agreed to. In Dykes v. Blake,^ a purchaser of two lots included in one » 14 M. & W. 695. = 2 B. & C. 37. = 4 Bing. N.C. 463. ENTIRE CONTRACTS 45 contract was held entitled to rescind the contract on the ground Part I of a material misdescription of one of the lots, although the lots Chapter V were bid for separately and separate prices stated for each. In Gibson v. Spurrier,^ the plaintiff sued for the recovery of a deposit paid on a contract to purchase two distinct lots, one a house and garden, etc., the other a meadow adjoining thereto which the plaintiff wished to occupy with the house and garden, but on findmg that the meadow was subject to a right of common every third year he insisted on rescinding the contract. Lord Kenyan said : " If these lots were so near each other that the hope of possessing one as an appendage to the other was an inducement to the plaintiff to purchase both, he ought not to be compelled to take one alone." In Casamajor v. Strode,^ Lord Brougham laid down the rule applicable in this class of case as follows : " It may therefore be concluded that in determining whether a purchaser who fails to obtain a good title to one lot shall be let off from his contract for another, the whole circumstances may be examined in order to prove that the two contracts were one by showing that the two parcels are complicated together, and that upon the whole transaction the Court wiU determine, as a jury would the question — Did or did not the party purchase one with reference to the other ; would he or would he not have taken the one had he not reckoned upon also having the other ? " It is of importance to note that, in the two cases last cited, the reasons for the judgment proceeded expressly on the ground of the inducement afforded by one part of the transaction to under- take the obligations of the whole. This is simply another way of stating the consideration for the contract. Indeed, the doctrine of inducement, or, as it is more usually expressed, ' material induce- ment,' is in principle indistinguishable from the doctrine of con- sideration. Many instances are to be found among the modern, as well as the older decisions, of the avoidance of contracts on the ground of the failure to fulfil a representation or promise amount- ing to a material inducement to the contract, even although such representation or promise may not have been embodied in the contract, but made or given collateral thereto. The principle of these decisions will be discussed presently. On p. 40, ante, will be found a quotation from Sir Frederick Pollock's Principles of Contract, in which he points out that the 1 Peake's Add. Cas. 49. » 2 M. & K. 706, I 46 EXECUTORY CONTRACTS: DISCHARGE BY BREACH Part I modern meaning of ' consideration ' is ' that which induces a grant Chapter V qj. promise.' Certainly, so far as regards the discharge of an execu- tory contract for failure of consideration, it becomes most important to regard consideration from the point of view of inducement. It will be submitted presently that the cases of avoidance of execu- tory contracts for innocent misrepresentation or for unfulfilled collateral promise, really proceed upon the principle which governs discharge of contracts for failure of consideration, i.e. failure of inducement material to the contract ; and it seems to follow, when the unfulfilled representation or promise is actually part of the contract itself, that the argument for the apphcation of the principle is a fortiori. To return to the question of entire contracts : it was held by a majority of the Court in Whitcher v. Hall ^ that an agreement to take the milking of thirty cows at £7 10s. per cow per annum was an entire contract. In The Mersey Steel and Iron Co. v. Naylor, Benzon, and Co.,^ a contract for the purchase of 5000 tons of steel to be delivered 1000 tons monthly, payment within three days after receipt of shipping documents, was held by Lord Selborne to be an entire contract. This is certainly a common-sense view. A manufacturer enters into a contract for the supply of engines, rails, or other manufactured articles requiring the use of iron. He makes a contract for the purchase of the raw material, and stipu- lates for deliveries which, if carried out, will enable him to fulfil his contract for delivery of the manufactured articles. It is plain that the inducement to take any iron is the prospect of getting the whole. A delivery of the first instalment and damages for breach with regard to subsequent instalments is something he would not have agreed to. The strictness with which mercantile contracts in such circumstances ought to be construed is discussed by their lordships in the judgments deHvered in Bowes v. Shand,^ particularly by Lord Cairns and Lord Hatherley. It is sometimes said that where an entire contract has been partly performed it may be treated as divisible, where the benefit of part performance has been accepted, but it is submitted that the acts of the parties to a contract, in order to justify a departure from the principle as to entire contracts, and to enable a party to recover for partial performance of an entire contract, must be such as to justify the inference either {a) that there is a new promise to pay according to measure and value, in which case the action is not on the original contract, but on the new promise implied » 5 B. & C. 269. « 9 A.C. 434. ' 2 A.C. 466. ENTIRE CONTRACTS 47 from conduct ; or (5) that there has been an election on the part Part I of the defendant to waive complete performance and to accept Chapter V the benefit of substantial performance. In such case the action is for the contract price subject to deductions for uncompleted work. In neither of these cases is it accurate to say that the contract is to be treated as divisible. An entire contract cannot, it is submitted, be transformed into a divisible contract by any conduct of the parties which falls short of a rescission of the entire contract as such {i.e. qua its entirety), resolving it into two or more contracts. This topic will be considered further in the next chapter when dealing with partly executed contracts. There is one class of case in which contracts apparently entire have been treated as divisible, viz. actions on contracts of afEreight- ment. In Ritchie v. Atkinson,^ the contract was to deliver a complete cargo, and it appears from the report that an incomplete cargo was actually delivered to (and apparently accepted by) the defendant, who refused to pay the freight. Lord Ellenhorough, in delivering his judgment, said : " There is no case, however, in which the deUvery of less than a complete cargo has been held not to be apportionable." And again : " But here the deHvery of the cargo is in its natxne divisible and therefore I think it is not a condition precedent." All the judgments in that case proceed upon the construction of the stipulation to deliver a complete cargo, in view of what the Court considered to have been the intention of the parties, viz. that the obligation to pay freight should be divisible, and therefore the stipulation for a complete cargo was not intended to be a condi- tion precedent. In Pust v. Bowie ^ (in the Exchequer Chamber), Erie, C.J., in delivering a judgment in which the rest of the Court concurred, said : " Even if we construe the words as a condition precedent in the strict sense, the stipulation for freight is diAnsible in its nature." It may be observed that if, in Ritchie v. Atkinson,^ delivery of an incomplete cargo was accepted, the judgment might well have proceeded on the groimd that complete performance was waived, under circumstances justifying the inference of an implied promise to pay for what had been done. 1 10 East 295. = 5 B. & S. 33, 37. ^ Ut sup. 48 EXECUTORY CONTRACTS: DISCHARGE BY BREACH Part I In Wilkinson v. Clements,^ the late Lord Justice Mellish said : Chapter V " I quite agree that as a general rule all agreements must be con- sidered as entire. Generally speaking, the consideration for the performance of the whole and each part of an agreement by one party to it is the performance of the whole of it by the other, and if the Court is not in a position to compel the plaintiff, who comes for specific performance, to perform the whole of it on his part, the Court wiU not compel the defendant to perform his part or any part of the agreement. As a general rule, therefore, an agreement is entire. I can also conceive that a Court of Equity might treat an agreement as entire even in cases where a Court of Law would say that the performance of one part is not a condition precedent to the performance of the other part, because the Court might see that those rules as to conditions precedent, which to a certain extent are technical, might not meet the real justice of the case." The first part of his Lordship's observations expresses no more than the recognition, in equity, of the principle that the failure of part of an executory consideration (in the case of an entire contract) is a failure of the whole. The inference to be drawn from the concluding part of the quotation is — that if a plaintiff seeks, in a Court of Equity, to enforce an obligation, while he is unable to do all that he had promised to do as an inducement for the promise sought to be enforced, the Court will not assist him, even though the performance of his promise might not be strictly a condition precedent to the defendant's legal liability. It will be found that, in cases of rescission in equity, considera- tion is, as a general rule, regarded from the point of view of induce- ment, and when, in equity, the remedy of specific performance with compensation was introduced, the relief was given only in cases where the difference between what was promised and what was proffered was trifling or infinitesimal, or, in other words, where the Court could see that the failure to perform was in respect of a matter which did not induce the contract.* This point of view was not confined to Courts of Equity. In the Court of Common Pleas, where a contract contained an express provision for compensation for error in the particulars, a purchaser was held entitled to rescind, the misdescription being (to quote from the judgment of Tindal, C.J.) "in a material and substantial point, so far affecting the subject- matter of the contract that it may reasonably be supposed that, but for such misdescription, the purchaser might never have entered into 1 L.R. 8 Ch. 96, 110. ^ gee p. 81,pos<. FAILURE OF INDUCEMENT 49 the contract at all ; in such case the contract is avoided altogether Part I and the purchaser is not bound to resort to the clause of compensa- Chapter V tion " : Flight v. BoothA The rule in this case is too well supported by a long line of decisions in equity to be open to question. It plainly turns on the effect of the unperformed term as an inducement. The principle on which Bannerman v. White ^ was decided in the same Court seems to be identical with that in Flight v. Booth, and also turns on the question of inducement. In delivering the judgment of the Court,* Erie, C.J., said : " This undertaking was a preliminary stipulation, and if it had not been given the defendants would not have gone on with the treaty which resulted in the sale. In this sense it is a condition on which the defendants contracted." In other words, the undertaking in question induced the contract. Failure of inducement It will be gathered from the authorities cited in the previous part of this chapter that, for the purpose of ascertaining whether an executory contract is discharged by breach amounting to a sufficient- failure of consideration, the question arises — Is the failure of consideration sufficient if it does not amount to a failure of inducement ? This question, it is submitted, is involved in the principle underlying the equitable remedy of specific performance with compensation (abatement of price). For example, A contracts to sell to B an estate of 1000 acres of rural land at so much per acre. The consideration for the price is, by the contract, a title to 1000 acres and no less. At law, if the vendor cannot convey the full area of 1000 acres, he cannot sue on his contract. There may be such a shortage of area that the purchaser would not have contracted at all, had he known of the shortage, or the shortage may be so trifling that, while it would be enough to defeat the vendor's action at law, on the contract, it would be plain that it could make no real difference to the purchaser whether he got the area contracted for, or the lesser area to which the vendor could actually make title (with a proportionate abatement of purchase money). In either case the shortage would amount to a failure of part of the consideration at law, but, in the case of the 1 1 Bing. N.C. 370, 377. ' 10 C.B. N.S. 844. 3 Erie, O.J., Williams, Willes, and ByUs, J J. E 50 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I trifling shortage, it would not be such a failure of consideration Chapter V ^s to amount to a failure of inducement : in other words, the purchaser woxild not, in the one case, have entered into the contract at all had he known of the shortage ; in the other case he would have contracted with equal readiness whether the area was 1000 or 999 acres. The cases in equity on the principle of specific performance with compensation will be referred to at greater length presently. In the meantime the reader is invited to bear in mind that there may be a failure or inability to perform part of the consideration for a promise, but (while such failure or inability may amount to a failure of consideration in law) it may not amount to a failure of inducement. It will be seen from the older decisions that, while Courts of Law had regard to the consideration as literally expressed in the contract. Courts of Equity were, and are, more concerned with the actual inducement for the promise, in granting or refusing relief by way of specific performance with compensation. Indeed, not only would a Court of Equity refuse specific performance (a course which may leave the plaintiff to his remedy at law) on the ground of failure of part of the consideration amounting to failure of inducement, or rescind an executory contract on such ground, but, as we have already seen, would also rescind (avoid) a contract for failure of material inducement collateral to the contract itself, as, for example, on the groimd of a material, though innocent, misrepresentation inducing the contract. There is therefore, it is submitted, ample justification for the proposition that the equitable doctrine, following the legal doctrine of failure of consideration, is the principle of ^failure of induce- ment,' and this principle may extend to matters which cannot strictly be said to be consideration in the eye of the law. Even at law, evidence of consideration, not expressed in the contract, may be given in order to support it, where the evidence does not contradict the instrument.'^ Similarly, matter operating as an inducement to the contract, though not expressed in the contract, may be proved as ground for setting the contract aside where the inducement has not been fulfilled. An innocent misrepresentation inducing a contract may con- stitute consideration at law, so that its imtruth may operate as a failure of consideration affording an answer to an action on the promise thereby induced. 1 Frith V. Frith, 94 L.T.N.S. 383 (P.C), adopting the rule as laid down by Shadwdl, V.O., in Clifford v. TurreU, 1 Y. & C. 138. FAILURE OF INDUCEMENT 51 The decision in Forman v. Wright ^ illustrates the identity of Part I the principle of failure of inducement with that of failure of con- Chapter V ^ sideration. The action was brought on a promissory note which had been given by the maker to the payee, induced by a repre- sentation made by the payee, that the amount of the note was due to him by the maker. In truth a part only of the amount was so due. The defendant paid into Court the amount admitted to be due, and, as to the balance, pleaded that the note was obtained by the misrepresentation. Jervis, C.J., said : " The jury found that the plaintifi, without fraud, made a repre- sentation, by which the defendant was induced to give him the pro- missory note declared on. . . . If in showing the ground of an alleged partial failure of consideration, it would be enough to state that the note was obtained by any misrepresentation — whether of law or of fact — going to the amount of consideration, the plea would clearly be good without these words (' fraudulently and deceitfully '). Upon consideration, I am of opinion that a plea alleging a failure of con- sideration may be supported as well by showing that the bill or note was obtained by a misrepresentation of law, as by a misrepresentation of fact. . . . What the defendant here, in substance, says is : 'I was induced by the plaintiff's misrepresentation to beheve that I was indebted to Fawcett to the extent of £32 6s. lOd. whereas in truth I was indebted only to the extent of £10 14s. lid.' I am of opinion that a plea alleging a representation innocently false, of a matter going to the amount of the consideration, is a good plea, though the misrepresentation might be in a matter of law." Cresswell, J., said : " The plea in Forman v. Wright is in substance a plea of absence of consideration to a certain amount. The decision the Court now come to does not in any degree interfere with the doctrine that a small consideration may sustain a larger promise. Where there is a promise to pay a certain sum, all being, as in this case, supposed to be due, each part of the money expressed to be due is the consideration for each part of the promise ; and the consideration as to any part failing, the promise is fro tanto nudum factum." Williams, J., said : " The plea in Forman v. Wright is a perfectly good plea of partial failure of consideration. It was not necessary to the vahdity of that plea that the representation therein alleged should have been stated to be fraudulent and deceitful." Talfourd, J., agreed. The principle of Forman v. Wright is not materially distinct from the principle on which the decisions in Flight v. Booth ^ and » 11 C.B. 481. " See p. 48; ante. e2 52 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I Bannerman v. White proceeded, and is plainly the same as that on Chapter V ^Jiidi contracts may be rescinded (avoided) in equity on the ground of the untruth or nonfulfilment of an innocent misrepresentation operating as an inducement to a contract. It is immaterial that the representation in Formcm v. Wright affected the very subject- matter of the promise. At law, a misrepresentation as to quality inducing a contract is sufficient to render the contract unenforce- able by the vendor (while the contract is executory) : Street v. Blay} It is important to observe that the misrepresentation in Forman v. Wright ^ was not embodied in the contract, and that the proof of the representation and of its having induced the contract depended on evidence. Since the Judicature Acts there seems to be no good ground for a difference between the principle on which contracts are enforced in equity by decree for specific performance, with compensation for an unimportant failure or inabifity to perform by the plaintiff, and the principle on which contracts are enforced by action for damages where there has been a minor breach by the plaintiff for which compensation or damages can be given. The test whether the contract has, by the failure or breach, been rendered unenforceable or not, ought, for the purpose of either form of remedy, to be the same. Failure of condition precedent contrasted with failure of consideration Before reviewing the conflicting decisions on discharge by breach, it will- be helpful to consider shortly to what extent (if any) failure of condition precedent and failure of consideration may be identified. The use of the term ' condition ' as a test of the importance of a breach of contract sufficient to discharge the party not in default has been responsible for much confusion. In Wallis v. Pratt,^ Lord Justice Fletcher Moulton (in a judgment which was practically adopted by the House of Lords *) said : " A party to a contract who has performed, or is ready and willing to perform, his obligations under that contract is entitled to the perform- ance by the other contracting party of all the obligations which rest upon him. But from a very early period of our law it has been recog- nised that such obligations are not aU of equal importance. There are some which go so directly to the substance of the contract, or, in other words, are so essential to its very natm^e, that their non-perform- ance may fairly be considered by the other party as a substantial failure to perform the contract at all. On the other hand, there are 1 2 B. & Ad. 456. " 11 C.B. 481. 3 (1910), 2 K.B, 1003. ' (1911 ),A.C. 394 FAILURE OF CONSIDERATION ^3 other obligations which, though they must be performed, are not so Part I vital that a failure to perform them goes to the substance of the contract. Chapter V Both classes are equally obligations under the contract, and the breach of any one of them entitles the other party to damages. But in the case of the former class he has the alternative of treating the contract as being completely broken by the non-performance, and (if he takes the proper steps) he can refuse to perform any of the obUgations resting upon himself and sue the other party for a total failure to perform the contract. Although the decisions are fairly consistent in recognis- ing this distinction between the two classes of obligations under a contract, there has not been a similar consistency in the nomenclature applied to them. I do not, however, propose to discuss this matter, because later usage has consecrated the term ' condition ' to describe an obligation of the former class, and ' warranty ' to describe an obUga- tion of the latter class. I do not think that the choice of terms is happy, especially so far as regards the word ' condition,' for it is a word which is used in many other connections and has considerable variety of meaning. But its use with regard to the obligations under a contract is well known and recognised, and no confusion need arise if proper regard be had to the context." The term ' condition,' when used in the sense referred to in the judgment just quoted, must not be confused with condition proper, that is, condition precedent or concurrent. The term ' condition,' as used in the sense referred to in Lord Justice Fletcher MouUon's judgment, is a term which, by usage, has been substi- tuted for the term ' condition precedent ' used, not in its primary sense, but in an extended or secondary sense. The two uses of the term ' condition precedent ' seem to have brought about as much confusion as the two uses of the term ' warranty.' The use of the term ' condition ' otherwise than as indicating a condition properly so called, i.e. a condition precedent or concurrent, is unfortunate, and apparently its use has arisen from the tendency, noticeable in many of the decisions, to treat breaches of simple contracts as being governed by a principle similar to that applicable in the case of breaches of covenant. The term ' condition precedent,' in its primary and proper sense, is applied only to a stipulation, in a deed or simple contract, which, according to the intention of the parties, either express or by impKcation,^ must, in point of time, be performed by one party, A, before the obliga- tion of the other party, B, arises : that is to say, the obligation of B depends upon, or is suspended until, the prior performance of the stipulation by A. And, for the reason that the performance by A must precede, in point of time, the performance by B of his 1 Roberts v. Brett, 11 H.L.C. 337. 54 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I obKgation, the stipulation on the part of A is called a condition Chapter V precedent. B's obhgation is conditional on A's prior performance, and is called a dependent covenant or promise. The test of what is called a condition concurrent depends also on the order in time of performance, according to the expressed or imphed intention of the parties. It is a stipulation which must be performed by one party at the same time as the co-relative stipulation is to be performed by the other party. It will be seen, therefore, that the order in time of performance of one stipulation relatively to that of another or others is one of the criteria of a condition proper, whether precedent or concurrent. In cases where the necessary order in time of performance is not expressly provided for by the contract, it is determined by the intent and nature of the trans- action, but, in that case, the relation between the condition precedent and the dependent stipulation must be such, that the dependence of KabiHty on the one, upon prior or contemporaneous performance of the other, is clearly to be inferred : and the inference may be drawn from the fact that the one stipulation goes to the whole consideration for the other. Indeed, in every case of condition precedent and relative dependent stipulation, something more is involved than mere order in time of performance : the contract must, either expressly or by necessary impHcation, disclose an intention by the parties to create a conditional relation between the obhgations created by the respective stipulations. And it is important to observe that that intention, both as to order in time and conditional relation (whether expressed or to be gathered from the nature of the transaction), has reference exclusively to contemplated performance and not to contemplated breach. It would seem that, originally, condition precedent in Enghsh law was nothing more nor less than the ' suspensive condition ' of Roman law. The term ' condition precedent ' is, however, used in an extended or secondary sense — as signifying a term of the contract of such importance that, in the event of its breach, the party not in default is discharged from the contract or may determine it. In other Words, the term condition precedent in this sense seems to mean ' an important part of the consideration for the contract.' The term appears to be so used in Graves v. Legg,^ Behn v. Burness,^ Simpson v. Crippin,^ Bettini v. Gye,* Poussard v. Spiers,^ Bentsen ' 9 Exch. 709. » 3 B. & S. 751. • L.R. 8 Q.B. 14. « 1 Q.B.D 183. » 1 Q.B.D. 410; FAILURE OF CONSIDERATION 55 V. Taylor, ^ and in many others of the older cases of actions brought Part I on simple contracts. Chapter V This secondary meaning does not depend on the order in time of performance, excepting in this sense — that the stipulation in the contract (to which the term ' condition precedent ' is appUed in the second.ary sense) is a part of the consideration so important that it must be performed hejore the party (on whom the obliga- tion of performance Ues) can enforce the contract by action. ^ But this necessity for prior performance does not depend on any expressed intention of the parties nor on any inference as to their intention derived from a consideration of the order in time in which the nature of the transaction requires the various stipulations to be performed, but it depends on the rule of law which governed actions in assumpsit where the consideration is executory. As win be seen presently,^ an action in assumpsit (where the con- sideration was executory) could be maintained only on proof of performance of the whole consideration.* The order in time of performance of the various stipulations in a contract depends on the intention of the parties, either express or impHed, and that intention is a real intention, but where there is nothing express in the contract (and where it cannot be inferred from the order in time in which the transaction from its nature is required to be performed) that the performance of a particular stipulation is to precede, in point of time, the performance of another, any intention imputed to the parties based on the importance of the stipulation (as in Graves v. Legg,^ Behn v. Burness,^ and Bentsen v. Taylor ^) can only be a fictional intention. A stipulation in a contract to which the term ' condition precedent ' is apphed in its extended sense (i.e. a term of such importance 1 (1893), 2 Q.B. 274. ^ The question whether as between two stipulations in a contract one is a condition precedent to the other is a different question from the applica- tion of the rule of law that before one party to a contract can maintain an action on the contract he must perform the whole consideration which he gave for the other's promise. In one sense the performance of the whole consideration is a condition precedent to the right to maintain the action, but that is an illustration of yet another use of the term. = P. 59, post. * This rule of law has been departed from in equity to this extent — that the whole consideration constituting inducement must be performed. The endeavour of Courts of Law to modify the old principle in assumpsit and to iind a principle for the enforcement of contracts where the plaintifE's breach is unimportant is illustrated by the cases now under consideration. 5 9 Excbu 709; » 3 B. & S; 751, 56 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I that the parties must be deemed to have intended that a failure Chapter V ^o perform it will disable the party in default from suing on the contract or will enable the other party to determine it) is sometimes referred to as a term ' going to the whole consideration,' or as ' going to the root of the contract,' or as an ' essential term ' — phrases which, while famihar to every lawyer, leave much to be desired in the way of lucidity. And it may be observed that, according to the definition of ' condition precedent ' in this sense in the judgments in Behn v. Burness ^ and Bentsen v. Taylor,'^ the term may be apphed with as much propriety to an independent covenant as to a condition proper. One may easily conceive a contract in which every stipulation might be a condition precedent in the secondary sense, while none, or only some, of the stipula- tions would be a condition precedent in the primary sense. There seems to be very little difference between ' condition precedent ' in the extended sense and what may be called an ' imphed resolu- tive condition,' for in some of the cases cited, the Courts seem to have gone the length of finding, merely on a view of the importance of the stipulation, that the parties must have intended that the breach of the stipulation in question gave a right to determine the contract,^ an intention more fictional than real, if the parties, in making the contract contemplated performance and not breach. It is plain from the rules in the notes to Pordage v. (7ofe,* which » 3 B. & S. 751. » (1893), 2 Q.B. 274. ^ See Behn v. Burness, 3 B. & S. 751 at p. 755, and compare Oldholm v. Hays, 2 M. & Gr. 257 at p. 266. * 1. If a day be appointed for payment of money, or part of it, or for doing any other act, and the day is to happen, or may happen, before the thing which is the consideration of the money, or other act, is to be performed, an action may be brought for the money, or for not doing such other act, hefore performance ; for it appears that the party reUed upon his remedy, and did not intend to make the 'per- formance a condition precedent : and so it is when no time is fixed for performance of that which is the consideration of the money or other act. 2. When a day is appointed for the payment of money, etc., and the day is to happen after the thing which is the consideration of the money, etc., is to be performed, no action can be maintained for the money, etc., before performance, 3. Where a covenant goes only to 'part of the consideration on both sides, and a breach of such covenant may be paid for in damages, it is an independent covenant, and an action may be maintained for a breach of the covenant on the part of the defendant, without averring performance in the declaration. 4. But where mutual covenants go to the whole consideration on FAILURE OF CONSmERATION 57 was the case of a contract under seal, that the term ' condition Part I precedent ' is used there only in its primary and proper sense, and Chapter V that the intention of the parties to be ascertained in each case has no reference whatever to the consequences of contemplated breach, but has reference only to the contemplated order in time of per- formance of the various stipulations in the contract. It would seem that the use of the term in its secondary or extended sense has arisen, either from an apphcation of the third rule to simple contracts as well as to covenants, or from a mis- apprehension of the effect of the fourth rule {infra). In some of the cases ^ it seems to have been inferred, and fallaciously inferred, from this rule, that, in the case of a sim-ple contract, per- formance need not be averred, excepting where there are mutual stipulations ' going to the whole consideration on both sides.' Rule 4 refers to covenants ^ and not to simple contracts, and the fallacy seems to lie in treating the fourth rule as ' simply con- vertible,' in the logician's sense, and then applying it to simple contracts. In other words, in some cases of simple contracts, it has been assumed ^ that (as in deeds) performance need be averred only in the case of mutual stipulations going to the whole con- both sides they are mutual conditions and performance must be averred. 5. Where two acts are to be done at ihe same time, as where A covenants to convey an estate to B on such a day, and in consideration thereof B covenants to pay A a sum of money on the same day. Neither can maintain an action without showing performance of or an offer to perform his part, though it is not certain which of them is obliged to do the first act ; and this particularly applies to cases of sale. In Roberts v. Brett, 11 H.L.C. 337, Lord Chelmsford said (p. 354) : " These rules are not proposed for the purpose of absolutely deter- mining the dependence or independence of covenants in all cases, but merely as furnishing a guide to the discovery of the intention of the parties. For, as Lord Kenyan said in Porter v. Shepherd, ' Conditions are to be construed as either precedent or subsequent according to the fair intention of the parties, to be collected from the instrument, and technical words (if there be any to encounter such intention) shoiild give way to that intention.' " 1 See BOtini v. Qye, 1 Q.B.D. 183. 2 In Howie V. Mutter, 7 Q.B.D. 92, Bramwell, L.J., said : " Pordage v. Cole has absolutely nothing to do with the case. That was an action on a specialty. This is not." 3 Bettini v. Oye, 1 Q.B.D. 183, citing Graves v. Legg, 9 Exch., at p. 716 ; and other cases in which the notes to Pordage v. Cole, 1 Wms. Saunders, 1871 ed;, 548, based on Boone v. Eyre have been adopted. 58 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I sideration on both sides. It is true, as a matter of law, that in the Chapter V case of an action in covenant, the performance of conditions pre- cedent only need be averred, and there is no necessity to aver the performance of an independent covenant. But it is equally true, that, in the case of an action in assumpsit, the performance of the whole consideration, if executory, must be averred and proved (or, at all events, the whole consideration constituting the inducement for the defendant's promise), and an independent stipulation may be such an important part of the consideration for the whole contract that, unless it had been agreed to, the party afiected might never have entered into the contract at all. The rule in assumpsit is — a failure of part of an entire executory consideration is a failure of the whole (unless, of course, complete performance has been waived). One fallacious result of the adoption of the principle of limiting the discharge by breach of simple contracts to breaches of so-called conditions precedent is, that actions on simple contracts are treated as analogous to actions in covenant. Where the importance of the stipulation broken has been made the test, as in Graves v. Legg,^ Simpson v. Crippin,^ Bettini v. Gye,^ and Poussard v. Spiers,'' the Courts proceed to ascertain the (assumed) intention of both parties by reference to the importance of the stipulation broken (whereas the stipulation should have been regarded as important to the party not in default only, qua consideration) ; and the tendency in such cases is to gauge the importance of the stipulation broken by reference to the probable or actual consequences of the breach, and not by reference to contemplated performance as an inducement qua consideration; and so the tendency is to construe the contract with regard to matters ex post facto. In this respect the judgment in Poussard v. Spiers^ is the reductio ad absurdum of the contested principle of condition precedent in its extended sense, and Bettini v. Gye * and Bentsen v. Taylor ^ are open to the same criticism, but in a lesser degree. This topic is discussed at greater length, p. 86, post. Having indicated the difference between condition precedent proper and the import of that term as used in its extended sense, we may proceed to contrast failure of condition precedent proper and failure of consideration. In the case of a simple contract the performance of a condition precedent may or may not involve performance of the consideration 1 9 Exch. 709. " L.R. 8 Q.B. 14. » 1 Q.B.D. 183. « 1 Q.B.D. 410. !> (1893), 2 Q.B. 274. FAILURE OF CONSIDERATION 59 or of part of it. A condition precedent may be the happening of Part I an event, or the act of a third party, and may be quite foreign to Chapter V the consideration for the contract. In other words, the failure of a condition proper may or may not involve a failure of consideration. The elements of condition proper and consideration are diverse. A condition froper is that element in a deed or simple contract which makes the obligation of one party contingent or dependent, or suspends his obligation, until something is first done or happens. Consideration is that which gives a promise not under seal a binding force. Consideration is, in general/ not necessary to support a covenant or promise under seal. No doubt, in many, if not in the great majority of cases, where a simple contract contains a condition precedent, the performance of such condition involves also the performance of (part, at least, of) the consideration. In such a case it may be said that the elements of ' condition proper ' and consideration coalesce, and the breach of such a stipulation may discharge the party not in default, either on the ground of breach of condition precedent, or on the groimd of failure of consideration. The quality and incidents of a condition proper are the same, whether the promise be by covenant under seal or by simple contract, and the failure to perform a condition precedent has precisely the same operation in either case. Failure of considera- tion, on the other hand, ' is nothing in the case of a contract under seal.'* Consideration is necessary to give a simple contract the force of a legal obligation, and the sufficiency of the consideration, and therefore the reality and existence of the obligation, is tested as at the time of the making of the contract. Nevertheless, if, in the performance of the contract, the consideration fails, the contract loses its character qua obligation and becomes as a nudum pactum.^ Hence, in an action in assumpsit, it was necessary for the plaintiff, suing on an entire contract, to prove the performance of the whole of the consideration, if executory, and, if he failed to do so, the contract was treated as a nudum pactum, and the defendant was discharged for failure of consideration.* Any attempt to 1 A oovenant in restraint of trade requires consideration to support it : Gravely v. Barnard, L.R. 18 Eq. 518. 2 WalUs V. Day, 2 M. & W. 273, per Parke, B., p. 277. " See cases cited, pp. 41 & 42, ante. « cutty on Pleading, 7th ed. (1844), 302, 304, 305, 306, 329, 330 ; Tidd's Practice, 9th ed., 435 ; Buller, N.P., 146a ; Chanter v. Leese, 5 M. & W. 698 ; Head v. Baldrey, 2 N. & P. 217 ; SoufhaU v. Rigg, 11 C.B. 481, per GressweUi J., p. 494. 60 EXECUTORY CONTRACTS : DlSCttARGE BY BREACH Part I identify failure or breach of condition precedent with failure of Chapter V consideration can lead only to confusion of thought. Indeed, in very many of the decisions in actions on simple contracts in which the term ' condition precedent ' is used, it seems to be used in the secondary or extended sense — as synonymous with ' important failure of consideration,' and the term ' condition ' has gradually come into use with this meaning. At the risk of repetition, let us summarise the foregoing observa- tions. There is no difference whatever between the principle governing the discharge of obligation by covenant, and the discharge of obligation by simple contract, on the ground of the breach of condition precedent. No question of consideration arises : the element of condition proper is alone involved. The importance of the distinction between deeds and simple contracts, so far as regards discharge by breach, lies in the bearing of the question of consideration on independent (i.e. unconditional or absolute) stipulations. As consideration is not necessary to support a contract under seal, an action may be maintained on an independent covenant, although the plaintiff may himself have committed a breach of a covenant contained in the same deed, and, in such a case the other party is forced to his cross action for damages for that breach. He cannot plead failure of consideration to an action on an independent covenant. It is otherwise with regard to an action on a simple contract.^ If the plaintiff has broken even an independent stipulation of the contract, and his breach amounts to a sufficient failure of consideration, the defendant may rely on failure of consideration, and the plaintiff, faihng to prove the performance of the promises on his part, fails in his action, and the defendant is discharged. Two questions therefore may arise in practice, in considering whether the breach of a stipulation in a simple contract discharges the party not in default. The first question is, whether the stipulation broken is a condition precedent or concurrent. If that question is answered in the affirmative, then it is unnecessary to inquire whether the breach involves a sufficient failure of consideration, but, otherwise, that is the second ^ Until the decision of the House of Lords in Rann v. Hughes (1778), 7 T.R. 350, there was a tendency to treat -written promises as not requiring consideration to support them. Had that doctrine prevailed the principle of failure of consideration must have well nigh disappeared. It may be that the tendency to treat breaches of independent stipulations in simple con- tracts as breaches of independent covenants {noticeable in such caaes as Bettini v. Oye) is traceable to this view. FAILURE OF CONSIDERATION 61 question. In the case of a breach of covenant the first question Part I alone arises, as failure of consideration is no answer to an action Chapter V on a covenant. Enough has been said at this point of the discussion to mark the contrast between failure of condition proper and failure of consideration. ' Condition,' when used as referred to in the judgment of Lord Justice Fletcher Moulton in Wallis v. Pratt,^ means, it is submitted, in the case of an executory contract, a term without which the party would (or might) not have contracted at all, i.e. a condition of entering into the contract, as distinguished from a condition in the contract on which some promise depends. This is the sense in which the word seems to have been used in the judgment in Bannerman v. White,^ which, as has already been noted, really proceeded on the same principle as the decision in Flight v. Booth.^ In other words, ' breach of condition ' appears to mean ' failure of material inducement,' or failure of consideration amounting to failure of inducement. As prehminary to the main question to be discussed in this chapter, let us further consider the incidents of conditions proper and dependent stipulations, and examine the application of the principle of consideration as the criterion or index of the conditional relation between covenants, as stated in the notes to Pordage v. Coh. Conditions precedent and concurrent further considered, and, incidentally, the rules in the notes to Pordage v. Cole According to Lord Mansfield's judgment in Kingston v. Preston * there are three kinds of covenants : " (1) Such as are called mutual and independent, where either party may recover damages from the other for the injiuy he may have received by a breach of the covenants in his favour, and where it is no excuse for the defendant to allege a breach of the covenants on the part of the plaintifi. " (2) There are covenants which are conditions and dependent, in which the performance of one depends on the prior performance of another, and, therefore, till this prior condition is performed the other party is not liable to an action on his covenant." (The second class really comprises two kinds of covenants : (1) the condition precedent, (2) the covenant which is to be performed 1 (1910), 2 K.B. 1003 ; p. 52, ante. ^ 10 C.B.N.S. 844. ' 1 Bing. N.C. 370. * Douglas, 689, 690. 62 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I after the condition precedent is performed — ^usually called the Chapter V ^pendent covenant.) " (3) There is also a third sort of covenants which are mutual conditions to be performed at the same time ; and in these, if one party was ready and ofiered to perform his part and the other neglected or refused to perform his, he who was ready and offered has fulfilled his engagement and may maintain an action for the default of the other — though it is not certain that either is obliged to do the first act." In the case of concurrent conditions, not only are the mutual covenants mutual conditions, they are also, necessarily, from that fact, mutual dependent covenants. We have already seen that failure of condition (whether precedent or concurrent) and failure of consideration depend on different principles.^ We have also discussed the relation between condition and consideration from the point of view of breach, and have seen that such relation is not constant but accidental.^ There is, however, another limited relation between considera- tion and condition, arising from the application of the principle of consideration, on the interpretation of the contract, in accordance with Rules 3, 4, and 5 in the notes to Pordage v. Cole,^ as a test in deter- mining whether there is a conditional relation between two given mutual covenants or stipulations. The question whether mutual covenants are or are not conditions does not in every case depend on the question of consideration ; and so it may be said, from this point of view also, that the relation between consideration and condition is not constant but accidental. For example, parties may expressly agree that two things are to be done at the same time so as to make the stipulations concurrent conditions, and yet the one stipulation may not be the whole consideration for the other ; indeed, one condition, on which the concurrent obligation is dependent, may be the act of a third person, and so altogether foreign to the consideration between the parties to the contract. Let us now consider shortly the history of the development of condition precedent and concurrent conditions, and, incidentally, the limited relation between conditions proper and consideration so far as regards the interpretation of the contract. An examination of the older decisions, referred to in the original notes to Pordage v. Cole,* shows that the Courts were inclined, prior to Lord Mansfield's time, to treat covenants as conditions precedent, ' See p. 59, ante. ' See p. 59, ante. ' See p. 56, ante. ■> 1 Wms. Saunders, 1871 ed:, 548. CONDITIONS PRECEDENT AND CONCURRENT 68 only when the deed expressly and formally required the performance Part I of the covenant by one party to precede, in point of time, the Chapter V performance of the obUgation by the other. A plaintiff was thus often enabled to recover on a covenant as an independent or abso- lute obligation, when his own reciprocal and co-relative pronaise was imfulfiUed, though such promise might have been the whole con- sideration for the covenant sued upon. But the doctrine of failure of consideration had, in general, no application to contracts under seal, and the fact of such failure of consideration did not afford ground for any rehef to the defendant, who, in respect of any default by the plaintiff, was forced to his cross-action for damages. The form of the deed, rather than the substance and intent of the transaction, was the criterion of the order in time of performance of the various covenants. The Courts, in some of the older cases, instead of treating a defendant's obHgation as contingent on the performance of the reciprocal and co-relative covenant by the plaintiff — such covenant constituting, it might be, the whole consideration for such obUgation — enabled the plaintiff to enforce, as an independent covenant, what, according to the sense of the transaction, should have been enforceable only after he himself had performed an obHgation on his part. In order to prevent such injustice as this, the Courts seem to have extended the doctrine of condition precedent, by holding that the order in time of performance of the various stipulations shoidd depend, rather on the natural intent of the transaction than on any inference as to the intention of the parties, to be gathered merely from the express terms and form of the contract. As Lord Mansfield said in Kingston v. Preston ^ : " The dependence or independence of covenants was to be collected from the evident sense and meaning of the parties, and that, however transposed they might be in the deed, their precedency must depend on the order in time in which the intent of the transaction requires their performance." In Roberts v. Brett,^ Lord Chelmsford said, with reference to the rules in the notes to Pordage v. Cole : " These rules are not proposed for the purpose of absolutely deter- mining the dependence or independence of covenants in all cases, but merely as furnishing a guide to the discovery of the intention of the parties. For, as Lord Kenyan said in Porter v. Shepherd, ' conditions are to be construed as either precedent or subsequent according to the fair intention of the parties, to be collected from the instrument ; and 1 Douglas, 689. ^ 11 H.L.C. 337. 64 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I teclmical words (if there be any to encounter such intention) should Chapter V give way to that intention.' " The doctrine of conditions concurrent seems to be a compara- tively modem development of the principle of condition precedent. In the case of a sale, where A agrees to sell a property for a certain price and B agrees to buy for that price, the payment of the price is the whole consideration for the conveyance of the property ; and if B could be compelled to pay the price, in an action on his coyenant, before A had conveyed the property, the result might be a failure of the whole consideration (if, for example, A's title were defective). Therefore, unless the parties had plainly agreed that the price was payable before the purchaser could call for a conveyance,^ the contract was to be construed so as to prevent such a manifest injustice. The doctrine of concurrent conditions was therefore established, in order to prevent the recovery on one of two mutual co-relative covenants (which ought, according to the sense of the transaction, to be performed at the same time), when the plaintiff himself was in default in respect of the other ; as, for example, in an action to recover the price payable on a sale, when the vendor (plaintiff) had not offered and was not ready and willing to convey. Thus, although consideration was not necessary to support a deed — and without impinging on that rule — a principle appUcable to simple contracts was invoked in the interpretation of covenants in order to prevent failure of consideration. \ This principle was, however, applied, only, where the Court could see that each of two covenants constituted the whole consideration for the other, and the deed, in such a case, was construed as intending (according to the nature of the transaction) either that one covenant should be performed before the other or that both should be per- formed at the same time. The question whether each of two mutual covenants went to (i.e. extended to or covered) the whole consideration for the other thus became a practical guide, though not an exclusive test, in ascertaining the intention of the parties as to the order in time of performance of the mutual covenants. It is manifest, however, that the mere fact that one stipulation is to be performed at one time, and another subsequently, does not, of itself, render the performance of the first stipulation, a condition on which liability under the subsequent stipulation is dependent. The relation between the stipulations must be such (having regard to the subject-matter or nature of the transaction), that the inten- 1 As in Mattock v. Einglahe, 10 Ad. & El. 50. CONDITIONS PRECEDENT AND CONCURRENT 65 tion of the parties — ^that liability on the second stipulation is to Part i be contingent on performance of the first — may be inferred. Where Chapter V one stipulation is not made expressly dependent on another, the usual mode of ascertaining whether such relation exists is to ascertain how far the one stipulation constitutes the consideration for the other : see Rules 4 and 5 in the notes to Pordage v. Cole.''- Rule 3, in these notes, as to independent covenants, is really a corollary of Rule 4, and, in terms, is applicable to covenants only, and not to simple contracts. Stipulations in a simple contract, which, if in a deed, would be independent covenants, are not governed by Rule 3, as the application of the principle of failure of consideration (or failure of inducement) to simple contracts is not in any way limited or affected by the apphcation of the principle of consideration as a guide in interpreting deeds according to Rules 3, 4, and 5. Just as the application of the principle of consideration, as a test of the intention of the parties in interpreting a deed, leaves untouched the rule that consideration is not necessary to support a covenant, so, the rules in the notes to Pordage v. Cole leave untouched the principle of failure of consideration in its apphcation to what may be called independent stipulations in a simple contract (if the same be not performed). It is conceived that the expression ' mutual conditions ' is strictly apphcable to concurrent conditions only. In the case of a condition precedent and the relative dependent covenant, only one of the covenants is a condition, the other being dependent ; in the case of concurrent conditions, if either covenant is treated as a condition, the other covenant is dependent, so that they mse^ be said to be mutual conditions, and, therefore, mutual dependent covenants. It will be noted that this limited relation between the doctrine of ' consideration ' and the doctrine of ' concurrent conditions ' is, in the aspect which has just been considered, accidental only. The inquiry in each case is, in what order of time does the nature of the contract require the covenants to be performed ? (1) Is there a necessary relation of priority and sequence ? (2) Are the covenants to be performed at the same time ? or (3) May either covenant be enforced without any reference to the time when the other is to be performed ? This inquiry, as to the order in time of performance, is but a mode of ascertaining whether one obligation is intended to be 1 See Roberts v. Brett, 11 H.L.C. 337, per Lord Chelmsford, p. 63, ante. 66 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I contingent or conditional on the performance of the other. If Chapter V ^j^g intention of the parties is otherwise definitely expressed, there is no occasion to resort to the test of consideration. This test has no logical relation to any doctrine or principle essential to or governing obUgations under seal, for consideration is, in general, not necessary to support a covenant. The object of the appUcation of this test is, in itself, a recognition of the rule that the breach of a condition only is an answer to an action on a covenant, or, in other words, the rule that ' the failure of consideration is nothing in the case of a contract under seal.' ^ It is true that the test was adopted in order to prevent injustice arising from the operation of this rule, for had the principle of failure of consideration fer se apphed to deeds as weU as to simple contracts, the necessity for the fourth and fifth rules in the notes to Pordage v. Cole would not have arisen. It has already been noticed that in cases of breach of simple contracts in which the rules in the notes to Pordage v. Coh ^ have been invoked by the Courts (see particularly Bettini v. Gye ^ and Simpson v. Griffin *), the rule as to independent covenants has been appHed, with th^ result that the doctrine of failure of consideration, which is peculiarly appHcable to breaches of simple contracts, has been obscured. ^ It is therefore interesting to find that the real tendency of the dominant authorities has been, not to apply the principles of deeds to simple contracts — ^thus taking away the defence of failure of consideration — ^but, on the contrary, the ten- dency has been to apply the doctrine of consideration to deeds for the purpose of interpreting mutual covenants as conditions, where they can be so interpreted, and thus to prevent failure of considera- tion. The reader is referred to the decisions in Glazehrooh v. Woodrow ^ (particularly the judgments of Grose and Le Bhnc, J J.), Thomas v. Cadwalhder,'' Kingston v. Preston,^ Blackwell v. Nash,^ Hotham v. East India Co.,^" and Morton v. Lamb ^^ as siuBSeiently illustrating the foregoing observations. The conclusions arrived at may be summarised as follows : As a covenant needs no consideration to support it, it is manifest that the apphcation of the doctrine of consideration to deeds must be with some subsidiary purpose. This purpose is to determine, by reference to the intent of the transaction, whether mutual 1 Wallis Y. Day, 2 M. & W. 273, 277, per Baron Parke. ' See p. 56, ante. ' 1 Q.B.D. 183. ' L.R. 8 Q.B. 14. « See Poussard v. Spiers, 1 Q.B.D. 410. « 8 T.R. 366 (1799). ' Willis's Rep. 496 (1744). » Doug. 689 (1772). " I Str. 535 (1721). ^ 1 T.R. 638 (1787). " 7 T.R. 125 (1797) CONDITIONS PRECEDENT AND CONCURRENT 67 covenants are to be treated as mutual conditions (either precedent Part I or concurrent) or whether they are to be treated as independent Chapter V covenants. Failure of consideration fer se is no answer to an action on a covenant, but breach of condition precedent or concur- rent is a defence in such an action, and if the covenant broken can be treated as a condition, then failure of consideration will indirectly, i.e. qua failure of condition, afford a ground of defence to an action in covenant. In other words, failure of consideration, if — but only if — such failure also amounts to failure of a condition precedent or concurrent, will avail the defendant in an action in covenant. The very fact that the Courts deemed it necessary to establish the rules which are to be foimd in the notes to Pordage v. Cole, shows clearly that failure of condition proper and failure of consideration are, historically, difierent things. Failure of condi- tion is as old as the ' Action in Covenant ' ^ ; failure of considera- tion is a doctrine which must have arisen out of the relatively modern form of action in Assumpsit. To a certain extent the principles have been identified by extending the class of conditions in order to avoid the injustice arising from the operation of the rule that consideration is not necessary to support a deed. But this limited application of the doctrine of consideration in the interpretation of deeds has in no way affected or hmited the opera- tion of the doctrine of failure of consideration as applied to simple contracts. There is no authority in theliotes to Pordage v. Cole, and no satisfactory authority anywhere else, for saying that the doctrine of failure of consideration, as applied to simple contracts, has been hmited by the apphcation to simple contracts of the principle of independent covenants. In other words, there is no real authority for saying that stipulations in simple contracts which may have induced the contract, but which do not amount to conditions properly so called, are to be treated as if they were independent covenants. According to the notes in Pordage v. Cole and the later authorities there referred to, conditions precedent and con- current which involve performance of the consideration may be ^ See the authorities referred to by Holt, C.J., in Thorpe v. Thorpe, 1 Salk. 171 (1700). This learned judge, after citing Rules 1 and 2 laid down (subsequently) in the notes to Pordage v. Cole, says that " in execu- tory contracts, if the agreement be that one shall do an act and for the doing thereof the other shall pay, etc., the doing of the act is a condition precedent to the pajrment, and the party who is to pay shall not be compelled to part with his money till the thing be performed for which he is to pay." v 2 68 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part 1 grouped as follows (but these groups are not necessarily mutually Chapter V exclusive) : -^ 1. Covenants the performance of which, by one party, is either (a) expressly and in form, or (&) from the evident sense and meaning of the parties, to be gathered from the intent of the transaction, required to precede in point of time the performance of the obliga- tion of the other party (see Roberts v. Brett ; ^ Rules 1 and 2 in the notes to Pordage v. Cole). It is immaterial, in order to consti- tute a covenant of this class a condition precedent, whether such a covenant extends to or covers the whole consideration for such covenant or whether it affects part only of the consideration : Bank of China v. The American Trading Co.^ 2. Covenants going (or extending) to the whole consideration on both sides— that is, a covenant by one party co-relative with and complementary of a covenant by the other party; as, for example, a covenant for service and payment therefor, sale and purchase, etc. Many such covenants are, strictly speaking, concurrent condi- tions, but whether they be conditions precedent or concurrent, the distinction is for practical purposes immaterial, as the plaintiff must allege and prove either actual performance on his part or (according to the circumstances) that he has offered and has been at all times ready and willing, etc. (Rule 4 in the notes to Pordage V. Cok). 3. Covenants the performance of which by one party is either (a) expressly and in form, or (&) from the evident sense and meaning of the parties, to be gathered from the intent of the transaction, required to be contemporaneous with the performance of obligations by the other party — concurrent conditions. It would seem also to be immaterial whether covenants of this class should extend to the whole consideration or not, in order to constitute them conditions. Concurrent conditions may in many cases be classed either in this or in the second group (see Rule 5 in the notes to Pordage v. Cok). There is, of course, a class of condition precedent which does not involve the performance of consideration at all, such as an 1 11 H.L C. 337. ' (1894), A.C. 266, per Lord Watson at p. 271, THE GOVERNING PRINCIPLE 69 act to be done by someone not a party to the contract. Conditions Part I precedent coincident with consideration involve two elements : Chapter V (1) The element of condition, i.e. suspension of the other party's obligation ; in other words, the element which makes the other party's obhgation contingent. (2) The element of consideration. Conditions precedent involving merely the act of a third person or the happening of an event do not involve the latter element. Questions as to whether a particular covenant, involving performance of the consideration, is or is not a condition precedent or concurrent may be of vital importance where the contract is under seal, but in the case of simple contracts such questions may be relatively unimportant, because failure of consideration is the broad principle apphcable to -breaches of simple contracts. The doctrine of Consideration is only indirectly apphcable to contracts under seal, as a test of the intention of the parties as to whether a particular covenant is independent or dependent, i.e. whether it imposes an absolute obhgation or one which is merely contingent (Rule 4 in the notes to Pordage v. Cole). The principle governing discharge o£ executory contracts by breach, for failure of part of the consideration To say that a party to a contract is ' discharged by breach ' is merely another way of saying that, by reason of one party's breach or failure or inability to perform some promise on his part, such party is, by reason of his own default, disabled by law from enforcing the contract against the other party. The contract, having ceased to be enforceable by the party in default, has ipso facto ceased to be a legal obligation on the other party, and he is, consequently, by such default, discharged from his obligation. As a right in one party to have something done involves a co-relative duty or obligation on the part of the other (and vice versa), when the right fails or ceases to ekist, or becomes unenforceable at law, the co-relative legal duty or obhgation is at an end. Thus, the test of one party's inabihty, by reason of his own default, to enforce the contract is the test of the other party's discharge by breach and vice versa. In other words, discharge by breach actually arises from and depends upon the fact that the party in default is himself disabled by his default from enforcing the contract. At common law if a party to a contract failed or was unable, in an action in assumpsit (the appropriate form of action for the 70 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I enforcement of an obligation not under seal), to prove the perform- Chapter V ^nce of the whole of an executory consideration (the contract being entire), he failed in his action, and the defendant was discharged just as effectually as a defendant in an action on a covenant, dependent on the performance of a condition precedent, was dis- charged, if the plaintiff failed to prove performance of the condi- tion.^ As we have already seen (p. 19, ante), the term 'rescis- sion ' is no more applicable to the one case than to the other. For at least a century it has been the law that it is not every default, not every failure of consideration, that will operate to discharge the party not in default. The default will, according to the importance or unimportance of the stipulation broken, either {a) discharge the contractual obhgation of the party not in default, or (6) merely afford him ground for an action for damages.^ It is sought in this chapter to ascertain what is just that degree of importance which must attach to the stipulation broken, in order to render the breach sufficient to discharge the party not in default : in other words, what is the test of the sufficiency of the importance of the broken stipulation ? Perhaps the greatest difficulty met with, in dealing with this branch of the subject, is the manifest conffict of authority in the decisions at law as to the effect of a breach, failure, or inability to perform, extending to part only of the obligations created by an entire contract, while it is wholly or substantially executory. It has already been pointed out that, where the stipulation broken is a condition precedent or concurrent, the governing principle is the same, whether the contract be under seal or not ; but that, so far as regards stipulations which are independent, the principles {a) that consideration is necessary to give a binding force to a promise by simple contract, (6) that a sufficient failure in performance of that consideration may discharge an obligation by simple contract, create a fundamental distinction between the consequences of the breach of an independent covenant, and the consequences of the breach of an independent stipulation in a simple contract. The propositions sought to be established in this chapter, and to some extent already indicated, may be here conveniently summarised : 1. The principle of condition proper {i.e. condition precedent ^ Ante., p. 59. f Wallis V. Pratt, extract from judgment of Fletcher Moulton, L.J., cited p. 52, ante. THE GOVERNING PRINCIPLE 71 and concurrent), which renders an obHgation contingent on prior Part I or contemporaneous performance of a specific stipulation, is not Chapter v to be confused with the principle of consideration. The two principles are diverse, although it may be that, where the condition to be performed involves the performance of part of the considera- tion, condition and consideration may in a sense coalesce, so that the failure of a condition may also be a failure of consideration. 2. Discharge by breach, whether of a covenant or of a simple contract, depends on the breach being such that the party in default is, by reason of his default, disabled from enforcing the contract. If the obligation becomes unenforceable, it ceases to be a legally binding obligation, and the promisor is ifso facto discharged. 3. In the old form of action in assumpsit (the appropriate mode of enforcing a simple contract), the plaintiff could succeed only on his proving the performance of the whole consideration, if executory, and if he failed to do so he failed in his action. Hence the rule — ^the failure of part of an executory consideration is a failure of the whole, if the contract be entire. 4. Erom about the period when Courts of Equity first estab- lished the principle of specific performance with compensation for a trifling or immaterial breach, or failure, or inabiUty to perform. Courts of Law have not strictly followed the old rule in assumpsit, and have enforced contracts by awarding damages for breach, notwithstanding a breach, failure, or inability to perform by the plaintiff, where such breach, etc., was not the breach of an ' essential term,' or a breach ' going to the whole consideration,' or ' going to the root of the contract.' 5. The general principle underlying these decisions at law is the principle of failure of consideration (that is, an important, as distinguished from an unimportant, failure of consideration). 6. The true principle applicable, to be deduced from the leading decisions at law and in equity, is that a contractual obligation if entire is discharged, while the contract is executory, by the breach ' of, or failure or inability to perform, a stipulation of such import- ance that it may have been a material inducement to the promisor to enter into the contract. 7. The principle so stated not only co-ordinates cases where a contract is enforced by specific performance with compensation for an unimportant failure in performance by the plaintiff, ^ with 1 A contract, where one party has made default, either subsists as an obligation enforceable by him notwithstanding such defaxilt, or it does not. 12 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I cases where a contract is enforced by action for damages notwith- Chapter V standing that the plaintiff has made an unimportant breach, but also harmonises with the established principle in equity, that a When a plaintiff is seeking the enforcement of a contract, where he himself is in default, one would, since the Judicature Acts, expect relief to be granted or refused according to some uniform principle (having regard to the import- ance of the stipulation broken by the plaintiff), whether the relief sought is (a) damages for breach, or (6) specific performance with compensation. Where relief is refused in either case by reason of the importance of the plaintiff's default or failure, it is difficult to see why it should be refused on different principles. Having due regard to the fact that specific performance is a remedy in the discretion of the Court, and to the class of cases in which it may be refused without prejudice to the plaintiff's remedy at law, it is difficult to see why in an action for damages the defendant should not succeed, if the plaintiff's default be such as to disentitle him to relief by specific perform- ance with compensation and vice versa. It would be surprising if a different standard or test of importance of the stipulation broken were applied in the one case from that applied in the other. Either the defendant is held to his obligation with the right to damages in the one case and (what is in effect the same thing) compensation or abatement in price in the other, or he is discharged from his obligation by reason of the plaintiff's breach, failure, or inability to perform. It would be anomalous at this period of English law if a contract partially broken were held to be,.or not to be, an enforceable obligation according to the form of action by which the contract is sought to be enforced. Suppose that since the Judicature Acts an action were brought on the facts in Flight v. Booth,''- by the vendor, for specific perform- ance, with an alternative claim for damages for breach or failure to per- form by the purchaser. The plaintiff being unable to give the defendant all he had promised, could he be refused specific performance on the grounds stated by Tindal, C.J., and at the same time have the con- tract enforced against the purchaser by an award of damages (or vice versa) ? The ground of the decision in Flight v. Booth was that the ina- bility of the vendor to perform was " in a material and substantial point, so far affecting the subject-matter of the contract that it may reasonably be supposed that, but for such misdescription, the purchaser might never have entered into the^ contract at all ; in such a case the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation." Would not this be a sufficient ground for refusing both specific performance and the alternative claim for damages for breach ? In Billon v. Macdonald [21 N.Z.L.R. 375 (C.A.)] it was held that under the modem procedure (based on the English Judicature Acts), where an action for specific performance has been dismissed on the ground of delay, no claim having been made by the plaintiff for damages, the plaintiff could not maintain a second action claiming damages for breach of contract, for the reason that every remedy that can be claimed for the same cause of action must under the present procedure be claimed in one action. In this case the action for specific performance was dismissed not on the ground of any failure or inability to perform on the part of the plaintiff, but on the discretionary ground of delay. 1 1 Bing. N.C. 370. THE CONFLICT OF AUTHORITY 73 contract may be avoided while executory for the non-fulfilment Part I of a collateral representation, operating as a material inducement Chapter V to the contract. It is submitted that a representation, dehors the contract itself, affording (if unfulfilled) ground for avoidance of the contract, would, if actually embodied in the contract (thereby becoming a promise that it is true), equally, if unfulfilled, afford a ground for discharge, upon the principle of the failure of a material inducement to the contract, or, in other words, failure of consideration. The conflict of authority The discharge of the obligation of one party to an entire simple contract, by breach or failure in performance by the other party, while the contract is executory, is a topic of Enghsh law on which, as has been already mentioned, the reported decisions reveal an unusual divergence of judicial opinion. The impossibility of reconciling the two lines of decisions, of which Hoare v. Rennie'^ on the one hand, and Simpson v. Crispin ^ on the other, may be taken as typical, has been recognised not only by leading text- writers but by eminent judges. It is submitted that the primary question raised by the cases may be stated thus : Does the principle which governed actions in assumpsit — viz. ' a failure of part of an executory consideration, where the contract is entire, is a failure of the whole ' — still apply to simple contracts, or, on the other hand, does the principle as to simple contracts proceed by analogy to that which governs actions in covenant, where non-performance by the plaintiff is pleaded ? In other words, does failure of part of an executory consideration still afford a ground of defence to an action on the contract, or, on the contrary, may a plaintiff, who has himself made default in the performance of an executory consideration, enforce the contract against the other party, notwithstanding such default, if such default does not amount to failure in the performance of a condition precedent or concurrent, i.e. if the stipulation broken is what may be called an independent stipulation ? [We have already noted the difference between deeds and simple contracts, and consequently the difference between actions in covenant and actions in assumpsit, and have contrasted ' condition proper ' with ' consideration.'] Hoare v. Rennie ^ was an action for refusing to accept or pay ' 5 H & N. 19. ' L.R. 8 Q.B 14, 74 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I for 667 tons of iron agreed to be shipped by the plaintiff in four Chapter V ' about equal ' monthly shipments in June, July, August, and September. The defendant pleaded that the plaintiff shipped only twenty- one tons in June, which the defendant refused to receive, and gave notice to the plaintiff that he refused to accept the residue of the iron. It will be observed that the contract was wholly executory. It was held on.demurrer that the plea was a good answer to the action. In delivering judgment, Pollock, C.B., said : '• It does not turn upon any question of condition precedent. The only question is whether, if a man who is bound to perform his part of the contract does not do so, he can enforce the contract against the other party," and the judgments dehvered appear to have proceeded consistently with the rule in assumpsit, ' a failure of part of an executory con- sideration is a failure of the whole.' On the other hand, in Simpson v. Crippin,^M.T. Justice Blackburn said : " It cannot be denied that the plaintiffs were bound in every month to send wagons capable of carrying at least 500 tons, and that by failing to perform this term they have committed a breach of the contract ; and the question is whether by this breach the contract is determined. The defendants contend that the sending of a sufficient number of wagons by the plaintiffs to receive the coal was a condition precedent to the continuance of the contract, and they rely upon the terms of the letter of August 1. No sufficient reason has been urged why damages would not be a compensation for the breach by the plaintiffs, and why the defendants shpuld be at liberty to annul the contract ; but it is said that Hoare v. Rennie ^ is in point, and that we ought not to go counter to the decision of a court of co-ordinate jurisdiction. It is, however, difficult to understand upon what principle Hoare v. Rennie ^ was decided." It would seem from the report in Simpson v. Crippin that the judgment proceeded by analogy to the principle of an action in covenant, although the obligation sued on was a simple contract. In Honck v. Muller,^ Bramwell, L.J., said : " One may express a respectful agreement with what the learned judges said in Simpson v. Crippinj'- viz. that they did not understand Hoare v. Rennie." ... It has never yet been held that a man may break his contract, render the performance of the whole impossible, and, though nothing has been done under it, insist on the performance of the remainder." » L.R. 8 Q.B. 14. " 5 H. & N. 19. » 7 q.b.D. 92. THE CONFLICT OF AUTHORITY 75 In Honch v. Muller,^ Hoare v. Rennie ^ was followed by Bmmwell Part I and Baggallay, L.J J., and dissented from by Brett, L.J. Chapter V In Bettini v. Gye ^ the breach of a simple contract by the plaintiff was treated by the Court as not discharging the defendant, and, in the early part of his judgment, Mr. Justice Blackburn deals with the matter by analogy to an action in covenant. He says : " The question raised by this demurrer is, not whether the plaintifE has any excuse for faiUng to fulfil his part of his contract, which may prevent his being Uable in damages for not doing so, but whether his failure to do so justified the defendant in refusing to proceed with the engagement, and fulfil his (the defendant's) part. And the answer to that question depends on whether this part of the contract is a condition precedent to the defendant's hability, or only an independent agreement, a breach of which will not justify a repudiation of the contract, but will only be a cause of action for a compensation in damages." The judgment then proceeds to define condition precedent as follows : , " We think that we are to look at the whole contract and ... see whether the particular stipulation goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintifE a thing difierent in substance from what the defendant has stipulated for ; or whether it merely partially affects it and may be compensated for in damages. Accordingly as it is one or the other, we think it must be taken to be or not to be intended to be a condition precedent." This test of what is a condition precedent gives, it is submitted, an extended or secondary meaning to that term, and will be more fully considered presently. In the meantime it is sufficient to point out that the question is made to turn on the importance to the party not in default of the broken stipulation, and seems to assume that a failure of part of the consideration may be sufficient to discharge the party not in default, if the stipulation broken cannot be compensated for in damages. In Poussard v. S'piers * (decided three months later) the diverse principles of failure of condition precedent and of failure of con- sideration are perhaps more definitely confused. In delivering the judgment of the Court in that case Mr. Justice BlacMmrn said : " And we think that the question whether the failure of a skilled and capable artiste to perform in a new piece through serious illness is so important as to go to the root of the consideration must to some 1 7Q.B.D.92. » 5H.&N.19. » 1 Q.B.D. 183. * 1 Q.B.D. 410. 76 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I extent depend on the evidence, and is a mixed question of fact and Chapter V law. Theoretically, the facts should be left to and be found separately by the jury, it being for the judge or the court to say whether they, being so found, show a breach of a condition precedent or not." And again (p. 416) he says : " The fourth question is no doubt found by the jury for the plaintifi, but we think in finding it they must have made a mistake in law as to what was a sufficient failure of' consideration to set the defendants at liberty, which was not a question for them." A reference to this judgment will show that the Court tested the importance of the breach by the actual consequences thereof to the party not in default — a mode of ascertaining the intention of the parties hardly to be justified on principle. In these cases the diverse principles of ' condition '"and^ ' con- sideration ' (or ' failure of condition ' and ' failure of consideration ') are apparently treated as susceptible of statement, the one in terms of the other. No doubt in the case of many, if not of most, simple contracts containing dependent promises, a condition precedent involVes the performance of part or the whole of the consideration for the dependent promise. But if the actual prior performance of the particular stipulation broken be a condition of the defendant's liability on his promise, the importance of the breach as a failure of consideration becomes irrelevant. A condition precedent may be merely the happening of an event, or the act of a third party, and quite foreign to the consideration as between the contracting parties. Consideration is essential to the very existence of an obligation by simple contract, whether that obligation be contingent {i.e. conditional) or absolute, and a sufficient failure in the perform- ance of that consideration may be a ground of discharge. If the stipulation broken be held to be not a condition proper, rendering the defendant's obligation contingent, then, and only then, does the question of the importance of the breach, as a failure of con- sideration, arise. ' This confusion between failure of condition precedent and failure of consideration seems to have arisen from a misapplication of the third and fourth rules in the notes to Pordage v. Cole,^ on which the judgments in Simpson v. Crispin ^ and Bettini v. Gye ^ appear to have been based. These rules are stated as ' furnishing a guide to the discovery of the intention of the parties' as to whether ' 1 Wms. Saunders, 1871 Edn., 548. « L.R. 8 Q.B. 14. " 1 Q.B.D. 183. THE CONFLICT OF AUTHORITY 77 a covenant is intended by the parties to be a dependent or an inde- Part I pendent covenant : Roberts v. Brett.^ Chapter V The third rule is as follows : " Where a covenant goes only to part of the consideration on both sides, and a breach of such covenant may be paid for in damages, it is an independent covenant, and an action may be maintained for a breach of the covenant on the part of the defendant without averring performance in the declaration." The fourth rule is as follows : - " Where mutual covenants go to the whole consideration on both sides they are mutual conditions, and performance must be averred." As was said by Mr. Justice Kay in Bastin v. Bidwell : ^ " Perhaps it is not a very fortunate use of language to say ' where covenants go to the whole consideration on both sides,' but the meaning is very clear." The meaning no doubt is that where there are mutual and co-relative covenants, such as a covenant to sell a piece of land and a covenant to pay the price therefor, each covenant extends to or covers the whole consideration for the other, and therefore the liability to perform one depends on the performance of the other ; thus, they are mutual conditions. But it by no means follows from these rules that a hreach involving or extending to part of the consideration for a promise hy simple contract does not amount to a sufficient failure of consideration to discharge the party not in default. The fallacy appears to lie in assuming that the expression ' covenant going to [i.e. comprising or covering] the whole consideration ' is co-extensive in meaning with the expression ' breach going to the whole consideration.' A breach may go to the whole consideration though it does not extend to or involve every part of the covenant or stipulation broken. A covenant goes to the whole consideration for another covenant in the sense only that every part of each of the two covenants covers or comprises every part of the, consideration for the other of them. Where the performance of one covenant is a condition precedent to the enforceability of another, a failure in performance of part of the condition precedent is a failure of the whole condition, although, plainly, the breach does not extend to every part of the condition. In Bastin v. Bidwell ^ a tenant was given a right to a renewal of his lease " upon paying the rent and performing and observing the covenants in his lease." This was held to constitute a condition precedent to his right to renewal, and some of the 1 11 H.L.C. 337. ^ 18 CD. 238. 78 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I covenants in Ms lease not having been completely pprformed, the Chapter V tenant was held unable to enforce the covenant for renewal. Thus a failure of part of a condition precedent is a failure of the whole condition. It may be said, not incorrectly, that the performance of the whole of an executory consideration was a condition precedent to the contractor's right to sue in assumpsit, and therefore the failure of part of an executory consideration disabled the party in default from enforcing the contract, but this use of the term ' condition precedent ' has no reference to any ' condition ' of the contract. In Cutter v. Powell,^ Munro v. Butt,^ and Sumpter v. Hedges,^ all cases of condition precedent proper, the failure in performance of part of the condition precedent was a failure of the whole condi- tion. It was not Ijield to be necessary that every part of the con- sideration for the promise to pay should have failed. The question how far the rules in the notes to Pordage v. Cole are properly applicable to cases of breach of simple contract has been discussed at p. 61 ante. As will be seen presently, Courts of Equity had, long before the decisions at law which we have just considered, recognised the hardship of the operation of the rule of law that a failure of part of an executory consideration is a failure of the whole, and, accord- ingly, established the principle of specific performance with com- pensation for a breach or failure of a trifling and unimportant nature ; and the cases at law show that common law judges equally recognised that a defendant ought not to escape from his contractual obligation merely because the plaintifE had failed, or was unable to fill his contract to the letter. But the principles on which Courts of Law endeavoured to follow the example of Courts of Equity are by no means easy to extract from the decisions. It does not appear that the Courts of Law proceeded consistently on any recognised and well-settled principle of law as to the discharge of one party by breach on the part of the other. Indeed, it appears rather as if the judges at law were seeking for a principle, by which the importance of a breach, sufficient in justice to discharge the party not in default, should be tested. That the doctrine of failure of consideration lies at the root of the principle seems to be recognised by both the conflicting lines of decisions, even though in some of them, notably in Pousswrd v. Spiers,* failure of considera- tion and failure of condition precedent seem to have been confused. 1 6 T.R. 320 ; 2 S.L.C. 1. » 8 E. & B. 738. » £1898), 1 Q.B. 673. « 1 Q.B.D. 410 ; ante, p. 75. THE CONFLICT OF AUTHORITY 79 In Bradford v. Williams ^ (in whicli Hoare v. Rennie was followed), Part I Baron Martin said : Chapter V " Contracts are so varied in their terms that it is really impossible to argue from the letter of one to the letter of the other. All we can do is to apply the spirit of the law to the facts of each particular case. Now I think the words ' condition precedent ' unfortunate ; the real question apart from all technical expressions is : What in each instance is the substance of the contract ? " In Bowes v. Shand,^ Lord Cairns (in a judgment which is silent as to ' condition precedent ') said : " The non-fulfilment of any term in any contract is a means by which a purchaser is able to get rid of the contract when prices have dropped ; but that is no reason why a term which is found in a contract should not be fulfilled." In Bannerman v. White,^ Erie, C.J. (in delivering the judgment of the Exchequer Chamber), said : ," We avoid the term ' warranty ' because it is used in two senses, and the term ' condition ' because the question is whether that term is applicable. . . . This undertaking was a preliminary stipulation, and if it had not been given the defendants would not have gone on with the treaty which resulted in the sale. In this sense it was a condition upon which the defendants contracted." In Bentsen v. Taylor,^ Lord Esher, M.R., said : " The statement is a substantive part of the contract and we ought to hold it to be a condition precedent, unless we can find in the contract itseK or in the surrounding circumstances anything to lead us to a contrary conclusion." In the notes to Cutter v. Powell,^ in the eleventh edition of Smith's Leading Cases, the learned editor says : " It must be observed that a breach of contract to entitle the other party to rescind must consist in the non-performance of something essential." In the fifth edition of Lord Justice Fry's work on Specific 1 L.R. 7 Exch. 259. ' 2 A.C. 455. 3 10 C.B.N.S. 844. * (1893), 2 Q.B. 274. ^ 2 S.L.C. 37. The learned editor's notes on this topic seem to proceed on the assumption that a breach ia order to justify rescission must be such as to warrant the inference of an intention to repudiate. Repudiation, no doubt, aSords a ground for rescission, but an unintentional breach of sufficient importance surely operates to discharge the party not in default ; see p. 38, ante. 80 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I Performance, in the chapter dealing with " Default on the Part of Chapter V the PlaintifE," ^ ' essential terms ' of the contract are distinguished from ' conditions precedent.' Examples may be multiphed in- definitely showing the divergent points of view taken by different judges on the question ; and the cases of Jonassohn v. Young,^ Renter v. Sala,^ and Coddington v. Paleologo * may be referred to as illustrating this divergence. In the more recent decisions the term ' condition precedent ' as descriptive of the degree of importance of a term, the breach of which will discharge the party not in default, seems to have fallen into disuse and the wider term ' condition ' adopted. The ambiguity of this term is referred to by Lord Moulton in Wallis v. Pratt, ^ in his judgment in the Court of Appeal, which was adopted by the House of Lords. The draftsman of The Sale of Goods Act while using the word ' condition ' refrains from defining the term.* Every lawyer is familiar with the expression ' term going to the root of the contract ' as indicating a term the breach of which will discharge the party not in default. It is doubtful if this expression as a test of importance of the broken stipulation con- veys a meaning any more definite or satisfactory than such expressions as ' essential term,' ' term going to the whole con- sideration,' etc. » P.458. »4B. &S.296. = 4C.P.D.239. * L.R. 2 Exch. 193. = (1910), 2 K.B. 1003. ' It is submitted that the definition of ' condition ' for the purposes of testing whether a contract, whUe executory, is discharged by breach is — ' a term of such importance that it may be reasonably supposed that without such term the party not in default might never have entered into the contract at all,' that is to say ' a condition of entering into the contract ' as distin- guished from a condition (precedent or concurrent) in the contract to the party's liability to perform some dependent stipulation. We speak of the conditional acceptance of an offer, but in such case the term seems to have a still wider meaning. A makes an offer to B, B accepts the offer but adds a term ; there is no contract until B's conditional acceptance is in turn accepted by A : Jones v. Daniell, 1894, 2 Ch. 332 ; Anson's Law of Contract, 13th Edn., 49, 50. Could A, in such a case, after accepting the new term, and while the conti^act is still executory, safely intimate to B his inability to perform the new term, declaring that he will hold B bound by the contract otherwise, and will pay damages for the breach on his part ? On the principle of The. Mersey Steel, etc., Co. v. Naylor, Benzon, and Co., 9 A.C. 454, A's action falls short of repudiation. The new term was a condition of B's entering into the contract — a term without which he might never have entered into the contract at all : Flight v. Booth, 1 Bing. N.C. 370 ; Bannerman v. White, 10 C.B. N.S. 844 THE TEST OF IMPORTAxNCE 81 The test of the importance of the stipulation broken The conflicting decisions at law seem, at least, to have this Part I common basis : that the importance of the stipulation broken, Chapter V to the party not in default, is the broad test applied in ascertaining whether the breach or failure in performance discharges such party. Moreover, the doctrine of failure of consideration seems to be recognised as lying at the root of the principle. Even assuming these two points to be settled, they do not dispose of the real diffi- culty, viz. by what standard — from what point of view — are we to gauge the importance of the broken stipulation ? As preliminary to the discussion of this question, we may with advantage refer to the decisions in equity establishing the doctrine of specific performance with compensation, as these decisions constitute the earliest departure from the old rule in assumpsit : ' a failure of part of an entire executory consideration is a failure of the whole.' The strict application in Courts of Law of this rule led, in many cases, to a party escaping from his contract on grounds so trifling as to be unconscionable. Courts of Equity, therefore, interfered by granting the relief of specific performance with compensation, and the foundation of this doctrine was the assumption that, at law, anything short of strict and complete performance by one party of an executory consideration would entitle the other to retract. It is stated by Lord Eldon in Morilock v. Buller ^ (citing Lord TJiurlow) : "That it is scarcely possible that there may not be some small mistake or inaccuracy ; as that a leasehold interest, represented to be for twenty-one years, may be for twenty years and nine months. Some of these little circumstances that would defeat an action at law, and yet lie so clearly in compensation that they ought not to prevent the execution of the contract." And in Halsey v. Grant,^ Lord Erskine said : " Where, therefore, advantage is taken of a circumstance that does not admit of strict performance of the contract, if the failure is not substantial equity will interfere. If, for instance, the contract is for a term of ninety-nine years in a farm, and it appears that the vendor has only ninety-eight or ninety-seven years, he must be non-suited in an action ; and if the other party can have the substantial benefit of the contract, that slight difference being of no consequence to him, equity will interfere. Thus was introduced the principle of compensa- tion." 1 10 Ves. 305-306. ' 13 Ves. 73. G Chapter V 82 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I In In re Arnold, Arnold v. Arnold,^ James, L.J., said : " Tliere is no doubt that if a man purcliases a property, and what I may call an infinitesimal portion cannot be given him, then he may be obliged to complete with compensation." And Baggallay, L.J., said : " As regards the only remaining mode in which compensation could be given, viz. pecuniary compensation, that is only adopted in a case where there is a trifling difierence between the actual state of the property and the state in which it was represented to be by the vendors." And Bramwell, L.J., said : " I should like to deal with the case as though the question were whether any action would have been maintained at common law to recover damages against Mr. Girling for refusing to complete." It cannot be said that the principle stated in In re Arnold^ had been uniformly adopted by Courts of Equity. Indeed, in that case James, L.J., said : " Lord Eldori in Knatchhull v. Grueber^ expressed his opinion that the Court was becoming more and more in the habit of holding people to the contracts they had made and not holding them to contracts they had not made, and I hope the Court will continue in that course." The trend of the more modern authorities is discussed in Lord Justice Fry's work on Specific Performance. * The modern principle seems to be in accordance with, if not based upon, that laid down in Flight v. Booih.^ That case was decided at law, on a contract which contained an express provision for compensation. Tindal, C.J., in delivering- the judgment of the Court, stated the question to be " whether the misdescription in the printed particulars of sale of the premises to be sold was such as to entitle the contractor to rescind the contract altogether, or whether it was such as was contemplated by the sixth condition of the printed particulars of sale by which it was provided that, if through any mistake the estate should be improperly described, or any error or misstatement inserted on that particular, such error or misstatement should not vitiate the sale thereof ; but the vendor or purchaser, as the case might happen, should pay or allow a proportionate value according to the average of the whole _ purchase money as a compensation either way." 1 14 CD. 270. ^ Ante. »3Mer. 124. » 5th Edn., 609. = 1 Bing. N.C. .370. THE TEST OF IMPORTANCE 83 After discussing the previous decisions the judgment proceeded : Part I ^ Chapter V In this state of discrepancy between the decided oases we think it is, at aU events, a safe riile to adopt that where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject-matter of the contract that it may reason- ably be suppose^ that but for such misdescription the purchaser might never have entered into the contract at all,^ in such case the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation." The rule in Flight v. Booth ^ has been repeatedly recognised and followed in Courts of Equity, and its importance in relation to the main question under consideration lies in the fact that the contract contained an express provision for compensation ; see the principle of Bettini v. Gye, p. 75, supra. In In re Fawcett and Holmes^s Contract,^ Lord Esher, M.R., referring to this rule, said : "This is a negative proposition, but a pregnant one. If the error is of such consequence that it may be reasonably supposed that but for the misdescription the purchaser would not have bought, the error is not within the condition. In each case, therefore, the question depends on the view of the Court as to the importance of the mis- description." It may be observed that Lord Esher^s comment hardly does justice to the rule in Flight v. Booth.* That rule not only recognised that the right to rescind, or the right to compensation only, depended on the importance of the misdescription ; it prescribed a test by which the importance of the stipulation may be gauged, viz. the probable effect on the mind of the purchaser of the misdescription as an inducement to enter into the contract. In In re Davis and Cavey,^ Stirling, J., citing the rule in Flight V. Booth, said : " So even if the misrepresentation does not proceed from fraud, if it is in a material and substantial point the contract is avoided altogether. That, again, is a matter affectiag the validity of the contract." What was meant, no doubt, was that the defendant was dis- charged, but the relief granted was a declaration that the purchaser should not be compelled to accept the title, and he was left to bring an action for the return of the deposit. 1 The italics are the venter's. " 1 Bing. N.C. 370. ^ 42 c.D. 150. 4 Ante. = 40 C,D. 601, 608. 03 84 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I In Jacobs v. Revell} Buckley, J., after referring to KnatcJibull v. ^'^Pter V Grueber and In re Arnold, said : " At the root of cases of this class lies the decision of Tindal, C.J., in Flight v. Booth " ; and after reviewing that and the more recent decisions said : " I arrive at the conclusion of fact that the property which the vendors offered for sale was property a material part of which they had not got. The purchaser says that if he had known that these parts of the property were not included in the sale he would not have purchased. Therefore he is right and is entitled to rescind." In In re PucJcett and Smith's Contract ^ the rule in Flight v. Booth was again applied by the Court of Appeal. Reverting to the cases at law, a comparison of the principle stated in Bettini v. Gye ^ (the case of an executory contract) with the principle stated in the earlier decision, Kennedy v. The Pamama Mail Co.* (a case in which it was sought to 'rescind an executed contract for misrepresentation), suggests that the/ principle laid down in the first-mentioned case was an adoption or adaptation of the principle on which the Court had proceeded in the earlier case. If this be so, the distinction between an executory and an executed contract seems to have been overlooked, and the phrase ' going to the whole consideration ' used as descriptive of a breach or failure in performance appears to have a different meaning, when apphed to the case of an executed contract, from that which it has when applied to the case of an executory contract. In the earlier case of Kennedy v. The Panama Mail Co.^ it was sought to rescind a contract to take shares which had been actually allotted. The finding of the Court negatived fraud and the judgment proceeded : " There is, however, a very important difEerence between cases where a contract may be rescinded on account of fraud, and those in which it may be rescinded on the ground that there is a difEerence in substance between the thing bargained for and that obtained. It is enough to show that there was a fraudulent representation as to any 'part of that which induced the party to enter into the contract which he seeks to rescind, but where there has been an innocent misrepresenta- tion or misapprehension it does not authorise a rescission unless it is such as to show that there is a complete diiierence in substance between what was supposed to be and what was taken so as to constitute a failure of consideration." ' (1900), 2 Ch. 858, 864. ^ (1902), 2 Ch. 258. ' 1 Q.B.D. 183, « Ii3. 2 Q,B. 580, 5 Ante, THE TEST OF IMPORTANCE 85 And again, after citing illustrations from the Civil law, the Part I judgment proceeds : Chapter V " And the answers given by the great jurists quoted are to the effect that if there be a misapprehension as to the substance of the thing there is no contract ; but if it be only a difference in some quality or accident, even though the misapprehension may have been the actuating motive to the purchaser, yet the contract remains binding. . . . And we apprehend the principle of our law is the same as that of the Civil law ; and the dif6.culty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole consideration going as it were to the root of the matter or only to some point, even though a material point, an error as to which does not affect the substance of the whole consideration." [It may be here noted that, in Flight v. Booth, an error in a material point which might have been the ' actuating motive to the purchaser ' was held sufficient to discharge the purchaser from his obligation — ^the contract being executory.] If the principle laid down in Kennedy v. The Panama Mail Co. be compared with the principle in Bettini v. Gye it will be seen that, excepting as to the form of the expression, there is ■ little or no difference, notwithstanding that in the one case the contract was executory, while in the other it was executed. The principle in Bettini v. Gye is as follows : " We think we are to look at the whole contract and . . . see whether the particular stipulation goes to the root of the matter, so that a faUure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for ; or whether it merely partially affects it and may be corupensated for in damages. According as it is one or the other we think it must be taken to be or not to be intended to be a condition precedent." It will be observed that the effect which the broken stipulation may have had as the ' actuating motive ' or inducement to enter into the contract (which was broken while executory) is not con- sidered at all. It may be conceded that the principles of English law are the same as the principles of the Civil law so far as regards the rescission of an executed contract,^ but, as the Eoman lawyers were strangers * It should be noted that where the so-called performance is ' a thing different in substance from what the defendant has stipulated for,' the contract cannot be considered as having been executed. It has not been performed ; something else has been performed. This topic will be treated more fully in the chapter on Avoidance of Executed Contracts, fost. 86 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I to the doctrine of consideration as the same has developed and is Chapter V understood in English law, it follows that, so far as the principle governing the rescission of executory contracts depends on that doctrine, the Civil law can be of no practical assistance. AUemative Views of the Importance of the Stipulation Broken It has been submitted, that in order to gauge the importance of a breach of contract imile the contract is executory, for the purpose of seeing whether the party not in default is discharged, we should look at the stipulation broken from the point of view of its probable effect or importance as an inducement to enter into the contract. This contention is expressly supported by such cases at law as Flight v. Booth ^ and Bannerman v. White,^ and, implicitly, by such cases as Hoare v. Rennie ^ and Bowes v. Shand.^ It is also sup- ported by the principle, in equity, that if an inducement to enter into a contract (be it a representation or be it a promise) ^ be not fulfilled, the contract, if executory, may be avoided. Let us now consider what alternative tests of importance may be suggested on the authorities. (a) In Poussard v. Spiers * the actual result of the breach on the interest, under the contract, of the party not in default seems to have been adopted as the test of impor- tance ; while ^ (b) in Bentsen v. Taylor, "> as in Simpson v. Crippin,^ the probable effect of the breach on such interest seems to have been treated as the criterion. Both of these tests have this in common : they depend on the interpretation of the contract from the point of view of the effect of breach either actual or probable, and not from the point of view of expected performance, as consideration or inducement. As a rule, parties make contracts with a view to their per- formance, and not with a view to their breach, and, unless it is plain that the parties have contemplated the possibility of a par- ticular breach, and have provided for rescission accordingly, it is of little real assistance to conjecture about the intention of the parties as to what is to happen if a particular stipulation is broken. » 1 Bing. N.C. 370. ' 10 C.B. N.S. 844. 3 6 H. & N. 19. ■ « 2 A.C. 455. ^ Anson's Law of Contract, 13th Edn., 180, et seq. « 1 Q.B.D. 410. ' (1893), 2 Q.B. 274. » L.R. 8 Q.B. 14. THE TEST OF IMPORTANCE 87 The intention of the parties in such a case is usually evidenced by Part I the insertion of an express provision for rescission, or a declaration Chapter V that a particular term shall be of the essence of the contract. A provision of this kind may be treated as implying a resolutive condition, as readily as it may be treated as implying a condition precedent. If a stipulation is not a condition precedent according to the well-known rules,i a declaration that it is an essential term will certainly not make it a condition precedent. Such a declara- tion may, however, imply a right of rescission on breach, or justify the conclusion that the contract is discharged by the breach of such stipulation. It is true that, in the cases just cited as illus- trating both the alternative tests of importance, the inquiry appears to have proceeded on the basis that the question depended on whether the stipulation broken was a condition precedent. But the tests apphed, particularly in Poussard v. Spiers ^ and in Bentsen V. Taylor,^ were not the well-known tests embodied in the rules laid down in the notes to Pordage v. Cole,^ but tests which show that the term ' condition precedent ' was being used in the wider sense. It is not open to doubt that the question whether or not a stipulation is a condition precedent depends on the intention of the parties. But what is called a ' condition precedent ' in Poussard v. S'piers ^ and Bentsen v. Taylor * is plainly not a condition precedent in the sense which depends on the intention of the parties. The mind of the Court in the cases just referred to was directed to an inquiry as to the degree of importance of the stipulation broken. It is difficult to see any relation between the importance of a stipulation and the intention of both parties, unless we are looking for an express or imphed power of rescission, as distinguished from discharge for failure of consideration. If the question be, as stated in Poussard v. Spiers,^ whether a par- ticular breach is ' a sufficient failure of consideration to set the defendants at liberty,' ® and if that question, in turn, depends on the importance of the stipulation broken, the further question naturally arises— important to whom ? The answer to that question must be : ' Important to the party not in default.' When the cases just referred to, and the case of Behn v. Bwness,^ are examined, they reveal the fact that the inquiry as to importance actually proceeded on this basis. But the importance of the breach, in its results, seems to have been considered, rather than 1 Roberts v. Brett, 11 H.L.C. 337. ' 1 Q.B.D. 410. 3 (1893), 2 Q.B. 274. * See p. 56, ante. 5 The italics are the writer's. « 3 B. & S. 751. 88 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I the importance of the stipulation qua consideration (or induce- Chapter V ment), which was alleged to have failed. Any importance of the stipulation to the party in default, or its importance from his point of view, can have no bearing on the question how far the stipula- tion operated as consideration or inducement to the other party to enter into the contract. Therefore the intention of both parties, based upon the importance of the stipulation, is not relevant to the inquiry. Let us bear in mind that the principles of condition precedent (in the strict and proper sense) and consideration are diverse, the one depending on the intention of both parties, the other operating as the actuating motive (inducement) of one only, in entering into the contract. In Poussard V. Spiers ^ the Court proceeded to ascertain this intention of the parties by considering the actual results of the breach which had taken place. To ascertain the intention of the parties in making a contract, by reference to matters ex post facto, is hardly to proceed according to recog- nised canons of construction. On this point Lord Shaw of Dun- fermline, in giving judgment in Wallis v. Pratt,^ is reported as follows : " My Lords, the only other observation I desire to make is that I view with some suspicion, if not with repugnance, any system of construing a contract ex fast facto. In the case of Ellen v. Topf ^ that very learned Judge Pollock, G.B., observed : ' It is remarkable (and indeed it would be remarkable) that according to this rule the construction of the instrument may be varied by matter ex post facto.' My Lords, who ever heard in a commercial contract of construing the meaning of two business men by a principle of that kind ? I cannot agree with the opinion in Ellen v. Topp ^ ; that opinion in my judgment is no part of Enghsh law. I think it is a safer thing to construe this document as it was originally meant to be construed — that is to say, according to the evident intention of the contracting parties at the time the bargain was made." * In Behn v. Burness ^ the Court said : " But we feel a difficulty in acceding to the suggestion which appears to have been, to some extent, sanctioned by high authority (see Dimech v. Corlett *), that a statement of this kind in a charter party, which may be regarded as a mere representation if the object 1 1 Q.B.D. 410. 2 (1911), A.C. 394. » 6 Exch. 424, 441. ' Sir Frederick Pollock, in a note in 28 L.Q.R., p. 412, points out that the rule criticised by Lord Shaw and also by Chief Baron Pollock in Ellen v. Topp was held, by the whole Court in that case, not applicable. ' 3 B. & S. 751. 8 12 Mo. P.C.C. 199. THE TEST OF IMPORTANCE 89 of the charter party be still practicable, may be construed as a warranty Part I if that object turns out to be frustrated : because the instrument, it Chapter V should seem, ought to be construed with reference to the intention of the parties at the time it was made, irrespective of the events which may after- wards occur." ^ Citriously enough, it appears by the judgment in Poussard v. (Spiers 2 that the Court, while inquiring whether the breach was a breach of a condition precedent, proceeded at the same time to deal with the case as one of failure of consideration. In order to ascertain whether a breach is the breach of a condition precedent, the whole question turns on what was the intention of the parties at the time the contract was made, and if the Court is satisfied that the stipulation broken is a condition precedent, it becomes quite unnecessary to consider how far it is also a failure of con- sideration. If the stipulation broken is not a condition precedent (or concurrent), in the strict and proper sense, then the question of the intention of both parties ceases to be relevant. The question then arising is : Does the breach constitute a sufficient failure of consideration ? Even if it be proper to consider the probable or actual consequences of the breach, in order to determine whether the broken stipulation is important, its importance to the party not in default is the criterion, not the intention of both. And, in an inquiry on this point, it is not even his intention so much as his motive in contracting with which we are concerned. The importance of the broken stipulation to the party in default is altogether beside the question. In other words, the inquiry must be : How far did the broken stipulation afford ' an actuating motive ' to the party not in default to enter into the contract ? Was it a material inducement ? If it was, then, the inducement having failed, there is a sufficient failure of consideration, the contract being executory. Bentsen v. Taylor ^ is one of the latest cases in which the term ' condition precedent ' is used in the extended sense, and the judgments of their Lordships, Lord Esher, M.R., and Bowen, L.J., adopt the principle of Behn v. Burness.* Lord Esher says : " The case of Behn v. Burness ^ supphes a canon of construction. In my opinion the present case falls within the canon there laid down. The statement is a substantive part of the contract, and we ought to hold it to be a condition precedent unless we can find in the contract itself or the surrounding circumstances anything to lead us to a contrary conclusion." 1 The italics are the writer's. ^ 1 Q.B.D. 410. » (1893), 2 Q.B. 274. 4 3 B. & S. 751. 90 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I The plain meaning of this statement is that the breach of any Chapter V substantive part of a contract is presumed to be a breach of a condition precedent (in the extended sense). Lord Esher was certainly not applying the rules in the notes to Pordage v. Cole,^ and what he was treating as a condition precedent was really failure of consideration in disguise. He says, in effect, what Lord Cairns is reported to have said in Bowes v. Shand ^ : " The non-fulfilment of any term in any contract is a means by which a purchaser is able to get rid of the contract when prices have dropped " (unless, of course, the breach is unimportant). Lord Justice Bowen, in his judgment in Bentsen v. Taylor,^ said : " Of course, it is often very difficult to decide, as a matter of con- struction, whether a representation which contains a promise, and which can only be explained on the ground that it is in itself a substan- tive part of the contract, amounts to a condition precedent or is only a warrantyw There is no way of deciding that question except by looking at the contract in the light of the surrounding circumstances, and then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is reUeved of his liability. In order to decide this question of construc- tion, one of the first things you would look to is to what extent the accuracy of the statement — the truth of what is promised — would be likely to affect the substance and foundation of the adventure which the contract is intended to carry out. There, again, it might be neces- sary to have recourse to a jury. In the case of a charter party it may well be that such a test could only be applied after getting the jury to say what the efiect of a breach of such a condition would be on the substance and foundation of the adventure ; not the efiect of the breach which has in fact taken place, but the efiect Ukely to be produced on the foundation of the adventure by any such breach of that portion of the contract." The distinction between this mode of ascertaining the intention of the parties a^d the mode adopted in Poussard v. Spiers * seems hardly sufficient to mark a difference in principle. The importance of the stipulation in each case was weighed, and was ascertained by reference to the gravity of the breach. With the greatest deference to the expressed opinion of so great a judge as Lord Justice Bowen, it is submitted that the importance of the breach (or, to use Lord Justice Bowen' s words, " the effect likely to be produced on the foundation of the adventure by any such breach 1 See p. 56, ante. ^ 2 A.C. 456. ' (1893), 2 Q.B. 274. « 1 Q.B.D. 410. THE TEST OF IMPORTANCE 91 of that portion of the contract ") throws little hght on the intention Part I of the parties, but the importance of the stipulation, as something Chapter V to be performed, not broken, may plainly have operated as an induce- ment to the party not in default to undertake the obligations of the contract. The learned judge said : " One of the first things you would look to is to what extent the accuracy of the statement — the truth of what is promised — would be likely to affect the substance and foundation of the adventure which the contract is intended to carry out." Had his Lordship substituted for the words in italics, the words " to operate as an inducement or consideration to the party not in default to enter into the contract," he would have proceeded on the principle of Flight v. Booth,^ Bannerman v. White,^ and Bowes V. Shand.^ Let us apply to the facts in Bentsen v. Taylor * either the prin- ciple of equity, that a contract may be avoided while executory if induced by an innocent misrepresentation, or the principle of Bannerman v. White.^ The charter party contained a statement or misrepresentation describing the ship as " now sailed or about to sail from a pitch-pine port to the United Kingdom," and it was the untruth or non-fulfilment of this representation on which the defendant rehed. Let us assume that the representation had not been actually embodied in the contract, but was made and was acted upon as a material inducement to enter into the contract. The effect of the transaction is the same in both cases. Had the defendant proceeded in equity (assuming the representation not to have been inserted in the contract) he would, on proof (1) That the representation was made, (2) That it was untrue in fact (though made innocently), (3) That it was material and induced the contract,^ have been entitled to avoid the contract on the ground of the failure of material inducement. It would not be necessary for him to launch his case in the cross- currents of condition precedent, or to show that the failure went ' to the whole consideration ' or ' to the root of the contract.' Nor would any question arise as to the intention of both parties. He would simply have to show a failure of inducement, or, what is 1 1 Bing. N.C. 370. = 10 C.B. N.S. 844. 3 2 A.C. 455. * (1893), 2 Q.B. 274. 5 Anson's Law of. Contract, 13th Edn. 184. 92 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I the same thing, a failure of an element of the consideration which Chapter V operated as an inducement. The natural consequences of a breach are, of course, necessary to be considered in assessing damages for that breach ; but it is difficult to see how the contemplation of the actual or probable consequences of a breach can assist, either, in ascertaining the intention of the parties at the time of making the contract, or in ascertaining whether the stipulation broken was likely to have operated as a material inducement to enter into the contract. It is submitted that the sound view of the question is — ^not what would be the effect of a breach, but what effect would the expecta- tion of performance or fulfilment of the promise or representation naturally have had upon the mind of the party not in default, as affording an actuating motive to enter into the contract — in other words, as an inducement or consideration. In the absence of anything in the contract to the contrary, we are entitled to presume that the parties, on making the contract, contemplated performance, and we are then to weigh the value of the stipulation expected to be performed, as consideration or inducement for the promises of the party not in default. It is this point of view, and this point of view only (as at the time when the contract was made), with which we are concerned on any question of failure of consideration while the contract is executory. The intention of both parties is only material when considering the alternative question — whether the stipulation broken was or was not intended to be a condition precedent in the proper sense of that term, or, if the contracli expressly provided for breach, whether both parties intended that the breach should afford ground for rescission. In Behn v. Burness ^ the Court in its judgment said : " A statement is more or less important in proportion as the object of the contract more or less depends upon it." This, it is submitted, is hardly a safe or an exhaustive test of the importance of a stipulation for the purpose of determining whether a party claiming to be discharged by breach of an executory contract is discharged for failure of consideration. There may, no doubt, be stipulations the importance of which to the parties affected would be obvious to both parties from the outset. But there may, equally well, be stipulations the real and vital import- ance of which to the party affected may be known to him alone. As Lord Hatherley sadd in his judgment in Bowes v. Shand : ^ ' 3 B. & S. 751. 2 2 A.C. 455 THE TEST OF IMPORTANCE 93 " It is imjiossible to know all the causes which have induced the Part I persons to put words into a contract. If the words have a certain Chapter V definite meaning it is dangerous to depart from that meaning until you can arrive at any sound ground upon which you should do so ; it is dangerous to depart from it upon a conjecture that it can make no diSerence to the parties." In the same case Lord Cairns said : " My Lords, if that is the natural meaning of the words, it does not appear to me to be a question for your Lordships or for any Court to consider whether that is a contract which bears upon the face of it some reason, some explanation, why it was made in that form, and why the stipulation was made that the shipment should be during these particular months. It is a mercantile contract, and merchants are not in the habit of placing upon their contracts stipulations to which they do not attach some value and importance, and that alone might be a sufficient answer." It must constantly happen, that one party to a contract is careful not to reveal to the other all the advantages which he anticipates will accriie to him from performance. It may be that, as in the case of the purchase of raw materials, the purchaser is under contract to deliver manufactured articles within a given time, and is depending on supplies from the vendor, or in the case of the purchase of a cargo, as in Bowes v. Shand,^ he may have to fill other contracts on special conditions from such cargo, or a person may buy a property having some feature of special value to him, a revelation of which to the vendor might unduly excite his cupidity. It is true that, unless special circimistances are brought to the knowledge of the vendor, the measure of damages for breach may be afEected,* and, so far as regards the question of damages, the consequences of a breach, naturally to be contem- plated by the parties, may be proper matter for consideration. But it seems to be manifest that, for the purpose of discharge of an executory contract by breach, the importance of the stipulation, qica inducement or consideration to the party not in default, is the criterion of importance of the broken stipulation. The importance of a particular stipulation can only have an indirect, if any bearing on the question whether the parties intended that the stipulation should be a condition precedent. It is plain that if the parties intended that the performance of a particular stipulation by one of them should precede in point of time the performance of the obligation by the other, the importance of » 2 A,C. 455. ' Badley v. Baxendale, 9 Excb. 341, 94 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I the fiist-mentioned obligation is immaterial. In Bettini v. Gye,^ Chapter V Mr. Justice Blackburn, in delivering judgment, said : " Parties may think some matter, apparently of little importance, essential, and if they sufficiently express the intention to make the literal fulfilment of such a thing a condition precedent it will be one." Although it is plain from a perusal of this judgment that ' con- dition precedent ' was used throughout in the sense of ' essential term ' or ' important part of the consideration,' the quotation is plainly applicable, reading ' condition precedent ' in its primary sense. That there is no real relation between the intended order in time of performance of the various stipulations in a contract and their importance is fairly obvious.^ The reader will find it interesting to compare the test of condi- tion precedent as laid down in Bentsen v. Taylor ^ or in Behn v. Burness * with that laid down in Bettini v. Gye ^ and in Poussa/rd v. Spiers.^ In each case the Court is, evidently, really deahng with failure of consideration and not with condition precedent properly so called. The effect of Bentsen v. Taylor and Behn v. Burness is that every substantive part of a contract — ^in other words, every term of a contract — is to be treated as a condition precedent, and must be performed unless it appears that the parties have intended otherwise. In Bettini v. Gye the presumption seems to be the other way, and performance is required only of a term which the parties intended to be a condition precedent according to the pecuhar definition of that term in the judgment. In Bettini V. Gye we find the breach of a simple contract treated practically as if it were a breach of covenant, while in BeJin v. Burness and Bentsen v. Taylor we do not find the question of independent stipulation raised. Although Bettini v. Gye was the case of an executory contract from which the defendant had derived no benefit, the principle adopted by the Court in that case is, in effect, the same as the principle adopted in Kennedy v. The Panama Mail Co.,^ which embodies the law as to rescission of contracts which have been executed. It is plain that the principle applicable to the discharge of an executory contract for breach must, of necessity, be different from that appUcable to the rescission of an 1 1 Q.B.D. 183. ' Rules in the notes to Pordage v. Cole, p. 56, ante ; Roberts v. Brett, 11 H.L.C. 337. = (1893), 2 Q.B. 274. " 3 B. & S. 751. = i q.b.D. 410 9 L,R. 2 9.B. 580, THE TEST OF IMPORTANCE 95 executed contract. Extracts from the judgments in these two Part I cases, showing the identity of the principles appUed, will be found Chapter V at p. 84, ante. It has been submitted that the principle on which contracts may be avoided, while executory, for non-fulfilment of an innocent misrepresentation inducing the contract, is in reahty the principle of failure of consideration (viewed as inducement). Further, it is submitted that there is no difference between such principle and the principle of discharge by breach on the ground of failure of consideration, excepting in matters depending on the onus of proof. In Behn v. Burness ^ and in Bentsen v. Taylor ^ the representation was, in each case, embodied in the contract ; it was a substantive part of the contract — in other words, a term of the contract — and, in effect, a promise that the representation was true.' It therefore appeared, on the face of the contract, to be part of the consideration for the promises of the party not in default. It was, by reason of its being a substantive part of the contract, and by reason of its importance, presumed by the Court to be a term the non-fulfilment of which discharged the party not in default. It lay, therefore, on the party in default to show its unimportance. Had the representation, in either case, not been inserted in the contract, but made and acted upon as an inducement to the contract, the transaction between the parties would have been in substance, though not in form, the same. In the latter case, however, the onus of proof would have been on the other side. The party not in default, in order to avoid the contract, would have had to establish (1) the making of the representation, (2) its non-fuliilment, (3) that it was a material inducement to the contract. In the leading case of Flight v. Booth * it was deemed sufficient, in order to treat the contract as avoided, that the misdescription might have induced the contract. In Bowes v. Shand,^ Lord Cairns and Lord Hatherley refused to weigh the importance of an express term which the parties had dehberately agreed to. In The Bank of China v. The American Trading Co.,^ Lord Watson, in delivering the judgment of the Judicial Committee, said : " The circimistance that one of the conditions of a contract only affects part of the consideration is not per se sufficient to make it collateral to the main contract. It is capable of being so construed, 1 3 B. & S. 751. ^ (1893), 2 Q.B. 274. » Anson's Law of Contract, 13th Edn. 174. * 1 Bing. N.C. 370. 6 2 A.C. 453. ° (1894), A.C. 266, 271. »6 EXECUTORY CONTRACTS : DISCHARGE BY BREACH Part I but cannot be so regarded, unless it also appear that the condition Chapter V was not intended ^ by the parties to go to the root of the whole contract." What is meant, no doubt, is that it must lie on the party so contending to show that a condition expressly part of the considera- tion does not go to the root of the contract. With regard to the use of the expression ' collateral to the main contract,' it may be observed that distinctions are sometimes drawn between the non-fulfilment of a term of a contract as to the quality of the thing contracted for and a failure to deUver the thing itself. It is conceived that, however important this distinction may be where the contract has been executed, the question whether the term is or is not collateral does not similarly arise in the case of an executory contract. It is plain that the breach of a warranty of quality while the contract is executory wiU discharge a purchaser. This is clearly laid down in Street v. Blay,^ and was reiterated by Bovill, G.J., in the judgment (in which Byles, J., concurred) in Heilbutt v. HicJcson,^ as follows : " In the case of executory contracts, where the goods are not ascertained, or may not exist at the time of the contract, from the nature of the transaction no property in the goods can pass to the purchaser by virtue of the contract itself ; but where certain goods have been selected and appropriated by the seller, and have been approved and assented to by the buyer, then the case stands, as to the vesting of the property, very much in the same position as upon a contract for the sale of goods which are ascertained at the time of the bargain." " In cases of executory contracts where there is a warranty of quality, the purchaser is not only not bound to receive the goods unless they correspond with the warranty, but, even after they have been delivered by the vendor, may reject them on discovering the defect. It is, however, generally necessary, in order to enable the purchaser to recover back the price which he may have paid for the goods, that he should not have done more than was necessary for a fair trial of them, or for the purpose of examination and comparison, and also that he should reject the goods within a reasonable time, and that he should not have done any act to alter the position of the vendor, or, as was said by Park, J., in Street v. Blay,^ to delay the return of the goods." The representation in Bannerman v. White * was a collateral stipulation as to quality, and though it was apparently outside 1 The italics are the writer's. « 2 B. & Ad. 456. ': ' ^'M 9 L.R. 7 C.P. 438. « 10 C.B. N.S. 844. * T THE TEST OF IMPORTANCE 97 the actual contract, its non-fulfilment discharged the purchaser Parti of the hops. The decision in Bannerman v. White ^ may be said Chapter v to constitute the Link between the cases at law and the cases in equity. In cases of contracts coming within the Sales of Goods Act special considerations may arise, in view of the language of the statute. The mixed question of fact and law, whether goods delivered in purported pursuance of a contract for sale are really the goods agreed to be sold, defective only in respect of some warranted quahty, or are so essentially different in description that the dehvery is not a performance of the main purpose of the contract at all, has created much difficulty : see Varley v. Whiff ; ^ Chanter v. Hofkins ; ^ Azemar v. Casella. * Questions of this kind are, however, beside the immediate topic now under dis- cussion, in which it is sought to emphasise the consequences of the breach of an executory as distinguished from an executed contract. This distinction, important though it be, has not invariably been observed. 1 10 C.B. N.S. 844. 2 (1900), 1 Q.B. 513. = 4 M. & W. 399. ' L.E. 2 C.P. 431, 677. H CHAPTER VI Parti Chapter Yi Discharge of partly executed contracts The learned editors of successive editions of Smith's Leading Cases have, in the notes to Cutter v. Powell,^ propounded two branches of the general question : " In what cases may an action be brought by a person who has entered into a special contract, against the person with whom he has contracted, while his own side of the contract remains unperformed ? " These two branches are : 1. In what cases may an action be brought upon special assump- sit, or, in other words, upon the contract itself ? 2. In what cases may it be brought in indebitatus assumpsit ? The first branch is dealt with shortly in the notes to Cutter v. Powell,^ but the learned editors say : " The first branch it would be wrong to discuss here at length, because it has been treated by Serjeant Williams in that clear and satisfactory style which distinguished his writings, in the notes to Pordage v. Oole, 1 Wms. Saund. 319?, and Peeters v. Opie, 2 id. 346." " Unfortunately, the current or, if one may say so, the cross- currents of authority, since the first edition of Smith's Leading Cases was published, have revealed more than one view of the de- cisions on which some of the notes to Pordage v. Cole were based. It becomes, therefore, necessary to consider how far these notes may be taken as a guide to the solution of the first branch of the question. It is to be observed that Pordage v. Cole was an action upon a specialty, and the notes in Williams' Saunders are primarily in- tended as dealing with contracts under seal. The well-known rules stated in these notes, as a guide in ascertaining the intention of the 1 See notes to Cutter v. Powell, 2 S.L.C. 1. " The paging given is that of the sixth edition (1845) ; in the edition of 1871 the references are Pordage v. Cole, 548 ; Peeters v. Opie, 742. 98 DISCHARGE OF PARTLY EXECUTED CONTRACTS 99 parties as to the order in time of performance of covenants, will Part I doubtless continue to be held in respect, but it is apparent, from Chapter vi an examination of the decisions extending over the last 100 years, that some of the propositions laid down by the learned editor of these reports have, when appUed to actions on simple contracts, been the cause of some confusion. It is not open to question that, so far as regards conditions (precedent and concurrent) and dependent stipulations, the rules for ascertaining the intention of the parties are the same, whether the contract be under seal or not ; but so far as regards independent stipulations, it has already been pointed out ^ that the consequences of breach, in the case of a contract under seal, are different from the consequences of breach of a simple contract. On the threshold of the question of discharge of partly executed contracts, for breach, failure or inability to perform, we find a line of cases based on a proposition in the notes to Pordage v. Coh,^ which, as there stated, and as stated in more than one judgment of apparently high authority,^ seems clearly to be in direct conflict with the principle of Cutter v. Powell * itself. Cutter v. Powell * was the case of a contract partly executed by one party, of which part execution the other party had received the benefit, and yet was held not to be liable to pay anything for it. The principle of Cutter v. Powell * may, it is submitted, be correctly stated as follows : Where an entire sum is agreed to be paid for the complete performance of a particular consideration, so that complete performance is a con- dition precedent to the right to any payment, the whole considera- tion must be performed before the sum is recoverable, and no action is maintainable, on the contract, for a part of the entire sum, based on part performance; nor will part performance alone support an action in indebitatus assumpsit. The principle laid down in the notes to Pordage v. Cole,^ which is apparently in conflict with this decision, is stated in the notes in two forms. First, in the main notes ^ — " Hence it appears that the reason of the decision in these and other similar cases, besides the inequality of the damages, seems to be that where a person has received a part of the ^ Ante, p. 60. ^1 Wms. Saunders, 548. " See Graves v. Legg, 9 Exch. 709, 716; Behn v. Burness, 3 B. & S. 751 , 75.5 ; Pust V, Dome, 5 B. & S. 33, 37, 38. In this case the difficulty was got over by treating the proposition in question as applicable to divisible contracts. It is plain that the contract in Boone v. Eyre, on which the proposition was founded, was an entire contract. * 2 S.L.C. 1. ^1 Wms. Saunders, 1871 Edn. 655. e2 100 DISCHARGE BY BREACH Part I consideration for which he entered into the agreement, it would be Chapter YI mi'just that because he has not had the whole, he should therefore be permitted to enjoy that part without either paying or doing anything for it. Therefore the law obliges him to perform the agreement on his part, and leaves him to his remedy to recover any damage he may have sustained in not having received the whole consideration. And hence it seems it must appear upon the record that the consideration was executed in part." In a footnote to Rule 3 ^ it is stated thus : " When it appears that the consideration has been executed in part, that which was before a warranty or condition precedent loses the character of a condition, or, to speak more properly, ceases to be avail- able as a condition, and becomes a warranty in the narrower sense of the word, viz. a stipulation by way of agreement, for the breach of which a compensation must be sought in damages." According to the modern view of cases of this class, the apparent conflict between these propositions and the principle of Cutter v. Powell creates no difficulty, because the right to recover for part performance of an entire contract where complete performance is a condition precedent, depends, not on the part performance having been merely received, but on its having been accepted (when it might have been rejected and complete performance insisted upon) ; in other words, there must be evidence of waiver of com- plete performance. The cases illustrating this view of the matter will be considered presently. In some of the older cases,* how- ever, the rule as stated in the notes to Pordage v. Cole seems to have been adopted literally, and the true underlying principle of acceptance involving waiver developed later. The influence of this curious statement of the rule upon the current of the earlier decisions, in actions on simple contracts, seems to be to some extent respon- sible for the difficulty which has arisen on the question of discharge of executory contracts for breach.^ 1 1 Wms. Saunders, 1871 Edn. 554. 2 See Graves v. Legg, 9 Exch. 709, 716 ; Behn v. Burness, 3 B. & S. 751, 755 ; Pust V. Dmvie, 5 B. & S. 33, 37, 38. ' From the rule as laid down in the notes to Pordage v. Cole — that partial performance will entitle a contractor to sue on the contract- — it seems to have been naturally inferred that partial failure in performance by one party will not discharge the other. No doubt, if the rule, as stated, held good, the inference would necessarilv follow. But this inference has not been apphed without qualifications; see particularly the judgments in Bettini v. Gye, 1 Q.B.D. 183, and Simpson v. Crippin, L.R. 8 Q.B. 14, in which simple con- tracts were treated as if they were specialties, and executory contracts as if they had been substantially executed. OF PARTLY EXECUTED CONTRAbT^ 101 It is strange that this should be so, seeing that in another note ^ Part I to the rules in Pordage v. Cole the principle governing discharge by Chapter VI breach of a simple contract (failure of part of the consideration) is plainly stated as follows : " Where the consideration for the payment of money is entire and indivisible, as where the benefit ex'pected by the defendant under the agreement is to result from the enjoyment of every part of the considera- tion jointly, so that the money payable is neither apportioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if any part of the consideration has failed ; for, being entire, by failing partially it fails altogether." This principle is consistent with that of Cutter v. Powell, but is appUcable to a wider range of cases. It is deduced from the judgment in Chanter v. Leese,^ which was the case of an action brought on an executory contract. The distinction between executory and executed contracts has, however, not always been observed in actions involving the question of discharge by breach. The leading decision to which much of the difficulty can be traced is the case of Boone v. Eyre,^ cited in the notes to Pordage v. Cole, as illustrating the effect of part performance according to the rule there laid down. The action in Boone v. Eyre was in covenant on a deed whereby the plaintiff conveyed to the defendant the equity of redemption of a plantation in the West Indies together with the stock of negroes upon it, in consideration of £500 and an annuity of £160 per annum for life. The plaintiff sued for payment of the annuity, and the defendant pleaded that the plaintiff was not, at the time of making the deed, legally possessed of the negroes on the plantation and so had not a good title to convey. To this plea there was a general demurrer. Lord Mansfield, in giving judgment, is reported to have said : " The distinction is very clear: where mutual covenants go to the whole consideration on both sides, they are mutual conditions, the one precedent to the other. But where they go only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent. If this plea were to be allowed, any one negro not being the property of the plaintiff would bar the action." 1 1 Wms. Saunders, 554, 555. " 5 M. & W. 698 ; see p. 42, ante. ' 1 H.Bl. 273 n. (o) ; 2 W.Bl. 1312 n. («). 102 DISCHARGE BY BREACH Part I It appears from the judgment in Campbell y. Jones ^ that Chapter VI Ashurst, J., also delivered a judgment in Boone v. Eyre as follows : " There is a difference between executed and executory covenants ; here the covenants are executed in part, and the defendant ought not to keep the estate because the plaintiff has not the title to a few negroes." In Ellen v. Topp,^ which was also an action in covenant, Boone v. Eyre was discussed. Pollock, C.B., in delivering the judgment of the Court, said, with regard to the rule above quoted ^ from the main notes to Pordage v. Cole : " It is remarkable that, according to this rule, the construction of the instrument may be varied by matter ex post facto* and that which is a condition precedent when the deed is executed may cease to be so by the subsequent conduct of the covenantee in accepting less : as in the cases referred to, the defendant in the first ^ might have objected to the transfer, if the plaintiff had no good title to the negroes and refused to pay; But this is no objection to the soundness of the rule which has been much acted upon. But there is often a difficulty in its application to particular cases, and it cannot be intended to apply to every case in which a covenant by the plaintiff forms only a part of the considera- tion, and the residue of the consideration has been had by the defendant. That residue must be the substantial part of the contract ; * and if, in the case of Boone v. Eyre, two or three negroes had been accepted, and the equity of redemption not conveyed, we do not apprehend that the plaintiff could have recovered, and left the defendant to recover damages for the non-conveyance of it." The judges then held in the case before them that, as they were not satisfied that the substantial part of the contract had been per- formed, the rule in question was not applicable. The opinion of the Court as expressed in Ellen v. Topp liinits the application of the rule in two particulars, and, indeed, alters the principle of it. The judgment finds that : (a) The part performance must, in order to support an action on the contract, be of the substantial part of the contract.' 1 6 T.R. 57. " 6 Exoh. 424. ' Ante^ p. 99. * See p. 88, ante. ^ Boone v. Eyre. ° See Olazebrook v. Woodrow, 8 T.R. 366, per Orose and Le Blanc, J J., and Carpenter v. Cresswell, 4 Bing. 409, per Park, J. '' The doctrine of substantia,! performance seems to be firmly established in America (at all events in most of the States). In Bowen v. Kimbell, 203 Mass. 364, the Court contrasts what is really the Engh'sh principle with the American rule, as follows : OF PARTLY EXECUTED CONTRACTS 103 (6) The benefit of part performance must have been, not Parti merely received, but accepted by the defendant, so that Chapter VI that which is a condition precedent in the contract ceases to be such ' hy the subsequent conduct of the covenantee in accepting less.' ^ " Formerly it was generally held that a contractor could not recover unless there was a complete performance of the building contract or a waiver as to the part not performed, and that he could not recover on a quantum meruit, after a partial performance from which the owner had received a benefit unless there had been such subsequent dealings as would create an implied contract to pay : Smith v. Brady, 17 N.Y. 173 ; [72 Am. Dec. (An. ed.) 442], Sumpter V. Hedges (1898), 1 Q.B. 673. But in the most of the American States a more liberal doctrine has been established in favour of contractors for the erection of buildings, and it is generally held that if a contractor has attempted in good faith to perform his contract, and has substantially performed it, although by inadvertence he has failed to perform literally, he may recover under the contract with a proper reduction to the owner for the imperfections or omis- sions : Woodward v. Fuller, 80 N.Y. 312 ; Oberlies v. BalUnger, 132 N.Y. 598, etc. It would seem that in cases of this kind, where the plaintiff recovers, under the contract, the contract price less the deductions, he ought to aver, not absolute performance, but substantial performance and a right to recover only the balance after allowing the owner a proper sum for the failure : Spence V. Ham, 163 N.Y. 220. " The rule very generally adopted is, that to entitle the plaintiff to recover he needs only show that he proceeded in good faith, and the result was a sub- stantial performance." In Pinches v. Swedish, etc., 55 Conn. 183, the Court said : " The equitable doctrine of substantial performance is intended for the protection and relief of those who have faithfully endeavoured to perform their contracts in all material and substantial particulars, so that their right to compensation may not be forfeited by reason of mere technical, inadvertent, or unimportant omissions or defects. It is incumbent on him who invokes its protection to present a case in which there has been no wilful omission or departure from the terms of the contract. If he fails to do so the question of substantial performance should not be submitted to the jury." The American doctrine bears a strong resemblance to the English principle of specific performance with compensation. One may con- ceive a possible departure from the present English rule in cases of strict condition precedent (as to the necessity for waiver of complete performance in order to enable a contractor to sue on the contract for substantial performance), in cases where complete performance is im- possible, and the failure to perform is consistent with good faith. Cases of recovery on the contract for substantial performance in the absence of waiver will be considered presently. 1 The italics are the writer's. 104 DISCHARGE BY BREACH Part I It is conceived that there is no objection to this statement Chapter VI qJ ^j^g jg^^^ jf j^ means that the defendant by his waiver of the condition is estopped by his conduct from relying on the condition precedent as such. In Munro v. Butt,^ where there was substantial performance, Lord Camfbell, C.J., deHvering the judgment of the Court, said : " If, the failure in complete performance being very slight, the defendant had used any language, or done any act, from which acquiescence on his part might reasonably have been inferred, the case would have been very difierent. Here there was nothing of the kind ; the reliance of the plaintifi was simply on the defendant's possession. " We are pressed, of course, with the argument of hardship ; it was said to be unjust that the defendant should enjoy the labour expended and materials furnished by the plaintifE. The argument of hardship in a particular case is always a dangerous one to listen to ; but in truth there is neither injustice nor hardship in the rule with its qualification : it holds men to their contracts ; it admits from circumstances the substitution of new contracts." Munro v. Butt ^ followed the principle of Cutter v. Powell,^ which is a direct contradiction of the rule as stated in the notes to Pordage v. Cole above cited.* These two cases of Cutter v. Powell ^ and Boone v. Eyre * were rehed upon by the respective parties in Carter v. Scargill.^ The Court in this case apparently appUed the rule based on Boone v. Eyre as Umited by the judgment in Ellen v. Tofp. The Court said : " The answer'is obvious, that in the interval between the date of the agreement and September 30, and before taking possession, or within a reasonable time, he might have ascertained whether the condition he now alleges to be precedent was capable of being performed or not, and might, as soon as this was ascertained, have repudiated the agreement, and returned any portion of the consideration which he might have received in the meantime. Instead of doing so, he entered into posses- sion of, and carried on, and sold the business, and the fair inference is, either that he satisfied himself at the time that in substance the condi- tion was capable of being performed, or that he was indifierent whether it was or was not, and that the agreement was of sufficient value to him for other reasons as to make it worth his while that it should be per- formed and acted upon. We come therefore to the conclusion that that which might have been a condition precedent has ceased to be so by the defendant's subsequent conduct in accepting less than his bargain, if, in fact, there was any substantial deficiency." 1 8 E. & B. 738. * 2 S.L.C. 1. ^ ^ntc, p. 99. ' 1 H.Bl. 273ra. (a) "■ L.R. 10 Q.B. 564. OF PARTLY EXECUTED CONTRACTS 105 The facts in Carter v. Scargill ^ are identical in principle with those Part I in Boone v. Eyre,^ and, had the judgment in that case proceeded Chapter VI exphcitly on the ground of waiver (which was, possibly, the real basis of the judgment), the rule in the notes to Pordage v. Cole ^ would have been differently expressed. In White v. Beeton,^ cited in the judgment in Garter v. Scargill} Baron Bramwell said : " I cannot help thinking that the performance of an act may be at one time a condition precedent and not at another. For instance, if I bargain for the purchase of ten horses for a certain sum of money, and the seller delivers only nine, I may say to him, ' I will not accept them ; my bargain was for ten.' But if, instead of doing so, I take the nine horses and use them, that which was at one time a condition precedent by my own conduct has become no condition precedent. Assuming that the performance of that act was a condition precedent, it was only so in the sense I have described, where the party must insist on his right to the performance of that part of the contract before he accepts, or, having accepted, retains the benefit of the other part." In Roberts v. Brett,^ Lord Chelmsford said : " A supposed case was put at the bar, of the plaintifi, after the ten days had expired without his bond having been given, going on to per- form his covenants, and afterwards, in an action to recover the amount stipulated to be paid by the defendant, being met by a plea of the non-performance of the condition precedent. I have no difficulty in saying that in such a case the party who may avail himself of the non- performance of a condition precedent, but who allows the other side to go on and perform the subsequent stipulations, has waived his right to insist upon the unperformed condition precedent as an answer to the action." The case of Bentsen v. Taylor ^ is an apt illustration of the application of the rule that a condition precedent may be waived qua condition. The principle to be deduced from the cases is : Where an entire contract has been substantially but not completely performed, and complete performance is plainly a condition precedent to the right to recover, the contractor may bring an action on the contract for the price, if, but only if, the other party has accepted, when he might have refused to accept, or might have rejected the benefit of partial performance without himself breaking the contract. In 1 L.R. 10 Q.B. 564. ' Ante. ' Ante, p. 99; * 7 H. & N. 42, 50. '11 H.L.C. 337, at p. 357. « (1893), 2 Q.B. 274. 106 DISCHARGE OF PARTLY EXECUTED CONTRACTS Parti other words, the conduct of the other party must amount to a Chapter VI waiver of complete performance, i.e. a waiver of the condition. The principle stated in this way reconciles the rule in Cutter v. Powell,^ as illustrated in Munro v. Biitt,^ Sumpter v. Hedges,^ and Forman v. The Ship " Liddesdale,"* with the principle of Boone v. Eyre ^ as explained in Ellen v. Topp • and adopted in Garter v. Scargill,'' and with White v. Beeton.^ The apphcation of this rule is illustrated in Bullen and Leake's Precedents of Pleading,^ as follows : " If the work is of such a nature that it cannot be rejected so that the party has no option in accepting it, he is not necessarily liable for the value ; as work done under a building contract upon the defendant's land, but not according to the contract." It follows that, where there has been no waiver of complete per- formance of the condition precedent, and the performance is incomplete, the contractor cannot maintain an action on the contract, and the other party, being, therefore, under no enforce- able obligation, is discharged. The principle stated above is not inconsistent with the recent decision in Thomas v. The Ha/rrowing Steamship Co.^" There the shipowner recovered the stipulated ' lump sum ' freight for dehvery of the substantial part of the cargo, the failure to deliver the remainder being due to causes which the parties had expressly pro- vided for by exception, viz. ' perils of the sea.' The acceptance of. the benefit of partial performance falling short of substantial performance In such cases as Ellen v. Topp " and Ca/rpenter v. Cresswell,^^ in which the principle oi Boone v. Eyre'^^ was discussed, that principle was considered to be apphcable only where the contract had been substantially performed.^ ^ Where, however, there has been acceptance of part performance, when it might have been rejected consistently with the contract, the distinction between substantial performance and a performance less than substantial is of small importance, affecting only the 1 2 S.L.C. 1. 2 8 E. & B. 738. ' (1898), 1 Q.B. 673. " (1900), A.C. 190. 6 1 H.Bl. 273 n. (a) ; 2 W.Bl. 1312 n. («)• ' 6 Exch. 424. ' L.R. 10 Q.B. 664. « 7 H. & N. 42, 50, 53. 3rd Edn. 41, '" (1915), A.C. 68. " 4 Bing. 409. i" I H.Bl. 273 n. (a). 13 See p. 102, ante. ACCEPTANCE OF PARTIAL PERFORMANCE 107 form of action for the recovery of damages or price. When the Parti contract has been substantially performed and such performance Chapter VI accepted, it would seem that the contractor may recover either in an action on the contract (special assumpsit), subject to deductions for defective performance, or, at his option, he may recover on quantum meruit or quantum valebat (indebitatus assumpsit) : Thornton v. Place,^ Alien v. Cameron,^ Chapel v. Hicks,^ Lucas v, Godwin.^ The acceptance of the performance may be viewed either as founding an impHed promise to pay according to measure and value, or as waiver of complete performance under the special contract. On the other hand, where part performance short of substantial performance has been accepted, when it might have been rejected consistently with the contract, the contractor may recover only on quantum meruit or quantum valebat, as in Shipton v. Casson.^ Where there is part performance in accordance with the contract, as where goods are to be delivered by instalments and, after the delivery of one or more instalments, which (being in accordance with the contract) the purchaser has no option to reject, the vendor makes default, there seems to be no good reason why the principle laid down by Collins, L.J., in Sumpter v. Hedges ^ should not apply. It is plain that the vendor cannot sue on the contract, which is entire '' and unperformed, and the acceptance of the first instalment, which, being in accordance with the contract, could not have been rejected without a breach on the purchaser's part, raises no inference of a new promise by the purchaser to pay according to measure and value. If the tender of performance is not in accordance with the contract, and the goods or some of them are accepted, as in Champion v. Short,^ the purchaser is liable on quantum valebat to pay for what he has accepted : Shipton v. Casson.^ The cases of this group will be found collected in Benjamin on Sale,^ but the decisions do not clearly mark the distinction between a part delivery in accordance with the contract which cannot be rejected, and the 1 1 M. & R. 218. 2 1 C. & M. 832. » 2 C. & M. 214. 4 3 Bing. N.C. 737. In the cases just cited there had been apparently no acceptance or waiver, but the actions were held maintainable on proof of substantial performance, seemingly on the principle of Boone v. Eyre as stated in the notes to Pordage v. Cole. These oases and others of the same class will be considered presently from the point of view of the right to recover for substantial performance (where complete performance has not been waived) having regard to the more recent decisions. ?,* s 6 6 B. & C. 378. * (1898), 1 Q.B. 673. See p. 114, post. 7 See p. 44, ante. * 1 Camp. 53 9 5th Edn. p. 696 et seq. 108 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I acceptance of a part delivery not strictly in accordance with the Chapter VI contract. A statement of the law by Mr. Justice Parh in Oxendale V. Wetherall,^ approved by the Judicial Committee of the Privy Council in The Colonial Insurance Company of New Zealand v. The Adelaide Marine Insurance Company,^ is as follows : " Where there is an entire contract to deliver a large quantity of goods, consisting of distinct parcels, within a specified time, and the seller delivers part, he cannot before the expiration of the time bring an action to recover the price of the part delivered, because the pur- chaser may, if the vendor fails to complete his contract, return the part delivered. But if he retain the part deUvered after the seller has failed to perform his contract, the latter may recover the value of the goods which he has so dehvered." The latter part of this statement suggests that, by retaining the part delivered, the purchaser is assumed to have an option to retain or return. It is said that the vendor may recover the value of the goods, not the price. The vendor's action would, therefore, be in quantum meruit or quantum valebat. Suppose the following by no means improbable case : A grain merchant contracts to supply a flour-miller with five hundred bushels of wheat per month for six months, payment for each instalment to be made three months after deUvery. The vendor makes the first delivery in accordance with the contract, the miUer having no option but to accept the delivery when tendered. Before the second deHvery is due the wheat already delivered has been turned into fiour and disposed of and cannot be returned. The grain merchant makes default in the second delivery, and intimates his inability to carry out his contract further. It is plain that though the benefit of the first delivery has been received by the miller, there was no option to reject, and, in that sense, there was no acceptance. There was certainly no acceptance of a benefit involving a waiver of strict performance by the vendor in any par- ticular. On the reasoning of Collins, L.J., in Sumpter v. Hedges,^ and apparently on the principle of Cutter v. Powell,* the grain merchant could not recover on the contract which was entire and not wholly performed, nor, it is submitted, could the merchant recover on quantum valebat ; for all that was done, with reference to the wheat dehvered, was done under the special contract, and no circumstance occurred from which a new promise to pay according to value could be inferred. It is conceived that the class of cases 1 9 B. & C. 387. ' 12 A.C. at p. 138. s (1898), 1 Q.B. 673. * 2 S.L.C. 1. ACCEPTANCE OF PARTIAL PERFORMANCE 109 in which the rule in Oxendale v. WetheraW^ strictly applies is Parti limited to cases where the tender of a part delivery could have been Chapter VI rejected consistently with the special contract. Only upon the wide construction of the principle of Boone v. Eyre placed upon it in the notes to Pordage v. Cole ^ can the opposite view be justified. There is a further class of cases in which an action based on partial performance may be maintained on a special contract : where it is consistent with its terms that the contractor may recover part of the price as the work progresses. Cases which expressly provide for progress payments (as in the case of an ordinary building contract) present no difficulty, but there may be cases in which the contract makes no provision for progress payments, and yet they may be recovered though the work has not been completed. The leading case of this class is Roberts v. HavelocJc.^ In that case a shipwright undertook to put a ship into thorough repair. Before this was completed he required payment for the work already done, without which he refused to proceed, and the vessel remained in an unfit state for saiUng : Held that the shipwright might maintain an action for the work already done, though the repair was incomplete, and the vessel thereby kept from continuing her voyage at the time when the action was brought. Lord Tenterden, C.J., said : " I have no doubt that the plaintiff in this case was entitled to recover. In Sinclair v. Bowles * the contract was to do a specific work for a specific sum. There is nothing in the present case amounting to a contract to do the whole repairs and make no demand till they are completed. The plaintiff was entitled to say that he would proceed no further with the repairs till he was paid for what was already done." Littledale, J., said : " The plaintiff undertook this work in the same way as shipwrights ordinarily do. It does not follow from anything that passed that he might not stop from time to time in the course of the work, and refuse to proceed till he was supplied with money." Park, J., said : " If there had been any specific contract on the part of the plaintiff for completing the work, the argument for the defendant might have had much weight. But this was only a general employment of the plaintiff by the defendant, in the same way as all shipwrights are employed." 1 9 B. & C. 387. 2 1 Wms. Saunders, 1871 Edn. 548, See p. 99, ante. » 3 B. & Ad. 404. * 9 B. & C. 92. no DISCHARGE OF PARTLY EXECUTED CONTRACTS Parti In many cases contracts provide for pajonents during the Chapter VI course of the contract ; as, for example, in the case of a contract for the erection of a building or other work, in which it is usual to proAride for progress payments of a certain percentage (usually 75 per cent.) of the value of the work done and the materials supphed. Contracts for the sale of goods and deUvery by instalments, and payment for each instalment on or within a certain time after delivery, are entire contracts ;i nevertheless the vendor is by the terms of the contract itself entitled to payment for the part per- formance. When an instalment is deUvered and paid for, the contract is fro tanto discharged by performance on both sides, and all that remains of the obligation is purely executory, and it is con- ceived that, so far as regards the unperformed part of the contract, the principle apphcable to executory contracts apphes. Discharge of substantially performed contracts by reason of failure in complete performance Having considered, in a more or less general way, the principles governing cases in which an action may be maintained in respect of work done under a contract, where the contract has not been completely performed, we may now proceed to consider the cases in which, though the contract is substantially performed, a failure to perform the contract completely will discharge the party not in default. The decisions show that this branch of the subject is not marked by any very definite or satisfactory principle. Bearing in mind that the foundation of the principle of discharge by breach is the inabiUty of the party in default to maintain an action on the contract, and bearing in mind that it is not every failure to perform which will bar the plaintiff of his action, it remains to be considered how far what may be called substantial performance affects the questions : (1) What degree of importance of the unperformed part is sufficient to bar the contractor's right to recover ? (2) Does the principle which apphes to executory or substan- tially executory contracts continue to apply until the contract is completely executed ? Contracts are so various in their subject-matter and their terms, and breaches occur under such diversity of circumstances, that it is well-nigh impossible to formulate, in the shape of a simple proposi- 1 Mersey Steel and Iron Co. v, Naylor, Benzon, and Co., 9 A.C. 434, per Lord Seiborne, at p. 439. CONTRACTS SUBSTANTIALLY PERFORMED 111 tion, an answer of universal application to these questions. The Parti difficulties have arisen from a natural reluctance on the part of Chapter VI judges to forfeit work and materials or property, which may be of real value and benefit to the party not in default, by reason of a default in performance which results in a relatively small loss to such party. The Courts have always striven to find a reason for preventing such a forfeiture by the party in default. Even in cases where the contract, in terms, apparently made complete performance a condition precedent to the right to recover — notably in Boone v. Eyre ^ and in the decisions in which that case has been applied — the Courts have disregarded the plain meaning of the words, where the substantial part of the contract has been performed, and have con- strued, as independent covenants or stipulations, obligations which were, according to the expression of the parties' intention, plainly dependent on complete performance.* In The London Gas Light Co, v. The Vestry of Chelsea,^ Byles, J., said : " The clearest words of condition must yield to the paramount intention of the parties as gathered from the whole instrument. The words were very clear in Boone v. Eyre. I entertain no doubt what- ever." The Courts have held that the parties could not have intended that a relatively unimportant breach in completion, when the con- tract has been substantially performed, shoidd deprive the party in default of the right to recover for what he has done. The proposition based on Boone v. Eyre as to the effect of part performance, stated in the notes to Pordage v. Cole * and cited p. 99, ante, illustrates the process of reasoning adopted in these cases. The Courts appear to have apphed the rule that the intention of the parties, to be gathered from the nature and intent of the trans- action rather than from the form of words used, should be taken as a guide in deciding whether a particular stipulation should be construed as dependent or not. Curiously enough, this rule seems to have been originally designed to create conditions precedent and 1 1 H.Bl. 273 n. (a). 2 See notes to Pordage v. Cole, 1 Wms. Saunders 548, in which (as Lord Cottenham said in Lloyd v. Lloyd, 2 My. & Cr. at p. 204) : " Serjt. Williams has collected a variety of other cases in which the Court has done great violence to the strict letter of covenants for the purpose of carrying into ejEEect what was considered the real intention of the parties." 8 8 C.B. N.S. 215. * Ut supra. 112 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I concurrent, and thus to prevent failure of consideration/ but after Chapter VI ^j^g decision in Boone v. Eyre the rule was applied to justify a dis- regard of the expressed intention, when, to construe a stipulation or covenant as dependent would, in the case of a substantially performed contract, work an injustice. In Newson v. Smyihies,^ Pollock, C.B., said : " In Boone v. Eyre and Pordage v. Cole there was nothing in the language to prevent the acts to be done by the plaintifi from being treated as conditions precedent. But common sense and justice dictated the decisions in these cases. It is a general rule that covenants are to be treated as independent rather than as conditions precedent, especially where some benefit has been derived by the covenantor." To draw an inference as to the intended order in time of per- formance, and, consequently, as to the dependence or independence of covenants, from the nature and intent of the transaction, is to proceed according to a perfectly sound and intelligible principle, but to make the intention of the parties in contracting depend on the extent to which the contract is subsequently broken is to adopt a method of interpretation which was the subject of adverse comment in Ellen v. Topp ^ (per Pollock, G.B., delivering the judgment of the Court) and by Lord Shaw of Dunfermline in Wallis v. Pratt.^ In Ellen v. Topp ^ the principle was laid down that the acceptcmce of a benefit may deprive a condition precedent of the quality of a condition, and this modification of the rule in Boone v. Eyre ^ is elaborated by Lord Collins in Sumpter v. Hedges. ° But that is a very different thing from saying that, apart from any question of acceptance or waiver, a stipulation is to be construed as a condition precedent while the contract is executory, but as an independent stipulation if the contract is substantially executed. The case of the acceptance of a benefit (when it might have been rejected) so as to operate as the waiver of a condition precedent qua condition is, however, altogether beside the question we are now considering. The influence of the rule deduced from Boone v. Eyre,^ as stated in the notes to Pordage v. Cole,'' has, notwithstanding its manifest conflict with the principle of Cutter v. Powell,^ and not- withstanding its modification in Ellen v. Topp,^ been far-reaching, 1 See Pi 88, ante. = 3 H. & N. 840. 3 6 Exoh. 424. « See p. 88, ante. = 1 H.Bl. 273 «: (a). » (1898), 1 Q.B. 673. ' 1 Wms. Saunders, 548. » See p. 99, ante. ' JJt iupra. CONTRACTS SUBSTANTIALLY PERFORMED 113 and is responsible for the proposition that substantial performance chapter VI of an entire contract will support an action on the contract even though complete performance is a condition precedent and has not been waived. It is true that the modern authorities do not go this length in the case of a clear condition precedent, and while the tendency is to give damages for an unimportant breach or failure rather than to treat the contract as dis- charged, the decisions seem to have passed from the shadow of the principle in Boone v. Eyre,^ as exempUfied in the notes to Pordage v. Cole.^ It is manifest that there is no relation between the importance of a particular stipulation broken and the amount of benefit which the party not in default may have derived under the contract up to the time of the breach. A breach, which may bar the party in default of his action on the contract, may occur when the contract is substantially, but not wholly, performed. It is equally plain that, if the party not in default were to be held liable to pay for what has been done to his benefit under every uncompleted con- tract, the result would be that contractors would be encouraged to perform only the easy and profitable parts of their obligations, and leave undone that from which they might expect to make small profit, or in respect of which they might anticipate possible loss. In Munro v. Butt,^ Lord Campbell, C.J., delivering the judgment of the Court of Queen's Bench, said : " If the defendant had done anything coupled with the taking possession, which had prevented the performance of the special contract, as if he had forbidden the surveyor from entering to inspect the work, or if, the failure in complete performance being very slight, the defen- dant had used any language, or done any act from which acquiescence on his part might reasonably have been inferred, the case would have been very different. Here there was nothing of the kind ; the reliance of the plaintifi was simply on the defendant's possession. We were pressed, of course, with the argument of hardship. It was said to be unjust that the defendant should enjoy the labour expended and materials furnished by the plaintiff. The argument of hardship in a particular case is always a dangerous one to hsten to ; but in truth there is neither hardship or injustice in the rule with its qualifications : it holds men to their contracts ; it admits, from circumstances, the substitution of new contracts ; nor is there any hardship in the present case disclosed by the evidence ; and a verdict for the plaintiff might work a greater hardship on the defendant compatibly with that evidence." » Ut supra. ' Ut supra. a g E. & B. 7-18. I Fart I Chapter VI IM DISCHARGE OF PARTLY EXECUTED CONTRACTS In Sumpter v. Hedges,^ Collins, L.J., said : " There are cases in which, though the plaintiS has abandoned the performance of a contract, it is possible for him to raise the inference of a new contract to pay for the work done on a quantum meruit, from the defendants having taken the benefit of that work, but, in order that that may be done, the circumstances must be such as to give an option to the defendant to take or not to take the benefit of the work done. It is only where the circumstances are such as to give that option that there is any evidence on which to ground the inference of a new contract. Where, as in the case of work done on land, the circumstances are such as to give the defendant no option, whether he will take the benefit of the work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new contract. In this case I see no other facts on which such an inference can be founded. The mere fact that the defendant is in possession of what he cannot help keeping, or even has done work upon it, affords no ground for such an inference. He is not bound to keep unfinished a building which, in an incomplete state, would be a nuisance to his hand." The case of Cutter v. Powell ^ wasT;he case of an action to recover for services rendered by the mate of a ship who had been engaged for the whole voyage at a lump sum and died during the voyage. His representatives were held not entitled to recover in respect of the period of service up to his death. The defendant had the full benefit of his services till the date of his death, but it is manifest there was no option to reject such services. The American principle, which enables a contractor in certain circumstances * to recover for substantial performance, is an attempt to provide a means of equitable adjustment in a large class of cases of incomplete performance, and we have seen * that even where the parties expressly provide for rescission of the contract for a par- ticular default, equity will in some cases interpose to prevent such rescission (though within the letter of the contract) operating as a forfeiture by the party in default of the value of the benefits con- ferred on the other party, under the contract. Up to a certain point the English Law is clear enough, but as to a large and recurring class of cases there seems to be no very definite principle. We have seen that for some time after the decision in Boone v. Eyre ^ the principle of that decision was generally applied in cases of actions brought on substantially performed contracts, and, in such cases, promises dependent on conditions precedent were 1 (1898), 1 Q.B. 673. » 2 S.L.C. 1. " See p. 103, ante. « P. 31, ante. 6 Ut supra. CONTRACTS SUBSTANTIALLY PERFORMED 115 often construed and treated as independent where such promises Par' i were substantially but not completely performed. Chapter VI Since the decision in Munro v. BiMt ^ the general rule has been that contracts, according to which complete performance is plainly a condition precedent to the right to recover, cannot be enforced unless the condition precedent has been wholly performed, or complete performance waived. It is conceived that, though the principle in Boone v. Eyre,^ as stated in the notes to Pordage v. Cole,^ is too broadly laid down, the decision is plainly to be reconciled with the principle in equity on which specific performance is granted to a vendor with compensation. We have seen that, in the case of a contract for the sale of land, the obligation to convey and the obhgation to pay the purchase money are concurrent conditions, and it is obvious, in cases of specific performance with compensation at the suit of a vendor, that the inabihty of the vendor to perform his contract in its entirety, is an inabihty to perform completely a condition proper, as in the case of Boone v. Eyre.'' Moreover, the cases of specific performance with compensation are practically all cases of executory contracts, where the purchaser has had no benefit of part performance. There seems, therefore, to be no objection in ' common sense and justice ' * to an action being main- tainable on a substantially performed contract, if the failure in performance is such as not to render it, in the circumstances, inequitable that the contract price should be payable, less an ade- quate deduction for uncompleted work. It has been seen that the doctrine of substantial performance obtains in America, and is applied on principles which are analogous to those on which specific performance with compensation is granted in England. Indeed, it may be said that the doctrine of substantial performance obtained at law in England for a long time after the decision in Boone v. Eyre, though the weight of authority at the present day supports the view that where complete performance of a stipulation is a condition precedent, an action may be maintained on the contract (if not completely performed) only if complete performance has been waived : Sumfter v. Hedges.^ One may well conceive a difficulty in departing from this rule where the work has been abandoned, as in the case just referred to ; or where the variation or defect is the result of a deliberate or palpably negligent disregard of the terms of the contract ; or ^ Ut supra; ApTplehy v. Myers, L.R. 2 C. P. 651. 2 Vt supra. ' Ut supra. * See p. 112, ante, Newson v. Smythies. " (iggg), 1 Q.B. 673. 12 116 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I where there has been an attempt to ' scamp ' the work ; but Chapter VI -^^ cases where complete performance has become impossible, or incomplete performance is not inconsistent with good faith, and the plaintiff has ' done his best,' and the defendant has got substantially what he bargained for, and justice can be done to the party not in default by granting him a deduction from the contract price, there seems no reason why the principle in Boone v. Eyre ^ should not apply. The law has, quite apart from the cases based on the principle of Boone v. Eyre,^ distinguished between the consequences of a breach while the contract is executory, and the consequences of a breach of the same stipulation, when the property or the subject-matter of the contract has passed, and the contract may be said to be executed. Let us take the principles laid down in Street v. Blay ^ as a basis of illustration. Suppose A agrees to procure, and to sell and dehver to B by a certain day, for a certain price, a carriage horse of a particular description, say to match another horse of B's, and the contract is made with a warranty that the horse so to be procured is to be sound in wind and Umb. If he tenders a horse complying absolutely with the description, but unsound, the failure to comply with the warranty will justify B in refusing to accept the horse, and in claiming to be discharged from the contract, because the contract was executory and the property in the subject-matter has not passed. But if A sells to B a specific horse with a warranty of soundness the property in the horse passes and the only remedy B has, should the horse turn out to be unsound, is an action on the warranty, or, if he has not paid for the horse, a reduction in the price. The property has passed, the contract is executed as to the thing which was the subject-matter of the contract, and any failure of consideration or inducement resulting from breach of collateral warranty,' though it might have been available, in the case of an executory contract, as a ground of avoidance or discharge, is, in the case of an executed contract, ground only for an action for damages. The distinction between executory and executed contracts was taken by Ashurst, J., as the ground of his judgment in Boone v. Eyre,^ but, though there is an analogy between that case and the case just instanced^ the distinction is plain. In 1 1 H.B1. 273 n. (a). ^ 2 B. & Ad. 456. ' What purports to be the definition of a < warranty ' in The Sale of Goods Aet hardly amounts to a definition, but is a mere statement of the legal consequence of a warranty, where the property in the goods has passed, as distinguished from a ' condition,' — a term which the draftsman has with some justification refrained from defining. CONTRACTS SUBSTANTIALLY PERFORMED ; 117 Boone v. Eyre ^ the failure in performance was in respect of a part Part I of the very subject-matter of the contract, viz. the negroes sold Chapter VI with the plantation ; and the words plainly expressed an intention that the performance of the whole of the plaintiff's obligation to make a title to the plantation and the negroes should be a condition precedent to the defendant's Hability to pay the annuity. In Street v. Blay ^ the subject-matter of the contract was the horse and the warranty was a collateral stipulation as to a quahty. The distinction between ' subject-matter ' and ' quality ' arises fre- quently in the cases of sales of goods — a breach as to the subject- matter of the contract discharging the purchaser, but a breach as to quality only, giving, in general, a mere right to reduction of price or cross action for damages unless the ' quality ' is part of the ' description.' How narrow for practical purposes is the distinction between differences in ' kind ' and differences in ' quahty ' may be gathered from a reference to such cases as Heyworth v. Hutchison * and Azemar v. Gasella * collected in Benjamin on Sale.^ The principles just referred to, which are principles of law as distinguished from equity, may work out with some absurdity having regard to the relative importance of a given breach : (a) as to subject-matter, and (h) as to quality. For example, A sells and agrees to deliver to B a specific horse, gig and harness for a lump sum, and warrants the horse sound. If he tenders the horse without the gig and harness the purchaser may refuse to perform the con- tract, but it would seem that he cannot refuse to accept delivery of the horse, gig and harness even if the horse may turn out to be unsound, notwithstanding that the unsoundness of the horse may constitute a breach of far greater importance than can be measured by the value of the gig and harness. The breach as to one being a breach as to the subject-matter of an entire contract, and the breach as to the other being a breach of a collateral stipulation as to quality, the question of relative importance is excluded by the rule of law which distinguishes breach as to ' subject-matter ' from breach as to ' quahty.' We have seen, in the case of executory contracts, that the importance of the stipulation broken is the guide in deciding whether a failure in performance discharges the party not in default, and it may safely be assumed that the same broad principle must apply in the case of substantially executed contracts. It is 1 1 H.Bl. 273 n: (a). ^ 2 B. & Ad. 456. » L.R. 2 Q.B. 447. * L.R. 2 C.P. 431 s 5th Edn. p. 607, ei seq. 118 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I plain, however, from the principles laid down in Street v. Blay,^ that *" a breach sufficiently important to discharge a contract while executory will not necessarily discharge a contract which has been substantially executed, and the same principle lies at the foundation of the decision in Boone v. Eyre,^ and is the subject of observation in Ellen v. Topp.^ We have seen in the case of an executory con- tract, that a failure of consideration, amounting to a failure of material inducement, is sufficient to discharge the party not in de- fault, but, in view of such decisions as Street v. Blay ^ that principle does not apply with equal force to the case of executed or substan- tially executed contracts. At the same time therais a tendency, in some recent decisions of high authority, to disregard the mere passing of the property in the subject-matter, in granting relief by rescission (avoidance) of executed contracts, if the parties can be restored to their original position — ^notably Karherg's Gase.^ These decisions will be noticed in the subsequent chapter of this book deaUng with " The Avoidance of Executed Contracts for Mis- representation." It may be that, in the case of a substantially executed contract, the importance of the breach, in the result, is properly to be taken into account, rather than the importance of the stipulation broken as an inducement or consideration, for the reason that the breach, if not sufficient to discharge the contract, must be such as can be adequately compensated for in damages. If this be so, it is plainly beside the question to conjecture about the intention of the parties, apart from what is expressed in the contract. In the majority of cases the contract will show plainly enough that both parties intended and contemplated complete performance as giving a right to pajTnent, and, if there is a failure in complete performance, and no waiver, the party in default, if he is to recover at aU, must do so on some principle other than a principle based on expressed or assumed intention (or assumed absence of intention). An assumed intention of the parties as the basis of a principle is not satisfactory, especially when the assumption is at variance with the plain words of the contract, and the contingency which has arisen was manifestly not in the contemplation of either party when the contract was made. The principle, in equity, of specific perform- ance with compensation is not based on any view of the intention of the parties, and it were better to disregard all questions of 1 2 B. & Ad. 456. » 1 H.Bl. 273 n. (o). » 6 Exch. 424. * (1892), 3 Ch. 1, CONTRACTS SUBSTANTIALLY PERFORMED 119 intention, and to proceed avowedly on the general principle of ^a*' ^ ' common-sense and justice ' which, as Pollock, O.B., observed in °^*'''" ^^ Newson v. Smythies ^ dictated the decision in Boone v. Eyre, and lies at the foundation of the doctrine of specific performance with compensation, and of the general principle that only an important breach of contract will bar an action on the contract by the party in default {i.e. where the breach is not the breach of a definite condition precedent). Before discussing further the test of the importance of the breach, which will discharge a party who has had the benefit of substantial execution under a contract, let us consider the line of cases referred to at p. 107, in which actions were maintained on the contract while not completely performed, though complete per- formance was not waived. The reasons for the decisions in these cases can, without much difficulty, be traced to the principle of Boone v. Eyre. In Allen v. Cameron ^ the contract was to plant 70,000 trees and ' well and sufficiently keep them in order ' for two years and during that period replace any that had died. The contract price was a lump sum of £220 10s., payable as to £147 within a month after the planting and as to £73 10s. on the ex- piration of the two years. In an action for the unpaid balance of the price, the defendant alleged that the plaintiff had failed to keep the trees in order and on an application for a new trial which was granted (the jury having found for the plaintiff) it was held that : " There should be an abatement of price for the non-performance of any part of the contract by the plaintiff." In Cutler v. Close ^ a party contracted to supply and erect a warm-air apparatus for a certain sum. In an action for the price, the defence to which was that the apparatus did not answer, it was held by Tindal, C.J., that, if the jury thought the performance of the contract was substantial in the main, though not quite so complete as it might be under the contract, and could be made good at a reasonable cost, the proper course would be to find a verdict for the plaintiff, deducting such sum as would enable the defendant to do what was required. In Thornton v. Place,'^ Park, J., said : " When a party engages to do certain work on certain specified terms, and in a certain specified manner — but, in fact, does not perform the work so as to correspond with the specificatipn — he is not, of course, 1 See p. 112, ante. " 1 C. & M. 832. ' 5 C. & P. 337. 4 1 Mo. & Ro. 218. 120 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I entitled to recover the price agreed upon in the specification ; nor can Chapter VI jjg recover according to the actual value of the work, as if there had been no special contract. What the plaintifi is entitled to recover is the price agreed upon in the specification, subject to a deduction ; and the measure of that deduction is the sum which it would take to alter the work, so as to make it correspond with the specification." In Lucas v. Godwin ^ the contract was to build certain cottages for a lump sum to be paid on January 1, 1837, " on condition of the work being done in a proper and workmanlike manner." The, work was to be completed on October 10, 1836, but was not com- pleted till October 15. It was held that the plaintiff might recove? on the general counts, the contract being executed, or on tfce special contract subject to compensation in damages for the un- important breach. It is to be observed that stipulations as to time are' subject to special considerations in equity. Where the contract is executed or substantially executed, it appears that a default in completion within time is pecuharly a matter for compensation rather than as affording ground of discharge. It is usual, in the most carefully prepared contracts for the construction of works, to treat defaults as to time as a matter for damages, and even where the parties have expressly provided for rescission, the Court will relieve if the stipulation appears to be in the nature of a penalty : Kilmer v. British Columbia Orchard Lands Ltd. ; ^ Steedman v. Drinkle.^ In Franklin v. Miller,* Littledale, J., citing Boone v. Eyre, said : " It is a clearly recognised principle that if there is only a partial failure of performance by one party to a contract, for which there may be a compensation in damages, the contract is not put an end to." The most recent decision of the class of cases now under con- sideration is DaJcin v. Lee.^ The plaintiff contracted to carry out certain repairs to the defendant's house for a lump sum in accordance with a specification, and, though part of the work was not so done, the contract was held to be substantially completed. Sanlcey, J., said : " I cannot hold that where a builder has done ninety- nine one- 1 3 Bing. N.C. 737. ^ (1913), A.C. 319. = (1916), A.C. 275. ^ 4 A. & E. 599, 605. ° 84 L.J. K.B. 894. The decision of thejDivisional Court has since been affirmed by an unanimous decision of the Court of Appeal (1916), 1 K.B. 566. Substantially the judgments] appear to have proceeded on the ground that the breaches were relatively unimportant and merely entitled the defendant to a reduction of the contract price. CONTRACTS SUBSTANTIALLY PERFORMED 121 hundredths of the work according to the contract, and the remaining Part I one-hundredth in a difEerent way, the building owner need not pay for Chapter VI any part of the work done." The variations from the specification in this case certainly seem to have been of some importance — concrete of an average depth of one foot seven inches to two feet only, instead of four feet as contracted for, was laid down throughout the part to be underpinned ; a solid column four inches in diameter had been put up instead of a hollow column five inches in diameter, and certain rolled-steel joists, to be side by side, cleated at the angles and bolted at the cap and to each other, had been omitted altogether. The question whether a particular contract has been substanti- ally performed or not is a question of fact rather than law, depending on the nature and scope of the contract. In one contract variations of the kind indicated might be of vital importance, while in another they might fairly be treated as matters which are relatively un- important. • From the nature of the question, in view of the infinite variety in the character, scope and purpose of contracts, it is impossible to lay down a principle which can be appUed with any approach to mathematical accuracy. To summarise the result of the decisions, we find on the one hand the line of cases following the principle of Cutter v. Powell,''- such as Munro v. Butt ^ and Sumpter v. Hedges ^ in which the efficacy of a plain condition precedent (which makes the right to payment depend absolutely on complete performance) is, at law, unimpaired by mere partial performance amounting even to substantial performance. In this line of cases the considerations of ' justice and common sense,' referred to by Chief Baron Pollock in Newson v. Smythies,* are not taken as justifying a departure from the plainly expressed intention of the parties. On the other hand we have the case of Boone v. Eyre ^ and the many decisions which have purported to apply the principle of that judgment. In some of the decisions, where that judgment has been applied in the case of substantially executed contracts, plain words of condition have been disregarded, as in The London Gas Light Company v. The Chelsea Vestry" and, in other cases, contracts which were apparently entire were treated as divisible (see Pust v. Dowie '). 1 2 S.L.C. 1. 2 8 E. & B. 738. ' (1898), 1 Q.B. 673. « 3 H. & N. 840. 5 1 H.Bl. 273 n: (a). « 8 C.B. N.S. 215. ' 5 B. & S. 33, 37, citing Behn v. Bumess. 122 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I Consistent with the principle of Boone v. Eyre,^ we have the Chapter VI cases in equity of specific performance with compensation, and, seeing that these are, in general, cases of purely executory con- tracts, in which the plaintiff's failure or inability to perform is the incapacity to perform a condition proper, additional force is given to the decision in Boone v. Eyrej^ as appUcable to the case of a substantially executed contract. Since the fusion of law and equity, it would not have been surprising if the principle of Boone v. Eyre ^ had prevailed, but to-day it may be assumed that the principle of Cutter v. Powell ^ as exemplified in Murwo v. Bvtt ' and Sumpter v. Hedges * is dominant. According to these cases where the right to payment clearly depends on complete performance, there must be a waiver of the condition in order to support an action on the contract for substantial performance. But in the case of an entire contract, where it is not plain that the parties definitely intended that nothing short of complete performance should entitle the contractor to recover the" price, then the question is one of failure of consideration, not condition prece- dent, and we return to the general principle " that, in the case of breach, failure or inability to perform, the party not in default is discharged only if the uncompleted part is important, and the principle of Boone v. Eyre ^ (as modified by Ellen v. Topp °) applies. Since Munro v. Butt,^ the principle of Boone v. Eyre ^ does not apply to cases where complete performance is a plain condition precedent to the right to recover. Since Ellen v. Topp " the appli- cation of the principle of Boone v. Eyre ^ has been limited to cases where the contract has been substantially performed. The opera- tion of Boone v. Eyre ^ appears, therefore, to be confined to cases in which : (a) there has been substantial performance, and (6) it does not appear from the contract that the parties definitely intended complete performance to be a condition precedent to the right to recover. The difficulty lies in fixing some test of the importance of a default which will bar the plaintiff from recovering on a contract substantially but not completely performed. We may take it as 1 1 H.Bl. 273 n. {a). " Vt supra. 8 8 E. & B. 738. « Vt supra. 6 See the general principle as stated in WaUis v. Pratt, per Fletcher Moid- ton, L.J., p. 52, ante. 6 6 Exch. 424. CONTRACTS SUBSTANTIALLY PERFORMED 123 settled that if the contract is substantially performed, the mere ^^^^ fact that the unperformed part amounted to an inducement to enter — ^^" into the contract is not enough, as it would be were the contract purely executory. The principles laid down in Street v. Blay ^ are sufficient authority for that conclusion. It is perhaps a truism to say that in order to entitle the defaulting contractor to recover either in indebitatus assumpsit or in special assumpsit the contract must be substantially complete. That statement carries the matter no further. It is conceived that there must be no material difference in kind between the work, so far as it is executed, and the work contracted for : Forman v. The Ship " Liddesdale." ^ The Court ought not to compel a party not in default to accept and pay for something which it can reasonably be supposed he never wanted, and would not have agreed to pay for. In deahng with the discharge of executory contracts it has been submitted that the importance of the stipulation broken should be estimated having regard to contemplated performance, i.e. as inducement or consideration,^ Although, in the case of a sub- stantially executed contract, that view of the unperformed term should not be overlooked, it is probable that the importance of the breach in its result relatively to the part performed would be the determining element, especially as the question depends to a great extent on the consideration whether or not damages would be a just and adequate compensation for the default in performance. Three matters are to be considered : (a) Has the defendant got, fro tanto, what he bargained for? (6) Is it substantially all he bargained for ? (c) Can the deficiency in performance be compensated for in damages (reduction of contract price), in justice to the defendant, and, finally, what deduction from the price will enable the defendant to complete the work ? It is conceived that where the work has been abandoned, as in Sumpter v. Hedges* or the plaintiff has not acted in good faith, i.e. has deliberately disregarded the terms of the contract, or, by his own act, has made complete performance impossible, the breach, unless trifling, would bar the contractor of his right to recover (see Wilkinson v. Clements, 8 Ch. App. 96, per James, L.J., at p. 106). 1 2 B. & Ad. 456. ^ P900J, A.C. 190. See p. 92, ante. * (1898), 1 Q.B. 673. 124 DISCHARGE OF PARTLY EXECUTED CONTRACTS Dischaige of Contracts partly but not Substantially Performed Part I A contract is none the less an executory contract ^ because one Chapter VI party had been to great expense in his endeavours to perform it. If the contract is not completely performed, he can recover nothing for his outlay, unless he can bring his case within one of the prin- ciples which have been already discussed, viz. : (1) He must show waiver of complete performance, Mimro V. Butt ;2 or (2) He must show acceptance of the benefit of part per- formance so as to raise an inference of a new promise to pay {quantum meruit or quantum valehat), Shipton V. Casson ;* or (3) He must show that he may recover for incomplete per- formance under the contract, Roberts v. Hamehck ;* or (4) He must show substantial performance, if complete performance is not made a condition precedent to his right to payment, Boone v. Eyre ; ^ and the cases cited at p. 119, ante. If he cannot bring his claim within one of these classes of cases, he will be unable to show any legal authority for his right to recover. Either he has performed his contract or he has not ; mere part performance (short of substantial performance) will not avail him, if he has committed a sufficient breach, or fails or becomes unable to perform, unless the contract is consistent with payment as the work progresses. In Bowes v. Shand ^ the plaintiff agreed to ship 300 tons of Madras rice per "Rajah of Cochin" for London during the months of March April. Part of the rice was put on board in or February and the purchasers were, for that reason, held entitled to refuse to accept delivery. The plaintiff in that case had been to the expense of procuring the cargo and its freight to England, but the contract was treated as executory. Similarly, in Graves v. ^ " ' Executed Contract ' means a contract wholly performed on one side, while an ' executory contract ' is one which is either whoUy unperformed, or in which there remains something to be done on both sides." — Sir William Anson, Law of Contract, 13th Edn. p. 21. ^ 8 E. & B. 738. 3 5 B. & C. 378. * 3 B. & Ad. 404. 6 H.B1. 273 «; (a). « 2 A.C. 455. CONTRACTS NOT SUBSTANTIALLY PERFORMED 125 Legg,^ a cargo of wool had been shipped by the plaintiff from Pare I Odessa to Liverpool, but as the plaintiff had omitted to declare the Chapter vi name of the vessel within a reasonable time after the cargo was shipped, the defendants were discharged from their contract to take delivery of the wool. In Tarling v. O'Riordan ^ the defendant gave to the plaintiff a joint order for a quantity of ready-made clothing consisting of coats, vests, trousers, and knickerbockers, to be according to prescribed measurements and directions ; some of the goods were already made, others had to be manufactured ; no particular time was mentioned for delivery. One bale, value £25 7s. 6d., was sent according to order and was accepted and taken into stock by de- fendant ; another bale, value for £21 8s., was sent about a fortnight afterwards ; it contained vests, trousers, and knickerbockers value for £11 12s. which were according to order, but the coats in the bale were much smaller than those ordered ; the defendant, on discovering this, returned the whole of the second bale to the plaintiff. It was held (reversing the decision of the Court of Queen's Bench) that the defendant was not bound to select and accept, and was not liable for the value of such part of the second bale as corresponded with the order, and that he was entitled to return the entire bale, notwithstanding that he had accepted the first bale sent. The Lord Chancellor said : " I think it must be admitted that the acceptance of the first bale waived any objection to the goods not being all delivered together, if such an objection were a valid one, which I doubt, but I do not see how it could be held to entitle the seller to transmit the second bale with substantial deviations from the order, and, if he did, then to relieve him from the otherwise legal consequences. In Chamfion v. Short ^ the purchaser ordered plums, brown sugar and white sugar. The plums and the brown sugar, not the white, were forwarded. He used the plums and desired, nevertheless, to rescind the contract, returning the brown and refusing to receive the white sugar, on the ground that all were not delivered together. This, it was held, he could not do, and rightly as it appears to me ; for the ground of rescission existed as to all or none, and acceptance of any one article was a waiver of the right to act upon that particular ground. But here how could acceptance of the first bale, which conformed to the order, lead to the inference that the purchaser assented to the second bale deviating from it ? If it did not, was not the seller bound to send the second bale also substantially agreeing with the order ? Then the principles which, whenever there arises either risk of being held to accept aU, 1 9 Exch. 709. * (1878), 2 L.R.Ir. 82.. 3 1 Camp. 53. 126 DISCHARGE OF PARTLY EXECUTED CONTRACTS Part I or inconvenience in severing and separating, enable the return of the Chapter VI whole bale apply, and are adequate to justify the course pursued by the present defendant." Judgments to the same eiiect were delivered by Morris, C.J. and Christian and Deasy, L.J J. Lord Morris said : " In my opinion the defendant was only bound to pay for the bale that was correct and accepted by him in part performance of his con- tract, and was not bound to pay for any portion of the second bale which he was not bound to accept." The question, whether the benefit of partial performance (short of substantial performance) has been accepted, does not touch the question whether the contract is liable to be discharged by breach as an executory contract. If the purchaser was liable to pay for the first bale qioantum valebat so much the better for the vendor, and the reason for treating the contract as executory is all the stronger. If the purchaser was not liable to pay for the first bale, on the vendor committing a sufficient breach to warrant the purchaser in claiming to be discharged, the vendor could not claim that the contract was executed by alleging the performance of less than the substantial part of the contract, Ellen v. Topp.^ If part of a contract, but less than the substantial part, is per- formed according to the contract, and received, when, without committing a breach, it could not be rejected, the party receiving it waives nothing. It lies on the contractor to continue performance according to the contract. If the party not in default has waived nothing, and the default consists in a breach of some term of the contract without which the party not in default might never have entered into the contract at all, in other words, if the default is in respect of a term which ^as a condition of entering into the contract, part performance short of substantial performance seems to be no answer to a claim that the party not in default is discharged : Bowes v. Shand,^ Ellen v. Topp.^ Except in the case of substantial performance or waiver, the cost to the party in default, or the benefit of attempted performance to the party not in default, is no answer to a breach sufficient to discharge the contract. The only question is whether, after partial performance short of sub- stantial performance, the contract is to be treated as purely execu- tory or not. We have seen, in the case of an executory contract, that a failure to perform any stipulation which was a material 1 6 Exch. 424. 2 2 A.C. 455. CONTRACTS NOT SUBSTANTIALLY PERFORMED 127 inducement to enter into the contract is sufficient, and it has been Part I submitted that in case of substantial performance the importance Chapter VI of the breach is to be regarded, and from the point of view of damages to the party not in default, rather than the importance of the stipulation broken — ^regarded as an inducement. In the case of partial performance short of substantial per- formance, the question of damages measuring the difference between substantial and complete performance does not arise, as any re- covery of damages by the party in default rests on a new promise to pay inferred from acceptance. The conclusion to which we come, therefore, is, that where the contract is partially but not substantially performed, it is, for the purposes of discharge by breach, treated as if it were executory, and there is apparently no authority which supports a contrary view. The inference from the decision in Chanter v. Leese ^ supports the view which has been submitted above as correct. 1 5 M. & W. 698. PART II CHAPTER VII Avoidance of a contract on the ground of misrepresentation^ (1) Where the contract is executory, ^*''° . (2) Where the contract is executed. Chaptei VII MiSKEPRESENTATiON as a giound of discharge or avoidance of a contract may be either : (a) A statement embodied in the contract itself, forming a substantive part of the contract, as in Behn v. Burness,^ Bentsen v. Taylor, ^ and FUght v. Booth* or (6) A statement (or conduct) by a party to the contract (or by his agent) not embodied in the actual contract itself, but so impUcated with the transaction resulting in the contract as to operate as a material inducement to the making of the contract, as in Forman v. Wright,^ Banner- man v. White, Redgrave v. Hurd,'' and see Walters v. Morgan.^ Where the statement is embodied in the contract itself it is treated as a promise that the statement is true.® Such a promise is part of the consideration, and, for the failure of such a promise, according to its importance or unimportance, either ^ This topic has been fully dealt with by Mr. Spencer Bower, K.C., in his works on Actionable Misrepresentation and Actionable Non- disclosure ; by Mr. Cyprian Williams in his work on Vendor and Purchaser ; by Mr. S. E. Williams, the learned editor of Kerr on Fraud and Mistake ; and by Mr. W. D. Rawlins, K.C., the learned editor of Lord Justice Fry's work on Specific Performance. It would, therefore, be superfluous, and in any case would be outside the scheme of this book, to treat of this branch of the subject at greater length than will serve to elucidate the principles applicable and illustrate their application. == 3 B. & S. 751. = (1893), 2 Q.B. 274. « 1 Bing. N.C. 370. B 11 C.B. 481. 6 10 C.B.N.S. 844. » 20 CD. 1. 8 3 DeG. F. & J. 718, at p. 724 9 Sir William Anson, Law of Contract, 13th Edn. p. 174. 128 AVOIDANCE FOR MISREPRESENTATION 129 (a) The contract may be discharged, or Part II (b) Damages may be recovered for the breach. Chapter VII Where the misrepresentation is not embodied in the contract, but operates as a material inducement to the party to whom it was made to enter into the contract, it may, whether made innocently or fraudulently, af ord ground for the avoidance of the contract while executory, and, if made fraudulently, for the avoid- ance of the contract when executed (if restitution be practicable). A fraudulent representation will also give a cause of action for the recovery of damages in an action for deceit. How far an innocent misrepresentation will afford ground for the rescission (avoidance) of an executed contract will be considered presently. An innocent misrepresentation, not part of the contract, will not support an action for damages unless it amounts to a warranty. ^ Money paid on the faith of an innocent misrepresentation as, for example, the case of a deposit where the contract has been avoided, is recoverable on the ground of failure of consideration.^ The question of specific performance with compensation for an innocent misrepresentation, as alternative to rescission, will be shortly considered presently. So far as regards rescission (avoidance) for misrepresentation, two distinct questions must be borne in mind : 1. Is the representation fraudulent or is it innocent ? 2. If iimocent, is the contract executory or executed ? The topic of avoidance for innocent misrepresentation is not a branch of law which can be considered as confined to ' a water- tight compartment.' On the one side we shall see that it overlaps and extends into the sphere of avoidance for mistake, and, on the other, we have seen that, in cases of avoidance for innocent mis- representation, where the contract is executory, the principle, when examined, is analogous to, if not identical with that which governs the discharge of executory contracts for breach (excepting as to the onus of proof), i.e. the principle of failure of consideration or failure of inducement.^ Cases of misdescription of the subject- matter of the contract may be considered as cases of innocent 1 Hdlbutt V. Buckleton (1913), A.C. 30 ; Rutherford v. Acton-Adams (1915), A.C. 866. " Towers v. Barratt, 1 T.R. 133 ; Giles v. Edwards, 7 T.R. 181 ; and see Devaux v. Connolly, 8 C.B. 640, where money paid was recovered as on a failure of part of the consideration. 3 See p. 91 ante. K 130 AVOIDANCE FOR MISREPRESENTATION Part II misrepresentation. A misrepresentation made without fraud may, Chapter VII according to circumstances, afford ground : (a) For holding that what is, in form, a contract, is by reason of a want of consensus ad idem, no contract ; (b) For avoiding a contract induced thereby, where the mis- representation is not embodied in the contract ; (c) For discharge for failure of consideration or inducement, when the misrepresentation is embodied in the contract and constitutes a term thereof ; (d) For setting aside (avoiding) a contract on the ground of mistake. (e) For the defence of failure of consideration, at all events where the representation has been acted upon and amounts to an estoppel, and has affected the amount of the consideration. The Stanley Stamp Co. v. Brodie ^ was the case of a contract for the sale and purchase of a philatehst's business. A substantial part of the property purported to be sold was described as ' book- debts.' The book-debts, so-called, were merely debits, in the vendor's agents' accounts, of the assumed value of stamps which the agents held on sale or return. The purchaser induced by the representation (made without fraud), and in the belief that these debts were book-debts in the ordinary sense of the term, entered into the contract. He discovered the nature of these debits while the contract was executory, and gave notice of rescission. It was held (in the Court of Appeal) per Edwards, J., that, by reason of the mistake induced by the misrepresentation, there was no con- sensus ad idem, the parties not having agreed to the same thing in the same sense, and, therefore, there was no contract ; per Sir Robert Stout, C.J., that the contract was voidable for material representation inducing the contract. He said : " It appears to me that one of the main inducements was the having an immediate sum of over £800, which was, as he understood, immediately payable. With this amount in what might be called ready cash he would have been easily able to carry out the contract. Without such aid it was impossible for him to do so. What was offered to him by the vendor was simply more unsold stamps. This case must therefore come under that class of cases in which a serious or material misrepresentation has been made. Another consideration that must not be overlooked under this head is that the appellants urge that they never understood that these were book-debts they were 1 34 N.Z.L.R. 129. AVOIDANCE FOR MISREPRESENTATION 131 selling. If this is so there is the strongest ground for holding that Part II the parties were never ad idem, and that the contract should be set Chapter VII aside." In Bannerman v. White ^ a contract was induced by a mis- representation, made without fraud, that hops, the subject-matter of the contract, were grown without the use of sulphur, and the representation being untrue, the purchaser was discharged on the ground of the failure of a preliminary stipulation which induced the contract. The case was decided in the Court of Common Pleas and, in delivering the judgment of the Court, Erie, C.J., said : " We avoid the term ' warranty ' because it is used in two senses and the term ' condition ' because the question is whether that term is applicable. Then the efiect is that the defendants required and that the plaintiH gave his undertaking that no sulphur had been used. This understanding was a preliminary stipulation ; and if it had not been given, the defendants would not have gone on with the treaty which resulted in the sale. In this sense it was a condition upon which the defendants contracted ; and it would be contrary to the intention expressed by this stipulation that the contract should remain valid if sulphur had been used." If the decision in Bannerman v. White ^ be compared with that in Forman v. Wright ^ (extracts from which are given at p. 51 ante), it will be seen that the defences of inducement by innocent misrepresentation, failure or breach of condition, and failure of consideration were equally applicable to the facts in Bannerman V. White.^ The case of The Stanley Stamp Co. v. Brodie ^ might with equal propriety have been treated as one of mistake, innocent mis- representation, or want of consensus ad idem. In Flight v. Booth * a misrepresentation as to the terms of a lease was contained in the particulars of the property offered for sale, and the Court of Common Pleas held that, notwithstanding that the contract contained an express provision for compensation for error in the particulars, the case was not one for compensation but the contract was ' avoided altogether.' Behn v. Burness ^ and Bentsen v. Taylor ^ were both cases of misrepresentation embodied in the contract, the untruth of which was held sufficient in each case to discharge the defendant. 1 10 C.B. N.S. 844. ^ 11 C.B. 481. » See p. 130 ante. * 1 Bing. N.C. 370. 6 3 B. & S. 751. « (1893), 2 Q.B. 274. k2 132 AVOIDANCE FOR MISREPRESENTATION Part II In Andrew v. Aitken ^ the defendant in an action for specific £5^!^.ZH- performance was held entitled to the rescission of the contract on the ground of mistake induced by an innocent misrepresenta- tion made by the plaintiff's soHcitors, that a deed of grant affecting the title to the property contained no covenants unusually restric- tive. In In re Glubh ^ a donor was held entitled to recover a gift obtained by means of an innocent misrepresentation of fact. Lindley, M.R., said : " The subscriptions which had been given on the footing of the first circular had been founded upon a mistake of fact by the recipients — in other words had been induced by an innocent representation of fact made by them." The question, how a misrepresentation may be made, is dealt with fully by Mr. Spencer Bower in Chapter III of his work on Actionable Misrepresentation. There is a lengthy gamut of possible modes from " a single word or (I may add) a nod or a wink or a shake of the head or a smile " ^ to an expUcit and a categorical statement of fact. Perhaps the most frequent cases of difficulty arise in distinguishing between a mere expression of opinion or matter of belief, and a statement of fact. As Lord Halsbury said in Aaron's Reefs v. Twiss : * " If you are looking to the language as only the language of hope, expectation and confident belief that is one thing ; but . . . you may use language in such a way as, although in the form of hope and expectation, it may become a representation as to existing facts." If one expresses an opinion as such, and honestly holds that opinion, the mere expression of opinion cannot amount to a repre- sentation of fact other than that such an opinion is held. If the opinion be not honestly held, then the expression of it as being held will amoimt to misrepresentation that it is so, held, and, as one man's expressed opinion may induce another to act, such an expression may amount to a misrepresentation having legal con- sequences. On this point the decisions in Melbourne Banking Corporation v. Brougham ^ and Luddy's Trustees v. Peard ^ may be compared. The latter case was the case of the concealment of an opinion which it was the defendant's duty to reveal. 1 22 CD. 218. 2 (1900), 1 Ch. 354, 361. ' Per Lord CampbeU, L.C., in Walters v. Morgan, 3 DeG. F. & J., 718, at p. 724. « (1896), A.C. 273, 284. ^ 7 ^q_ 307. 6 33 o.D. 500. AVOIDANCE FOR MISREPRESENTATION 133 The question whether a report embodied in a prospectus amounts Part II to a representation for which directors are responsible, has been ciiaptMVn considered in numerous cases, of which the more important were reviewed by Mr. Justice Astbury in In re Pacaya, etc., Co.^ It would seem that any words or conduct, intended and calculated to convey to the mind of the person claiming to have been misled, a belief that any fact or condition existed or exists may amount to a representation of the facts as to which belief is induced. A statement of the law as appUed to given or assumed facts may amount to a statement of fact : Souihall v. Rigg,^ Forman v. Wright,^ Cooper v. Phibbs.^ The necessary elements of a cause of action (or defence) in order to avoid an executoiy contract on the ground of innocent misrepresentation, where the misrepresentation is not embodied in the contract itself, are three : (1) The making of the misrepresentation with the object of inducing the contract must be proved as a fact. (2) The misrepresentation must be in respect of a matter material to the inducement — it must be so related to the subject-matter or circumstances of the contract that it would have a tendency to induce the contract. (3) It must have actually operated as an inducement to the contract. It need not have been the sole inducement. It must have operated either by itself or in conjunction with other considerations to induce the contract. The failure of a material inducement to the contract may amount to a failure of consideration. This appears from the decision in Forman v. Wright ^ to be a rule of law as well as a principle of equity. From the reasons for that decision it would appear that, in an action on an executory contract induced by an innocent mis- representation, the fact that it was so induced may afford ground for the defence of failure of consideration. Money paid under such a contract when rescinded may be recovered as money paid on a consideration which has failed.* Consideration not expressed in the contract may be proved by evidence : re Barnstafle,^ Frith V. Frith ; " and " want or failure of consideration may, under proper pleadings, always be proved to impeach a written agreement » (1914), 1 Ch. 542. 2 11 C.B. 481. 3 L.R. 2 H.L. 149, 170. * See pp. 129 anie, 180 post. 6 50 L.T. 424. « 94 L.T. 383 P.O. 134 AVOIDANCE FOR MISREPRESENTATION Part II not under seal, even though, as in the case of bills and notes, the Chapter vn ^Q^.^g ' foj, yalue received ' are inserted." ^ The burden of proving all the elements necessary to support either a claim for rescission (avoidance) of a contract, or a defence to an action on a contract induced by an innocent misrepresenta- tion is on the party seeking to avail himself of the misrepresenta- tion ; that is, where the representation is not embodied in the contract. Where the misrepresentation is embodied in the contract, as in Behn v. Bwrness,^ Bentsen v. Taylor,^ and Flight v. Booth,* the only question to be considered, in deciding whether the party to whom a misrepresentation is made is discharged, or whether he is only entitled to damages, is the importance of the repre- sentation.^ Where the misrepresentation is not embodied in the contract, the question of its importance would seem to be involved in the question whether it operated as an inducement. When the making of the misrepresentation has been proved, it will be found, in the majority of cases, to be a matter of almost necessary infer- ence that the representation was made with the object of inducing the contract. Similarly, the question of materiality will in most cases present little difficulty, as in the majority of cases the representation affects the subject-matter of the contract. The test of materiaUty as laid down in Mr. Spencer Bower's work on Actionable Misrepre- sentation * is as follows : " A representation is material when its tendency, or its natural and probable result is to induce the representee to enter into the contract or transaction which in fact he did enter into." In Morrison v. Robertson ' a person represented himseK to be the agent and son of a person whom the other party would have trusted, while, in fact, he was a person whom such party, had he known the person's identity, would not have trusted. The mis- representation was held to be material. The case of Gordon v. Street * is similar as to the facts, which were treated as amounting to fraudulent concealment of a fact material to the inducement to the contract. The question whether the misrepresentation did operate as an inducement to the contract is a question of fact depending on ' Phipson's Law of Evidence, 5th Edn. 555. i^ 3 B. & S. 751. " (1893), 2 Q.B. 274. * 1 Bing. N.C. 370. ' See p. 81, ante. » See p. 133. ' (1908), 10 Ct. of Session Cases 332. s (1899), 2 Q.B. 641. SPECIFIC PERFORMANCE WITH COMPENSATION 135 evidence, and is not an inference of law. In Smith v. Chadwick,^ Part II Lord Blackburn said : Chapter Vll I think that, if it is proved that the defendants, with a view to induce the plaintifi to enter into a contract, make a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, it is a fair inference of fact that he was induced to do so by the statement. In Redgrave v. Hurd,^ the late Master of the Eolls is reported to have said that it was an inference of law. If he really meant this he retracts it in his observations in the present case. I think it not possible to maintain that it is an inference of law. Its weight as evidence must depend greatly upon the degree to which the action of the plaintiff was likely, and in the absence of all other grounds on which the plaintiff might act. I quite agree that, being a fair inference of fact, it forms evidence proper to be left to a jury as proof that he was so induced. But I do not think it would be a proper direction to tell a jury that if convinced that there was such a material representation they ought to find that the plaintifi was induced by it, unless one of the things that the late Master of the Rolls specified is proved ; nor do I think he meant to say so. I think there are a great many other things which might make it a fair question for the jury whether the evidence on which they might draw the inference was of such weight that they would draw the inference. And whenever that is a matter of doubt, I think the tribunal which has to decide the fact should remember that now, and for some years past, the plaintiff can be called as a witness on his own behalf, and that if he is not so called or being so called does not swear that he was induced, it adds much to the doubt whether the inference was a true one. I do not say it is conclusive." It need not have been the sole inducing cause : re London and Leeds Bank, Curling's Case.^ This is consistent with the principle of discharge for breach amounting to failure of con- sideration. The failure need not be a failure of the whole con- sideration or inducement where the contract is executory. It is sufficient if the failure be of a part of the consideration or induce- ment,* so important that, without it, the party ' might never have entered into the contract at all.' ^ Note on Specific Performance with Compensation It sufficiently appears from the decisions in Mortlock v. Butter " and Halsey v. Grant '^ that the remedy of specific performance 1 9 A.C. 187, at p. 196, per Lord Blackburn. ^ 20 Ch.D. 1. = (1887), 56 L.J.Ch. 321. * See p. 81, ante. 6 Flight V. Booth, 1 Bing. N.C. 370. « lo Vesey 305. ' 13 Vesey 73. 133 AVOIDANCE FOR MISREPRESENTATION Part II with compensation or abatement of price for such part of the Chapter vn subject-matter of the contract as the vendor is unable to convey, originated, in equity, as a departure from the rule of law which required a vendor to perform the whole of an executory con- sideration if he would enforce the contract. We have already seen that, at law, the strict rule in assumpsit has been departed from, and that an unimportant failure of consideration is no longer sufficient to discharge the party not in default, or to prevent the contract being enforced — the unimportant breach or failure in performance being compensated for by the payment of damages or a deduction from the contract price. Although Courts of Equity and Courts of Law have not uniformly applied the principle of allowing compensation or damages for the failure of an unimportant part of the consideration on identical grounds, yet the broad principle and the reasons for its application are the same. It has been submitted that specific performance with an abatement of purchase money (compensation) at the instance of the party in default is generally refused or granted according as the default is in respect of a matter which operated as a real inducement to the contract or did not so operate.^ Specific performance with an abatement of purchase money at the instance of a purchaser — not being the party in default — ^is granted on broader lines. If the contract has been induced by a misrepresentation on the part of the vendor, he is, for that reason, disentitled to the reUef, at the option of the purchaser, who is entitled to avoid the contract, excepting in such cases as Powell v. Elliot,^ where, by reason of the purchaser's possession and the alteration of the subject-matter, rescission and restitution had become impracticable, and com- pensation for the misrepresentation was allowed ; the general rule being that a vendor is not entitled to enforce a contract induced by his own misrepresentation. In such a case, however, the purchaser has been held entitled to enforce the contract with compensation to the extent to which the purchase money was increased by reason of the misrepresentation. In Connor v. Potts ^ this was plainly so, and the rule was stated as follows : " The general principle applicable to this case is weU established that where a representation is made by a vendor as to a matter within his knowledge, even though it may be founded on an honest belief in the truth of what he states, and the purchaser has been misled by such misrepresentation, the purchaser is entitled to have the contract ^ The principle of Flight v. Booth, 1 Bing. N.C. 370 ; see oases cited at p. 82, ante. " L.R. 10 Ch. 424. = (1897), 1 Ir.R. 534. SPECIFIC PERFORMANCE WITH COMPENSATION 137 specifically performed so far as the vendor is able to do so, and to Part II have compensation for the deficiency." Chapter VII In Lord Halsbury's Laws of England ^ the principle is stated as follows : " Where the vendor has either expressly, or impliedly by his conduct represented that he can convey a certain property and is entitled to a certain interest in it : and it appears that there is a deficiency either in the quantity or quality of the property or in his interest or title, and that such deficiency is capable of pecuniary assessment, the purchaser can compel the vendor to convey what he has got and submit to a reduction of the purchase money. It is im- material that the representation is honestly believed in by the vendor or his agent, provided that it is erroneous and the purchaser relies on it." The question was raised in a recent appeal to the Privy Council from the Court of Appeal of New Zealand ^ in the case of Rutherford V. Acton- Adams,^ and the principle stated in their Lordships' judgment is as follows : " In exercising jurisdiction over specific performance a Court of Equity looks at the substance and not merely at the letter of the contract. If a vendor sues and is in a position to convey substantially what the purchaser has contracted to get, the Court will decree specific performance with compensation for any small and immaterial deficiency, provided that the vendor has not by misrepresentation or otherwise disentitled himself to his remedy. Another possible case arises where a vendor claims specific performance and where the Court refuses it unless the purchaser is wilKng to consent to a decree on terms that the vendor will make compensation to the purchaser, who agrees to such a decree on condition that he is cornpensated. If it is the pur- chaser who is suing the Court holds him to have an even larger right. Subject to conditions of hardship he may elect to take all he can get, and to have a proportionate abatement from the puirchase money. But this right applies only to a deficiency in the subj ect-matter described in the contract. It does not apply to a claim to make good a repre- sentation about that subject-matter not made in the contract but collaterally to it. In the latter case the remedy is rescission, or a claim for damages for deceit where there has been fraud, or for breach of a collateral contract if there has been such a contract." The action was not a purchaser's action for specific perform- ance, but was brought by the vendor after completion, for the recovery of an unpaid balance of the purchase money, the pur- chaser counterclaiming for the value of a substantial mileage of 1 Vol. XXV. pp. 406, 407, par. 698. ^ 33 N.Z.L.R. 774. 3 (1915), A.C. 866. 138 AVOIDANCE FOR MISREPRESENTATION Part II fencing which had been erroneously (though without fraud) repre- Chapter VII ge^^gd by the vendor's agent to be on the property. The amount in dispute was the value of the shortage in fencing and on com- pletion was, by arrangement, retained by the purchaser, pending the settlement of his right to have the purchase money reduced by the amoimt retained. The majority of the Court of Appeal held that the action must be treated as a Common Law Action for the recovery of the balance of purchase money due on com- pletion, and the counterclaim was apparently treated as an action for damages for misrepresentation, inducing the contract but made without fraud. This view of the proceedings seems to have been adopted by their Lordships in the Privy Council. Their Lordships, however, laid down the general proposition applicable to a purchaser's claim for specific performance with compensation limiting that claim to compensation : (a) To a deficiency in the subject-matter described in the contract, or (6) To breach of a collateral contract (presumably warranty). The case of a material misrepresentation not embodied in the contract, affecting the quantum of purchase money, but otherwise unimportant, does not appear to have been considered from the point of view of failure of consideration. It is submitted that the origin of the equitable remedy of specific performance with compensation was based on the operation of the doctrine of failure of consideration, that is to say, where there was a failure of part of the consideration not substantially affecting the subject-matter of the contract, but, in justice, requiring a reduction of the purchase money, the purchase money was reduced. That a representation may amount to consideration so as to affect the quantum of the price payable under the contract is plain, and it follows from the decision in Forman v. Wright,^ that the untruth of a representa- tion may, even in Law, afford ground for the defence of failure of part of the consideration, and for a reduction of a money claim accordingly. These observations are not directed to the actual decision in Rutherford v. Acton- Adams, ^ in which it was by no means clear that the misrepresentation had affected the price,* (which had, in fact, been substantially reduced during the negotia- tions),* but it is suggested, with respect, that the peculia/r facts 1 11 C.B. 481. 2 (1915), A.C. 866. = See per Williams, J., 33 N.Z.L.R. 774, 785. * See per Cooper, J., at pp. 789-800. SPECIFIC PERFORMANCE WITH COMPENSATION 139 before their Lordships in that case, and the form of the proceedings Part li in which the question in the action was litigated, may have tended Chapter vn to limit their Lordships' statement of the principle, which was not strictly necessary to the decision. Where, as in Connor v. PoUs,'^ the effect of the misrepresentation on the amount of purchase money can be definitely ascertained, there seems to be no reason either in law or in equity why a purchaser should be Hmited to the alternatives, of either foregoing the purchase altogether and rescinding the contract, or paying in full for that part of the con- sideration which the vendor cannot give him. An abatement of the purchase money in such a case does not depend on an apph- cation of the obsolete rule as to ' making representations good,' nor does it amount to giving damages for an innocent misrepre- sentation. It is a simple appHcation of the principle of failure of consideration : Devauz v. Connolly,^ and see Biggerstaff v. Rowan's Wharf. ^ An innocent misrepresentation inducing a contract may operate as an estoppel. If a person by words or conduct intended to induce another person to act, does in fact induce such person to act to his prejudice, the first-named person is estopped from denying the truth of what his words and conduct represented. But estoppel does not of itself constitute a cause of action.* The conduct amounting to the estoppel may, however, when coupled with the consequent conduct of the person induced to act, con- stitute a contract. The cases of ' making representations good ' can be justified, apparently, only on this ground. ^ An obligation by contract may be inferred from the conduct of the parties, or partly from their conduct and partly from words or writing,^ and the consideration supporting such a contract may be the conduct of one of them inducing the promise of the other, i.e. the words or conduct operating as an inducement may constitute the considera- tion or an important part of the consideration for the consequent promise. The decision in Forman v. Wright ' is authority at law for the proposition, that the consequence of the failure of such a consideration is the same as in the case of the failure of a con- sideration actually expressed in the contract. The defendant in that case was, in effect, entitled to say, " I will pay you the promised sum less the amount by which such sum was increased in con- ^ (1897), 1 Ir.R. 534. = 8 C.B. 640. ^ (iggg)^ 2 Ch. 93. * Low V. Bouverie (1891), 3 Ch. 82, per Bowen, L.J., at p. 105. ° Sir Frederick PoUook, Princvples of Contract, 8th Edn. p. 752, note I. 6 Brogden v. The Metropolitan Railway Co., 2 A.C. 666. 7 11 C.B. 481. 140 AVOIDANCE FOR MISREPRESENTATION Part II sequence of your misrepresentation." TJiat was also the principle Chapter VII ^f ^]^g decision in Connor v. Potts. ^ The principle of discharge by breach depends, as we have already seen, on the party in default being, by his default, disabled from enforcing the contract at law, and a plea of failure of consideration may be a good plea either to the whole claim, if the failure is of sufficient importance operating to discharge the contract, or it may be waived as a discharge and pleaded in reduction of the debt or damages according to circum- stances. Though an estoppel does not constitute a cause of action it may afford a good defence to a claim based on actual facts. In BurTcinshaw v. Nicolls,^ Lord BlacJcburn said : " When a person makes to another the representation, ' I take upon myself to say such-and-such things do exist and you may act on the basis that they do exist,' and the other man really does act upon that basis, it seems to me it is of the very essence of justice that, between those two parties, their rights should be regulated not by the real state of the facts, but by that conventional state of facts which the two parties agree to make the basis of their action." Suppose in such a case as Rutherford v. Acton-Adams * or Connor v. Potts ^ a misrepresentation by the vendor, dehors the contract itself, either as to the area of the property agreed to be sold, or as to the amount or value of fencing or improvements thereon, and, assume that such misrepresentation induced the purchaser to increase the price beyond what he would have paid , on a knowledge of the actual facts. Assume that, in an action for specific performance by the vendor in such a case, the purchaser does not plead his right to avoid the contract, but pleads a partial failure of consideration, viz. that the misrepresentation as to area, or the length of fencing had induced him to increase the price by so much (this was established in Connor v. Potts,^ but not in Rutherford v. Acton-Adams ^), and claims a reduction of the con- tract price accordingly. Is the defendant not entitled to say, as in Forman v. Wright, " I will 'pay the price less the amount by which it was increased by reason of your misrepresentation " ? . If the estoppel means anything, it means that the vendor is estopped from denjdng that the representation was the basis of the price, or part of it, and cannot treat the contract as a contract merely to sell what he can give for the agreed price, but he must treat it as a contract to sell, for that price, what he represented (in efEect, promised) to the purchaser he would get for it. The vendor says » (1897), 1 Ir.R. 534, ^ 3 A.C. 1004, 1026. » Ante, SPECIFIC PERFORMANCE WITH COMPENSATION 141 in effect, "If you buy, you will get such and such a thing." It is Part II immaterial whether the representation is as to the thing itself, Chapter Vli or as to some incident or quality affecting its value if it can be shown that the representation was intended to be acted upon and caused an increase of price. It follows, if the purchaser gets less than that thing as represented, that his plea of partial failujce of consideration ought to prevail, if the representation affected the price. If money paid under a contract induced by and rescinded on account of an innocent misrepresentation may be recovered as on a failure of consideration, it is difficult to see why a claim for the price should not be defended, as to that part referable to the misrepresentation, on the same grounds : Forman v. Wright.^ The right of the purchaser in an action by him to claim specific performance with an abatement is at least equally strong. We have seen that in the case of a substantially executed contract, at law, where complete performance is not a condition precedent to the right to recover (by reason either of the terms of the contract or of waiver), the partial failure to perform, that is, partial failure of consideration is met by a reduction in the contract price.* In view of the discretionary nature of the remedy by specific performance, the case is even stronger for a reduction of the price for failure of consideration, in the case of an executory contract. According to EngHsh law, an action for damages will not he on an innocent misrepresentation unless it amounts to a warranty.^ If, however, the representation amounts to an estoppel, having induced a promise for which the representation is a consideration —thus constituting a contract — it is difficult to see why the repre- sentation should not operate as a promise that it is true, just as if it had been actually embodied in the contract. Is not the purchaser entitled to say, " I have acted on your misrepresentation in promising you an increased price in the contract, you are estopped from now denying that the misrepresentation is to be treated as a term of the contract " ? Whether the misrepresentation be embodied in the contract or not, if it can be clearly proved to have been made and acted upon, the transactions are in substance and effect identical, the difference being in form and proof, and only by a process of reasoning involving a degree of metaphysical subtlety beyond the sphere of common sense can the misrepre- sentation be said, in the one case, to amount to a promise and, 1 11 C.B. 481. ' See p. 119, ante. ' Heilbutt V. BucUeton (1913), A.C. 30. 142 AVOIDANCE FOR MISREPRESENTATION Part n in the other, not. It is difficult to find a satisfactory reason why Chapter YII g, misrepresentation having sufficient potency to render a contract voidable as a whole, should nevertheless be ineffective to justify a reduction in the contract price at the suit of the purchaser. To say that a representation must amount to a warranty in order to justify a reduction of purchase money by the amount to which the representation was the cause of its increase, assumes the prevalence of a rather technical rule of law rather than the pre- valence of the principles of equity. Let us consider what may be predicated of a misrepresentation embodied in the contract itself as compared with a misrepresenta- tion not so embodied : (1) The contract on the face of it shows it was made. (2) Its materiahty may be assumed from the fact that it is made a term of the contract. (3) It appears to be part of the consideration. (4) Its importance will appear from the nature of the contract or from evidence of the circumstances under which the contract was made. Now assume a contract in writing induced by a misrepresenta- tion not embodied in the contract, but, as to which, all the above matters are strictly proved by clear evidence, or are admitted, i.e., (1) The making of the misrepresentation ; (8) Its materiality ; (3) That it was made with intent to induce the contract ; (4) That it in fact induced the contract ; and let us further assume (as in Connor v. Potts ^) that it induced an increase of the contract price. Excepting as to a mere matter of proof by evidence, are not the transactions identical ? Assume in the second case the contract not to be in writing : would not complete proof of the facts to establish the verbal con- tract involve the proof of the misrepresentation and its incidents ? It is conceived that if no part of the transaction were reduced to writing it would be impossible to treat such a misrepresentation otherwise than as part of the contract and forming part of the consideration or inducement. But even in the case of the written contract not embodying the representation, the rules of evidence do not exclude its proof either as estabhshing consideration, or for 1 (1897), I Ir.R 534. AVOIDANCE FOR INNOCENT MISREPRESENTATION M3 the purpose of proving failure of consideration, or as establishing Part H the fact that it induced the contract. It would seem, from such C^apt^V^^ cases as Bannerman v. White ^ and Forman y. Wright,^ as if the question were : Is the representation satisfactorily proved to be an integral part of the consideration or inducement ? There is nothing in the nature of magic in a written contract as against a verbal contract (though in certain cases the enforceabihty of a contract depends on its being in writing). If the representation is embodied in a written contract it is clear that the parties intended it as a term, but the question seems to come back to one of satisfactory proof that the representation was part of the basis of the transac- tion. Where the proof is clear and satisfactory there would seem to be no real ground for distinguishing between the consequences of material misrepresentations inducing a contract however evidenced. A representation as to an existing fact or state of things not being, in form, a promise to do something, is more hkely to be omitted from the contract than to be inserted, and the more implicitly the representation is accepted by the representee, and assumed as a basis of negotiations, the less hkely he -is to require its formal inclusion in the contract. Avoidance o! Executed Contracts for Innocent Misrepresentation It is not proposed to deal in this treatise with the question of the avoidance of executed contracts for fraud, for the reason that this topic is so fully discussed in the works of many learned writers. In view, however, of recent dicta in the House of Lords,^ it is proposed to consider shortly the question whether an executed contract may be avoided for innocent misrepresentation. The term ' executed contract ' is properly apphed only in cases where what has been performed is what was agreed to be performed. It may be that the whole transaction is vitiated by something extrinsic, such as fraudulent misrepresentation, but the contract itself may, nevertheless, be executed completely, though in the case of its having been induced by fraud, the transaction may be set aside and restitution ordered. There is, however, a class of case sometimes confused with ' executed ' contracts, in which what has been performed is some- thing essentially different from what the parties by their contract agreed to. 1 10 C.B. N.S. 844. "11 C.B. 481. 8 Mair v. The Rio Grande, etc. (lOlS), A.C. 863. 144 AVOIDANCE FOR INNOCENT MISREPRESENTATION Part n Let us illustrate each class of case, in order, at the outset, to Chapter vn appreciate the distinction between the principles which apply. Suppose A induces B by a misrepresentation to purchase a par- ticular property, and the contract is duly performed ; A sells and conveys the property he intended to sell, and B buys the property he intended to buy. Although, if the misrepresentation be fraudulent, B may have the transaction set aside, the actual contract made by the parties has been performed, and is an exe- cuted contract in the proper sense of that term. On the other hand, suppose A arranges with his banker to discount B's bill for £100 and the banker agrees, and later, A tenders to the banker a bill which both he and the banker beUeve to be B's bill, but which turns out to be a forgery, and the banker discounts the bill handed to him, what has been executed is something entirely different from that which was agreed to by the executory contract. The executory contract has never been executed, something else has been done. There has in fact been a total failure of considera- tion, which could not be the case if what had been done were what had been agreed to be done. The distinction is well illustrated by comparing the facts in the case of Kennedy v. The Pamama, etc., Mail Co} with the facts in Gompertz v. Barilett ^ and Gurney v. \ Wormersley * cited by Mr. Justice BlacMncm in dehvering the judg- ment of the Court of Queen's Bench in the first -mentioned case. Where the thing handed over is not the thing to be paid for, it is a misuse of language to apply to such facts the term 'executed contract.' Where, to cite Mr. Justice Blackburn, "there is a com- plete difference in substance between what was supposed to be and what was taken " the contract cannot be said to be executed. If, however, I buy a specific horse and he is warranted sound, the property passes to me on the sale whether he turns out to be sound or not. In the absence of an express stipulation that I may return the horse, I have only the remedy of an action on the warranty, because the sale of the very horse I bought is completed ; the property has passed, the contract is executed. Even though the warranty may have been the actuating motive of my purchase and a term without which I would not have purchased at all, I am bound to keep the horse.* Where there is an executory con- tract for the sale of an article by description, and something not according to the description is tendered, the buyer may of course reject it. Nice questions may arise whether the difference between 1 L.R. 2 Q.B. 580. 2 2 E. & B. 849. 3 4 E. & B. 133. * Street v. Blay, 2 B. & Ad. 456. AVOIDANCE OF EXECUTED CONTRACTS 145 wliat was promised and what has been deUvered is a difference Partn in quaUty merely, or a difference in substance, but the question Chapter vii is relatively unimportant while the contract is executory, because the buyer has the right of rejection ; but if something different in substance from what was promised has been tendered and accepted, and has been so dealt with as to render a return of the article impossible, then the purchaser's remedy is in damages for breach of contract, because the thing deUvered was not what was agreed to be delivered but something else : Wallis v. Pratt.^ In that case the contract was for the sale of ' English Sainfoin,' and the seed delivered was 'giant sainfoin,' held to be a different thing. It is of course plain that, if something not according to contract is deUvered and accepted, the purchaser must pay for what he has elected to keep, but in most cases the action will be for the value, on a new contract impUed from the acceptance of what might have been rejected, and not an action for the frice. We are, however, not concerned here with the right to recover damages for breach, but with the right of avoidance of an executed contract. The general rule is that when a contract is executed (i.e. when the thing promised is given), it may be avoided only if induced by fraud, but there is a tendency in some of the more modem decisions to treat, as fraud, the insistence on a bargain by the person who has procured it by innocent misrepresentation ; moreover, there is authority for saying that if there has been no delay in applying for reUef, and the parties can be restored to their original position, an executed contract may be avoided even for innocent misrepresentation. The weight of authority seems, however, to be against this view, and it is proposed to trace the history of the principle. At law, an executed contract (i.e. where the thing intended to be performed has in fact been performed) could not be set aside except for fraud. This sufficiently appears from the decision in Kennedy v. The Panama, etc.. Mail Co.,^ and the same rule is laid down and was acted upon in Wilde v. Gibson,^ which was a case in Equity, and is usually cited as the leading authority for the principle. In that case Lord Campbell said : " I must say that in the Court below the distinction between a bill for carrying into execution an executory contract and a bill to 1 (1911), A.C. 234. " L.R. 2 Q.B. 580, 3 1 H.L.C. 605. 146 AVOIDANCE OF EXECUTED CONTRACTS Part n set aside a conveyance that has been executed has not been very Chapter VII distinctly borne in mind. With regard to the first : If there be in any way whatever misrepresentation or concealment, which is material to the purchaser, a Court of Equity will not compel him to complete the purchase ; but where the conveyance has been executed, I apprehend, my Lords, that a Court of Equity wiU set aside the conveyance only on the ground of actual fraud. And there would be no safety for the transactions of mankind if, upon a discovery being made at any distance of time of a material fact not disclosed to the purchaser of which the vendor had merely constructive notice, a conveyance had been set aside." If one may be permitted to say so without disrespect, Lord Campbell's reasoning seems to involve a non sequitur. There is no necessary relation between conveyance and the discovery of the misrepresentation, or promptness or delay in seeking relief, nor between the passing of the property and the opportunity of a just and complete inquiry as to any alleged misrepresentation which may have induced the contract ; nor as between the passing of the property and the possibility or impossibility of restoring the parties to their former position ; nor as between the passing of the property and the question whether the delay is such as to justify the inference that the contract has been affirmed after knowledge of the misrepresentation. It does not follow, as Lord Campbell seems to have assumed, that relief could be successfully claimed ' at any distance of time ' after completion. Completion of the contract may follow at once dn its being made, or the con- veyance may not be, taken till years afterwards. There may,' in the oase of many executory contracts, be a greater difficulty in ascertaining the facts as to the misrepresentation than in the case of many executed contracts. Moreover, in the case of many executory contracts, restitution may be a greater practical diffi- culty than in many cases after conveyance. Where, as in the sale of a specific chattel, the property passes by the contract of, sale there is no opportunity for avoidance if the contract be in- duced by an innocent misrepresentation, though it may be dis- covered almost immediately, and this is so even if the representation amounts to a warranty. Street' v. Blay.^ If prompt application for relief be the desideratum in Equity, as is suggested by Lord Campbell's judgment in Wilde v. Gibson,^ then the question whether or not the property has passed becomes, strictly speaking, irrele- vant. Either the parties can be restored substantially to their I 2 B. & Ad. 456. = i h.L.C. 605. AVOIDANCE OF EXECUTED CONTRACTS U7 former position or they cannot, and, so far as regards any difficulty Part II in that respect, the question whether the contract was induced Chapter YII by innocent misrepresentation or by fraud can make no difference. The passing of the property on the execution of the conveyance is no doubt a definite point though an arbitrary one, and, while it may be considered as affording the basis of a good working rule, the rule is to be commended more for the certainty of its operation than the justice of its results. It can have no real relation to the questions arising on an apphcation for rehef in ^Equity. But, be that as it may, the rule laid down in 'Wilde v. Gibson ^ and in Kennedy v. The Panama, etc., Mail Co.^ and in Brownlie v.Campbell,^ that only for fraud may a completed transaction be set aside, has been, in the main, followed, though there are indications in some decisions of its possible modification. In Seddon v. The North- Eastern Salt Co.* the rule was followed, and the Court refused, after transfer, to set aside a sale of shares induced by an innocent misrepresentation. Lecky v. Walter ^ was a similar case, in which the leading authorities from Wilde v. Gibson ^ onwards are reviewed by O'Connor, M.R., who refused to set aside the sale. On the other hand, in Mair v. Rio Grande, etc., Ltd.^ (also an action for rescission of an executed contract to take shares). Lord Shaw of Dunfermline said : " The representations accordingly being taken to emanate from the company and the whole body of directors or signatories of the prospectus, the case becomes a simple one. In the view which I take of it, it is su£B.cient, in such circumstances, that the material repre- sentations, or any of them, indjicing the contract were untrue, and it is not necessary separately and substantially to establish fraud in such a case . . . in an action, in short, for rescission of a contract to take shares, on the ground of misrepresentation in the prospectus, it is not necessary to prove a knowledge by the directors or signatories of that document of its untruth. This is in entire accord with a whole body of case law on the subject in recent times, and is sub- stantially the language of Lord Lindley in Karberg's Case." ^ The Lord Chancellor and Lord Moulton expressly abstained from expressing any opinion on the point whether proof of fraud was necessary in order to support the pursuer's action. It is difficult to formulate any satisfactory distinction on the 1 1 H.L.C. 605. 2 L.R. 2 Q.B. 580. 3 5 A.C. 925. * (1905), 1 Ch. 326. = (1914), L.R. 1 Ir. 378. « (1913), A.C. 853. ' (1892), 3 C!h. 1. l2 148 AVOIDANCE OF EXECUTED CONTRACTS Part II facts between Karberg's Case ^ and Kennedy v. The Panama, etc., Chapter vn jiff^^j Qq2 rpj^g contract, in each case, was an executed contract to take shares in the capital of a company, and the shares allotted, and in respect of which the plaintiff was registered, were shares in the very company in respect of which the application had been made. In the earher decision {Kennedy's Case) the misrepre- sentation in the prospectus was as to a mail contract with the New Zealand Government which turned out not to be binding, and in Karberg's Case ^ the misrepresentation in the prospectus was as to the constitution of the company's council of administra- tion. In the earlier case it was held that the shareholder was boimd ; in the later case he was held entitled to rescission. Lord Justice Lindley said : " But in an action for rescission of contract on the ground of mis- representation it is not necessary to prove knowledge by the defendant of its untruth : see Redgrave v. Hurd."^ In Redgrave v. Hurd ^ the a,ction was for specific performance, the contract being executory. The defendant counterclaimed for rescission on the ground of misrepresentation, and, on appeal, the contract was rescinded accordingly. Jessel, M.R., said : " According to decisions of Courts of Equity it was not necessary, in order to set aside a contract obtained by material false representation, to prove that the party who obtained it knew at the time when the representation was made that it was false. It was put in two ways either of which was sufficient. One way of putting the case was : ' a man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to be allowed to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false ; he ought to have found that out before he made it.' The other way of putting it was this : ' Even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency ; no man ought to seek to take advantage of his own false statements.' The rule in Equity was settled, and it does not matter on which of the two grounds it was rested it is enough to refer to the judgment of Lord Cairns in the Reese River Mining Company v. Smith* in which he lays it down in the way I have stated." 1 (1892), 3 Ch. 1. 2 L.R. 2 Q.B. 580. 3 20 G.D. 12. « L.R. 4 H.L. 64. AVOIDANCE OF EXECUTED CONTRACTS 149 In Smith's Case ^ the shareholder sought to have his contract Part n to take shares rescinded, the contract being executed. No doubt CiapterVIi in Karberg's Case,^ as in Smith's-. Case ^ the proceedings were under section 35 of The Companies Act, 1862, but the judgments proceeded on the ground that the apphcants were entitled to rescission, and it is conceived that the form of the apphcation did not affect the principles held to be apphcable. It is difficult to appreciate any substantial or material distinction between an executed contract to take shares in the capital of a company, and an executed con- tract to purchase the shares from the allottee, as in the cases of Seddon v. The North-Eastern Salt Co.^ and Lecky v. Walter^ In each case there is a contract to purchase shares, and in each case the contract is completed by the purchaser having the shares vested in him, and acquiring the status of a member of the company. In Newbigging v. Adam ^ the appellant had been induced by an innocent misrepresentation to enter into partnership with the respondents. He actually became a partner under an agree- ment for a partnership of some thirteen and a half years' duration, and, some eighteen months after the commencement of the partner- ship, he commenced an action for dissolution on the ground of misrepresentation. In the Court of Appeal the appellant was held entitled to rescission of the contract, and in the judgment of Bowen, L.J., the appellant's case is put on the ground of the principle stated by Jessel, M.R. in Redgrave v. Hurd." The business had turned out to be worthless, and it may be suggested that the appel- lant had received an entirely different thing from that for which he had contracted, but that is not the ground taken either in the Court of Appeal or in the House of Lords, to which an appeal was made on the question of the relief on rescission.' It was not con- tended either in the Court of Appeal or in the House of Lords that the contract was executory ; indeed, the argument for the appellant in the House of Lords was that restitution had become impossible — a contention which assumed that the contract was executed. If the view expressed by Jessel, M.R. in Redgrave v. Hurd ° and adopted by the Court of Appeal in Newbigging v. Adam ^ be the principle in Equity, as it appears to be, there seems to be no reason why it should not be apphcable as well to an executed as to an executory contract, provided, of course, that there have been no laches sufficient to bar the right to rehef, and that the 1 L.R. 4 H.L. 64 = (1892), 3 CSh. 1. ^ J1905), 1 Ch. 326. 1 (1914), L.R. 1 Ir. 378. ° 34 CD. 582. 6 20 CD. 1. ' 13 A.C 308. 150 AVOIDANCE OF EXECUTED CONTRACTS PartH parties can be substantially restored to their former position Chapter VII according to the principles on which Courts of Equity wiU order restitution. In view, however, of the different Unes of authorities the point is one of considerable difficulty. In Kennedy v. The Panama,, etc., Mail Co.,^ Lord BlacMmrn referred to the decisions in Gompertz v. BaHktt,^ Gurney v. Wormers- ley,^ and Ship's Case * as illustrating the rule to be applied where the performance is essentially different from what was promised. Let us compare the facts and principles of the decision in Ship's Case * with those in Karherg's Case.^ In Skip's Case * S. applied for fifty shares in The Scottish and Universal Finance Bank on the faith of a prospectus issued before registration of the company. The company was registered with a Memorandum which contained objects substantially different from those indicated by the pro- spectus, and the shares were then allotted to S. in the company so registered. Lord Cranworth said in Dovmes v. Ship : * " There cannot I think be any doubt but that the objects of the business to be carried on by the company, as they are set out in the Memorandum of Association, go so far beyond what was indicated by the prospectus that, excluding all questions of laches and acquies- cence, Mr. Ship was entitled to have his name removed from the company." The inference is that shares were allotted in a company differ- ent from that in respect of which the appUcation was made. The name was the same, and the company was intended to be the same, but, as registered, it was substantially different. Therefore, to quote Mr. Justice Blackburn, there was " a complete difference in substance between what was supposed to be and what was taken, so as to constitute a failure of consideration." What was agreed to be taken was one thing and what was performed was another, so that the contract was not an executed contract. It was Uke the tender of beans for peas referred to by Lord Abinger in Chanter v. Hopkins.'^ In Karberg's Case ^ the facts were differ- ent. The shares allotted vrere shares in the very company of which the apphcant intended he should become a member, but the prospectus contained a misrepresentation as to the individuals who would constitute the council of administration. The argument for the appellant proceeded (as it did before Kekevnch, J.) on the 1 L.R. 2 Q.B. 580. = 2 E. & B. 849. » 4 E. & B. 133. * 2 DeG. J. & S. 544 ; Dowries y. Ship, L.R. 3 H.L. 359. s (1892), 3 Ch. 1. 4 M. & W. 399. AVOIDANCE OF EXECUTED CONTRACTS 151 ground tliat the contract had been induced by misrepresentation, Part II and not on the ground that there had been no performance, or Chapter VII that the thing given was substantially different from what was intended to be taken. The applicant rehed on Wainwright's Case ^ which was decided in relation to the same company, on the same misrepresentation, contained in a prospectus issued after incorpora- tion. Lindky, L.J., in giving judgment in Karberg's Case,^ groups Stewart's Case ^ and Downes v. Shif * as authorities for the proposi- tion " that an application to a company when formed for shares based on a prospectus issued by the promoters of the company before formation, cannot be dissevered by the company from such prospectus." His Lordship then proceeds : " The ofEer to take shares is an ofier to take them on the terms of the prospectus and on no other terms ; and the acceptance of the application by the allotment of the shares is the acceptance of the ofier on these terms, and not on any other terms. Applying this principle to the present case it follows that the representation proved to have been made in the prospectus .... vitiated the only contract into which Karberg and the company entered and entitled Karberg to repudiate it, provided it was material to the contract and the repudia- tion was made in time. " The case proceeded plainly on the ground of rescission (avoid- ance) for material misrepresentation, and not on the groimd that what was given was a substantially different thing from what was agreed to be taken. The conclusion to be deduced from the decision is, that an esecuted contract may be rescinded (avoided) if induced by an innocent misrepresentation, if the misrepresenta- tion is material, and if the contract is avoided in time. It seems impossible to reconcile this decision with the principle on which Kennedy v. The Panama, etc.. Mail Co.^ was decided. The facts in the two cases are hardly distinguishable in principle. Kennedy's Case ^ was decided at law, and Karberg's Case ^ was decided on the principle of Equity laid down in Redgrave v. Hurd.^ In Kennedy's Case,^ Ship's Case * was treated as an instance of the performance of something substantially different from what was promised ; in Karberg's Case ^ it was treated as a case of material misrepre- sentation. It would seem to follow from Karberg's Case ^ that, in Equity, a representation amoimting to a warranty inducing 1 63 L.T. 429. " (1892), 3 Ch. 1. » L.R. 1 Ch. 574. » L.R. 3 H.L. 343. s L.R. 2 Q.B. 580, « 20 CD. 1. 152 AVOIDANCE OF EXECUTED CONTRACTS Part II a contract would justify the avoidance of the contract although Chapter VII ^j^g property had passed — in the absence of laches or acquiescence, and if restitution could be made. So far as regards sales of goods, the special provisions of the Sale of Goods Act would, of course, apply. Whether these pro- visions exclude the apphcation of the rules of Equity was con- sidered by the Court of Appeal of New Zealand, in Riddiford v. Warren.^ There the contract was for the sale to the appellant (purchaser) of 1,600 ewe lambs of the coming season from the respondent's sheep' run.^ At the time of the alleged breach the contract was executory, and in an action for damages by the purchaser the vendor pleaded that the contract had been induced by a misrepresentation and sought rescission. The Court of Appeal found as a fact that there had been no misrepresentation, but proceeded to deal with two points raised on the argument : (1) as to 'the principle on which a contract may be rescinded for misrepresentation ; (2) as to the application of the rules of equity to contracts under the Sale of Goods Act. On the former point the distinction between executory and executed contracts seems to have been overlooked both in the argument and in the judgments of Williams and Denniston, J J., who apparently adopted the principle of Kennedy v. The Panama Mail Co.^ (which was the case of an executed contract), whereas, in the case before the Court, the contract was apparently executory, the lambs being unascertained. On the second point it was held that the rules of Equity as to the effect of misrepresentation upon contracts did not apply to sales of goods, and that sub-section (2) of section 61 of " The Sale of Goods Act, 1895 " (New Zealand) confirmed this view. It is submitted with great respect that the soimdness of this conclusion, also, is greatly open to question.* Karberg's Case^ has been followed in many cases of executed contracts to take shares, though the observations of their Lordships in Mair v. The Rio Grande, etc.^ leave the question now under con- sideration in an unsatisfactory position. There' is no doubt' that, 1 20 N.Z.L.R. 572 ; 4 Gaz. L.R. 66. " See report of case in the Supreme Court, 4 Gaz. L.R. 66. = L.R. 2 Q.B. 580. * Sir William Anson, Law of Contract, 13th Edn. 182. ■> (1892), 3 Ch. I. ^ (1913), A.C. 853. AVOIDANCE OF EXECUTED CONTRACTS 153 since the decision in Redgrave v. Hurd} there has been a tendency Part n not to treat the performance of the contract as a bar to relief by rescission for innocent misrepresentation, but to consider rather the questions whether reUef has been promptly sought, and whether the parties can be restored to their former position. 1 20 CD. 1. CHAPTER VIII MISTAKE Part II ' Mistake ' is a somewhat indefinite term, applied to various Chapter V classes of cases in which there is a misunderstanding or misappre- hension on the part of one or both of the contracting parties. The legal consequences of mistake vary with the circumstances. For that reason any attempt at a definition of the term would be of little practical assistance to the student. Mistake is a generic term, each group of cases to which it may be appropriately appUed forming a separate topic. We have already seen that it overlaps the subject of misrepresentation ; indeed cases of mistake induced by misrepresentation are more properly dealt with under that heading, as, in such cases, the mistake is little more than an evidence of the effect of the misrepresentation. It is proposed to treat this branch of the subject shortly by grouping, according to the legal consequences of the mistake, the cases in which it is a material element for the purpose of illustrating the principles which apply. A mistake on the part of a person entering, or intending to enter, into a contract may, according to -its nature and circum- stances, have one of the following legal consequences : (a) It may be such as to prevent a legal obUgation attaching at all ; in other words, the apparent contract is no con- tract in law, i.e. it is void ; (&) It may afford a ground for avoiding the contract, i.e. it may render the contract not void but voidable ; or (c) It may merely justify the refusal of a decree for specific performance on discretionary grounds. , (a) Where mistake prevents legal obligation A mistake which prevents a contractual obHgation attaching may be either : (1) A misapprehension on the part of both parties as to some matter which is assumed as the basis of the contract (common or mutual mistake), or 154 WHERE MISTAKE PREVENTS LEGAL OBLIGATION 155 (2) A misappretension by one party as to tlie subject- Partil matter of the contract so that there is a want of Chapter viii consensus ad idem (unilateral mistake). But, as will be seen presently, it is not every imilateral mistake that will justify the finding that there is no contract. (1) The following are instances of mutual mistake which will prevent the transaction from amounting to a legal obhgation. In Hitchcock v. Giddings ^ the purchaser had bought the interest of the vendor in a remainder in fee expectant on an estate tail. The tenant in tail had in fact actually suffered a recovery of which both parties were ignorant until after the conveyance had been executed, and an absolute bond given for securing payment of the purchase money. The bond was ordered to be dehvered up to be cancelled and all interest paid under it was ordered to be refunded. Richards, C.B., said : "I must not be told that a Court of Equity cannot interfere where there is no fraud shown. If contracting parties have treated while under a mistake that will be sufEicient ground for the interference of a Court of Equity ; but in this case there is much more. Suppose I sell an estate innocently, which at the time is actually swept away by a flood, without my knowledge of the fact, am I to be allowed to receive £5,000 and interest, because the conveyance is executed and a bond given for that sum as the purchase money, when, in point of fact, I had not an inch of land so sold to sell ? " In Couturier v. Hastie ^ a cargo of corn was shipped by A. at Salonica for dehvery in London. Subsequently it was sold by H., a factor who made the sale on a del credere commission. The contract described the corn as "of average quahty when shipped." The sale was made in ignorance of the fact that the corn had a short time before the date of the. contract been sold at Tunis in consequence of getting so heated in the early part of the voyage as to render its being brought to England impossible. When the English purchaser discovered this he repudiated the contract. It was held that the contract contemplated that there was an existing something to be sold and bought and capable of transfer, and this not being the case at the time of the sale by the factor, he was not liable on the contract. There was in law no contract.^ In Scott V. Coulson * a contract for the sale of a life poUcy was 1 4 Price 135. 2 5 H.L.C. 673. 3 Vide Sale of Goods Act [E.) Sec. 6 (N.Z.) Sec. 9. « (1903), 2 Oh. 249. 156 MISTAKE Part II entered into by both parties in the behef that the assured was Chapter VIII ^live and the contract was completed by assignment. At the time of the contract both parties beHeved the assured to be aUve. The purchaser had information before the assignment that the assured was dead but did not disclose his information to the vendor. The transaction was set aside. The principle does not apply to cases of mere defects in quality or to cases of depreciation, if, at the time of the contract, the thing which is the subject-matter of the contract exists sub- stantially as assumed.^ If the basis of the contract be that the thing sold possesses certain quahties or is in a certain condition, then it would seem that the principle apphes if the assumption of the parties is erroneous. The principle may be compared with that of the cases in which a contract is entered into on the basis that a certain essential state of things existing at the time of the contract will continue to exist ^ or that certain events assumed by both parties to be about to take place will take place.^ The principle applicable to these cases wiU be discussed in the next chapter. The principle now under consideration applies to mistakes of law as well as to mistakes of fact, where the assumption is as to the law as apphed to given facts. Where a person beUeving another to be entitled to property to which in law he is himself entitled, takes a lease of such property from such other, who is also under the same erroneous belief as to the ownership, the Court will set the transaction aside as having been made in mutual mistake.* (2) The following cases will suffice to illustrate the principle that a mistake by one party as to the subject-matter of the con- tract will justify the conclusion that no binding contract has been made, on the ground that the parties were not ad idem in making what purported to be a contract. In Raffles v. Wichelhaus ^ the parties entered into a contract for the sale and purchase of Surah cotton " to arrive ex ' Peerless ' 1 Barr v. Gibson, 3 M. & W. 390. ^ Taylor v. Caldwell, 3 B. & S. 862. ^ The Coronation Cases, p. 171 post. * Cooper V. Phibhs, L.R. 2 H.L. 149 ; re Boberts {1905), 1 Ch. 70 ; see also Jones v. Clifford, 3 CD. 779 ; Huddersfield Banking Co. v. Henry Lister 3is of the contract.' In order to justify the application of the principle of Taylor v. Caldwell ^ it is not enough that a state of things, on which a purpose of the contract depended, has failed, and that a purpose of the contract has been frustrated. The continued existence or the happening of the assumed state of things must be the basis of the contract. This sufficiently appears from the decision of the Court of Appeal in Heme Bay, etc., Co. v. Hutton.^ The defendant chartered a vessel for 28th and 29th J\ine " for the purpose of viewing the naval review and for a day's cruise round the fleet." Although the naval review was postponed it was still possible to 1 3 B. & S. 826 '1 Q.B.D. 258. => (1901), 2 KB. 126. 2 C.P. 651. = (1903), 2 K.B. 740. « (1903), 2 K.B. 683. 172 DISSOLUTION BY OPERATION OF THE LAW Part II cruise round the fleet. The defendant proposed to carry passengers Chapter IX f^j, jjjj.g_ j^ ^g^g }^q\^^ having regard to the whole contract,- that the holding of the naval review was not contemplated by both parties as the basis and foundation of the contract, and that the hiring of the boat was a business venture on the part of the defendant, the risk being his alone. In Chandler v. Webster^ it was contended that the principle applicable in these cases depended on the doctrine of failure of consideration. Collins, M.R., in his judgment said " the doctrine of the failure of consideration does not apply." Although an element of failure of consideration may, in some instances, be involved in the facts which justify the appUcation of the principle, the relation of that element to the principle is merely accidental. We have seen that the failure of a condition precedent may inci- dentally involve a failure of consideration, and, on the other hand, that a condition precedent may be as to the act of a third party, and entirely foreign to the consideration moving from either party to the contract.^ It would be absurd to suggest, on the facts in Taylor v. Caldwell,^ that the defendant proprietors could have successfully pleaded failure of the consideration on their own part : that is, failure of the consideration moving from themselves, though, had the parties to the action been reversed, and had the action been brought by the proprietors for the agreed remuneration or for damages, it is conceivable that a plea of failure of considera- tion based on the proprietor's inabihty to provide the Hall, would have succeeded as a ground of discharge of the promise to pay. On the facts in the Coronation Cases there was no element of failure of any part of the consideration as between the parties. The performance of these contracts essentially depended on the prior acts of others over which the contracting parties had no control. The principle is analogous to, if it be not really identical with, failure of condition precedent to the whole contract. In Taylor v. Caldwell * the position is as though the contract had been pre- faced with the condition — "If, but only if, the Surrey Music Hall shall exist on the dates hereinafter specified, the parties shall be bound as foUows, etc." A failure of consideration, as such, can only avail one party : the party induced by the consideration moving from the other, and it operates as a discharge of such party only. The failure of a condition precedent to the obUgation of one party avails only the party for whose benefit it was introduced 1 (1904), 1 K.B. 493. « See p. 58 ante. * 3 B. & S. 826. DISSOLUTION BY OPERATION OF THE LAW 173 into tlie contract, as a ground of discharge of that party ; but in Part II order to afford ground for the dissolution of the contract (the dis- Chapter IX charge of the obligations of both parties) the failure must be of a condition precedent to the whole contract, i.e. the state of things necessarily contemplated by both parties as the basis and founda- tion of the contract must fail to continue or fail to happen as the case may be. There must be a failure, ' equally affecting both parties,'^ of the condition of things constituting the basis of the contract without which, manifestly, neither would have entered into the contract. Where it appears that both parties necessarily contracted on the basis either, that before the time for performance certain things would continue (or that certain things would not happen) {Taylor v. Caldwell), or that certain things would happen (The Coronation Cases), the obhgations on both sides are conditional. On the failure of the condition, on which the obhgations on both sides depend, both parties are ipso facto discharged, and the con- tract is dissolved, but the discharge is prospective only and not retrospective. Whatever rights may have accrued under the con- tract to either party, in the interval between the making of the contract and the events which effect a dissolution, are unaffected by the dissolution. Moneys already paid under the contract cannot be recovered, but moneys due and payable on a date prior to the dissolution and still unpaid may be recovered. In The Civil Service Co-operative Society v. The General Steam Navigation Co.^ Lord Halsbury cited with approval an extract from the judgment of Channell, J., in Blaheley v. Muller,^ Lord Alverstone, C.J., and Cozens-Hardy, L.J., concurring ; the extract is as follows : " If the money was payable on some day subsequent to the abandon - ment of the procession, I do not think it could have been sued for. If, however, it was payable prior to the abandonment of the procession the position would be the same as it is had it been actuailly paid and could not be recovered back, and it could be sued for." In the later case of Chandler v. Webster,^ Collins, M.R. (citing with approval the passage from the judgment of Channell, J., in Blaheley v. Muller just referred to), said : " The result is that the law leaves the parties where they were when the further performance of the contract became impossible. It treats the contract as a good and subsisting contract with regard to 1 Appleby V. Myers, L.R. 2 C.P. 651. ^ (1903), 2 K.B. 756. 3 (1903), 2 K.B. 760. Note. * (1904), 1 K.B. 493. 174 DISSOLUTION BY OPERATION OF THE LAW Part II things done and rights accrued in accordance with it up to that time ; Chapter IX ^j^t as the basis of the contract has failed it excuses the parties from further responsibility under it." 3. The third class of cases coming under the general principle comprises cases in which — (a) A contract legal and proper when entered into is, before performance, rendered illegal ; in otber words, the per- formance is rendered illegal. (b) Some superior right (as under an Act of Parliament) supervenes, and renders performance of the contract impossible in law. As an example of the first group of cases may be cited a con- tract entered into before war with a person who by the declaration of war becomes an alien enemy. If the performance of such a contract is, from its nature, ^ot capable of suspension till after the war, and involves trading with an alien enemy, the performance becomes illegal and the contract is void : Esposito v. Bowden.^ In that case Willes, J., delivering the judgment of the Court, said : " As to the mode of operation of war upon contracts of affreightment made before, but which remain unexecuted at the time it is declared, and of which it makes the further execution unlawful or impossible, the authorities establish that the effect is to dissolve the contract and to absolve both parties from further performance of it." The leading case of the second group is Baily v. de Crespigny.^ That decision is authority for the proposition that a contract for the sale and purchase of land is dissolved if, before performance, the land is taken by a third party under statutory powers of com- pulsory purchase. Hannen, J., in delivering the judgment of the Court, said : " The substantial question raised on this record is whether the defendant is discharged from his covenant by the subsequent Act of Parliament which put it out of his power to perform it." " We are of opinion that he is so discharged on the principle expressed in the maxim ' lex non cogit ad impossibilia.' We have first to consider what is the meaning of the covenant which the parties 1 7 K. & B. 763 ; see also Arnhold Karberg v. Blyihe Green (1915), 2 K.B. 379, Duncan Fox Co. (1915), 3 K.B. 676. DISSOLUTION BY OPERATION OF THE LAW 175 have entered into. There can be no doubt that a man may by an Fart II absolute covenant bind himself to perform things which subsequently Chapter IX become impossible or to pay damages for the non-performance, and this construction is to be put upon an unqualified undertaking, where the event which causes the impossibility was or might have been anticipated and guarded against in the contract, or where the impossibility arises from the act or default of the promisor. " But where the event is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, they will not be held bound by general words which, though large enough to include, were not used with reference to the possibility of the particular contingency which afterwards happened." The last paragraph quoted was cited in Krell v. Henry ^ by Vaughan Williams, L.J., wbo expressed himself as follows : " The test seems to be whether the event which causes the impos- sibility was or might have been anticipated or guarded against. It seems difficult to say, in a case where both parties anticipated the happening of an event, which anticipation is the foundation of the contract, that either party must be taken to have anticipated, and ought to have guarded against, the event which prevented the perform- ance of the contract. In both Jachson v. The Union Marine Insurance Company ^ and Nickoll v. Ashton ^ the parties might have anticipated as a possibility that perils of the sea might delay the ship and frustrate the commercial venture : in the former case the carriage of the goods to effect which the charter party was entered into, in the latter case the sale of the goods which were to be shipped on the steamship which was delayed. But the Court held in the former case that the basis of the contract was that the ship would arrive in time to carry out the contemplated commercial venture, and in the latter that the steamship would arrive in time for the loading of the goods, the subject of the The general principle which covers the various classes of cases noticed in this chapter seems to be, that where an event which both parties, in making the contract, contemplated would happen does not happen, or where an event which neither party con- templated would happen does happen, neither party being to blame and such unexpected contingency renders performance, according to the intention of both parties, wholly impossible either as a matter of fact or as a matter of law, the contract is dissolved, if the contemplated state of things which has failed was essential 1 (1903), 2 K.B. 740. " L.R. 10 C.P. 125. 3 (1901), 2 KB. 126. 176 DISSOLUTION BY OPERATION OF THE LAW Part 11 to the performance of the contract, as its basis or foundation Chapter IX according to the intention of both parties. It is not enough that one party in entering into the contract or even both had a definite purpose in view which had been defeated by the unexpected hap- pening : Heme Bay, etc., Co. v. Hutton.^ It is difficult to lay down any test of what is to be considered the foundation of the contract for the purpose of applying this principle. In Horloch v. Beal ^ Lord Loreburn treated a commercial contract as rendered impossible of performance when performance became impracticable from a commercial point of view. In that case the House of Lords held that the detention of a ship and crew in Germany on the declaration of war terminated the contract for service and the habihty to pay wages. It is not enough that what appears to have been a dominant purpose of both parties in entering into a contract has been sub- stantially interfered with, if it has not been rendered wholly impossible. In In re F. A. Tamplin Steamship Company and The Anglo-Mexican Petroleum Co.^ a tank steamer was chartered for sixty months expiring in December, 1917, to be employed in voyages between specified ports for the carriage of refined petroleum and /or crude oil and/or its products. The charterers were to pay a fixed sum of £1,750 per month by way of freight. The steamer was requisitioned by the Admiralty in December, 1914, and was altered to fit her for the transport of troops. The Court of Appeal held that the adventure on the part of the owners was that the ship should earn the freight for the term of the charter, that of the charterers that they should have the use of the ship. The adven- ture on the part of the owners had not been frustrated, as the charterers had paid and were prepared to continue to pay the charter money. The action of the Government did not entirely defeat the object of the charter. The commercial enterprise, though interrupted, had not been destroyed. The contract was held not to have been dissolved. The monthly payments on the one side and the use of the steamer on the other were considered to be the foimdation of the contract. The mode of use of the steamer intended by both parties was not treated as the foimdation of the contract. The charter continued to be beneficial to both parties. The question how the case would have stood had the steamer been requisitioned for, or for a period exceeding, the 1 (1903), 2 KB. 683. " 32 T.L.R. 251 (H.L.). ^ (1916), W.N. 3. See also Associated Portland Cement, etc., v. William Cory, Ltd., 31 T.L.R. 442. DISSOLUTION BY OPERATION OF THE LAW 177 residue of the term of tlie charter, did not arise. This case illustrates Part ii the difficulty of laying down any but a very general principle Chapter IX governing all classes of cases of dissolution by operation of the law. In the London and Northern Estates Co. v. Schlesinger'^ the lease of a flat in Westcliff-on-Sea to an Austrian, who by the declara- tion of war became an alien enemy, was held not to be determined by an Order in Council by which alien enemies were prohibited from residing within certain specified areas including Westcliff-on- Sea. It was held that the lessee might still sublet the flat and was liable for the rent. The contract was not one for the exclusive personal occupation of the flat by the tenant. These two cases seem to be of the class illustrated by the Heme Bay, etc. Co. v. Button,^ in which the principle of Krell v. Henry was held not to apply, and the decisions seem to show that where the contract may still be performed beneficially to the parties, though not in the mode originally intended, it will not be dis- solved by the supervening fact which was not in the contempla- tion of either party. The cases referred to in this chapter may be usefully contrasted with the decision in the old case of Paradine v. Jane,^ where it was laid down that a tenant is liable for the rent of premises held under lease, although the house has been destroyed by Hghtning or thrown down by alien enemies : ' it is all one as if there had been an actual covenant.' The mere unexpected destruction of even a substantial part of the subject-matter of the contract will not dissolve the contract, unless the circumstances are such that the Court can see that the contract depended on the continued existence of the subject-matter. The distinction between executory and executed contracts has, apparently, no application on the question whether the con- tract is dissolved ; it is important only in considering the effect of the dissolution. In other words, the dissolution operates only so far as the contract is executory, and this is merely another way of sa3dng that rights accrued under the contract are not affected. As was pointed out by Blackburn, J. in the judgment in Taylor v. Caldwell,* " where a contract for sale is made amounting to a bargain the sale transferring presently the property in specific chattels, which are to be delivered by the vendor at a future day, there, 1 (1916), 1 K.B. 20. " (1903), 2 K.B. 683 ; and see Associated Portland, Cement, etc., v. William Co?-!/, £fei., 31 T.L.R. 442. 3 Aleyn 26 (1648). ' S^B. & S. 826. N 178 DISSOLUTION BY OPERATION OF THE LAW Part II if the chattels, without default of the vendor, perish in the interval, Chapter IX ^]jg purchaser mjist pay the price, and the vendor is excused from performing his contract to deUver which has thus become im- possible," imless, of course, the contract provides, for delivery as a condition of payment. In order to understand the operation of the principle one must appreciate its basis or reason. In Taylor v. Caldwell,^ Blackburn, J., after laying down the condition which the law imphes in such cases, said : " For in the course of afiairs men in making such contracts in general would, if it were brought to their minds, say that there should be such a condition." The principle, though apparently made to turn on the meaning of the contract, is not dependent on an inference of a positive intention that the contract should be dissolved on the happening of a given contingency ; it rather depends on a negation of any intention that the contract should bind in the circumstances. The positive intention inferred from the contract and circumstances is that the parties contracted on the assumption of the continued or future existence of the state of things necessary to its performance. The excuse is : " By law implied because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of thej)articular person or chattel." Therefore the law imphes the condition where, and only where, it appears, from the nature and circumstances of the contract, that had the parties' attention been invited to the possibihty of the unexpected contingency happening, they would inevitably have agreed that in such event the contract would be at an end ; or where, had the event appeared certain to occur, the futihty of making any such contract would have been manifest to both parties. 1 3 B. & S. 826 CHAPTER X RESTITUTION or the Restoration of the ,' Status quo ante ' as a Condition of Rescission The discussion of tMs topic involves the consideration of two Partil main questions which are, to some extent only, distinct. Chapter x 1. Where there is such a physical alteration of the subject- matter of the contract {Erlanger v. New Sombrero, etc., Co.),^ or such an alteration of its legal incidents {Clarke v. DicJcson),'^ as renders it impossible to restore it in its former condition, or justly approximate thereto, the contract will not be set aside. 2. Where the rights of third parties have interposed, the existence of such rights may prevent determination of the contract. The second question is to some extent a branch of the first, but concerns a wider range of cases than those in which the possi- bility of determination may be affected by a mere change in the subject-matter. The rule, that there cannot be rescission of a contract unless the subject-matter of the contract can be restored in substantially its former condition, has application to some only of the classes of cases which are conventionally treated as cases of ' rescission.' Subject to the subsidiary rule already referred to, as to the rights of third parties, which will be considered presently, the rule as to restitution as between the parties themselves has no apphcation — (1) To the case of a contract rescinded by agreement of the parties, for in such case the parties make their own adjust- ments (if any) as to part performance or compensation for alteration of the subject-matter ; nor (2) To rescission based on repudiation, the consequences of which are, in a measure, similar to those of discharge by breach ; nor 1 3 A.C. 1218. ^ E.B.& E. 148. 179 N2 180 RESTITUTION Part II (3) To cases of discharge by breach, whether the breach be Chapter X the breach of a condition precedent or amounts merely to a failure of consideration ; nor (4) To cases of dissolution by operation of law.^ The rule specially applies to cases of avoidance for misrepresenta- tion, whether innocent or fraudulent, and to cases of avoidance for mistake. There are, however, dicta in some judgments of high authority suggesting that the rule has a wider appUcation, and these call for explanation. In Hunt V. SilJc ^ the plaintiff sued for the recovery of £10 money had and received. The defendant had agreed in consideration of £10' to let the plaintifi a house, which the defendant was to repair and execute a lease of within ten days, the plaintifE to have immediate possession. The plaintiff took possession and paid the £10. The defendant neither made the repairs nor executed the lease within the ten days, but the plaintiff remained in possession for some time, and then quitted the house giving the defendant notice of his having rescinded the agreement in consequence of the defendant's default. Lord Ellenborough said : '' Now where a contract is to be rescinded at all it must be rescinded in toto and the parties put in statu quo." His Lordship, however, held that, by remaining in possession after the defendant's default, the plaintiff had waived his right to avail himself of the breach as a ground of discharge. The plaintiff was either discharged by the breach or he was not ; having waived the breach he could not insist upon it as effecting a discharge, and, plainly, could only recover damages, in an action on the con- tract, for the breach. He could not after waiver treat the contract as gone and sue as on a failure of the whole consideration. Although the judgments of all the Judges seem to have proceeded on the ground that the parties could not be restored to their former position, the real ground of the decision, it is submitted, was that, the breach having been waived, the plaintiff's right was limited to the recovery of damages for breach of contract, and he could not recover the £10 paid as money had and received to his use because, as was said by Lawrence, J., " the consideration had not wholly failed." It is manifest that had the plaintiff not waived the breach, and had the defendant's default been of sufficient importance to discharge the plaintiff, he must have been held entitled to recover 1 See p. 173, ante. • 2 5 East, 449. RESTITUTION 181 his deposit, as by the discharge the contract would have been at an part n end : Flight v. Booth ; ^ Day v. Singleton,^ Powell v. Marshall? Chapter x The acceptance of the subject-matter of the contract, or part of it, so as to constitute waiver of breach, should not be confused with inabiHty to make restitution. As a matter of fact the latter may, and often does, result from the former, but, in such a case, the ground of refusal of reUef to a purchaser is the waiver and accept- ance. In such cases as Munro v. Butt * and Sumpter v. Hedges,^ plain cases of discharge by breach, restoration of the parties to their former position is not a term of the discharge of the party not in default. A plaintifE, if he has made a default sufSciently important to discharge the defendant, can recover nothing on the contract, and may be hable to pay damages for his breach. The only element in such a case at all analogous to the principle of restitution is, that the party in default, may, sometimes, recover for work or suppHes, if he is fortunate enough to be in a position to prove facts which will justify the inference of a new promise to pay on quantum meruit or quantum valebat : Sumpter v. Hedges.^ The broad principle of ' justice and common sense,' which, ac- cording to Pollock, C.B.,^ actuated the decision in Boone v. Eyre '' is that which underhes the doctrine of restitution, as well as of quantum meruit. In Boone v. Eyre ' the defendant had received the substantial part of the consideration (the estate), and claimed to be discharged from his liabihty to pay for it, because the vendor could not give title to the negroes. The Court of Law had, of course, no power to compel the purchaser to reoonvey the estate, and so, to prevent his keeping it without paying for it, construed the covenant to pay the price as an independent covenant, while, in plain terms, it was a covenant dependent on a condition precedent which had not been performed. Thus was created a precedent which has caused much difEerence of judicial opinion and not a httle confusion ; see Ellen v. Tofp,^ and the discussion on the effect of Boone v. Eyre,'' p. 101 ante. In BlacMmrn v. Smith ^ the plaintiff, suing for the recovery of a deposit paid on a purchase of land, was held to have waived objections to title, and, therefore, if there was a breach in that respect, it did not entitle the purchaser to sue for the return of his deposit. The purchaser (plaintiff) had taken possession and ! 1 1 Bing. N.G. 370. ^ (iggg)^ 2 Ch. 320. ^ (iggg)^ 1 q_b. 710. * 8 E. & B. 738. 5 (1898), 1 Q.B. 673. 6 Newson v. SmytMes, 3 H. & N. 840. ' 1 H.Bl. 273 n. 8 6 Exch. 424. ' 2 Exch. 783, 182 RESTITUTION Part II Baron Parhe (delivering the judgment of the Court of Exchequer) "''ai'ter X said : " Further, we think, on the principle of Hunt v. Silh?- inasmuch as the plaintiH had the possession of the property, and the parties could not be placed in statu quo, the count for money had and received cannot be maintained, supposing the plaintiff had been guilty of a breach of contract subsequent to the delivery of the abstract. We have not now to decide whether such a breach has been committed."^ An action for the recovery of a deposit can, of course, succeed only where the contract is at an end, so that the consideration has wholly failed. The contract may be put an end to so as to enable recovery of the deposit either : (a) In pursuance of an express power of rescission ; or (6) In consequence of repudiation by the vendor accepted by the purchaser, so as to operate as a rescission ; or (c) By the vendor's breach discharging the purchaser : (if the breach be waived it cannot operate as a discharge) ; or {d) By express agreement for rescission on terms, express or implied, that the deposit is to be repaid. Blackhurn v. Smith * and Hunt v. Silk ^ were both decided at Common Law, and, according to these decisions, possession of the property agreed to be sold was treated as rendering restitution impossible. According to the more modern authorities this is plainly not the law : Lama/re v. Dixon.^ In Heilbutt v. HicJcson,^ Bovill, C.J., stated the distinction between executory and executed contracts for the sale of goods, and cited Street v. Blay ^ for the proposition : " If the purchaser has exercised acts of dominion over the goods, as by parting with the property in them, or has prevented the vendor being placed in the same situation, then, generally speaking, he wiU not be entitled to return or reject them" and proceeds "see also Hunt V. Silk,^ Clarke v. Dickson ' . . . . and the conclusion of the judgment in Blackburn v. Smith."^ The rule in Sired v. Blay ® is, that an executed contract for the sale of goods is not discharged for failure of part of the considera- 1 5 East, 449. ' Benisen v. Taylor ;(1893), 2 Q.B. 274. » 2 Exoh. 783. ' L.R. 6 H.L. 414. 5 L.R. 7 C.P. 438. 6 2 B. & Ad. 456.? ' E. R & E. 148. RESTITUTION 183 tion. Contracts such as those in Hunt v. Silk^ and Blackburn v. Part ii Smith^ would, in equity, be treated as executory. The judgment Chapter X in each of these cases turned on waiver of breach, and the observa- tions in each judgment, as to the impossibihty of restoring the status quo, appear to have been unnecessary for the decision. These judgments, however, illustrate the strict rule which obtained at Common Law as to restitution. Clarke v. Dickson,^ referred to by Bovill, C.J., was not a case of breach of contract, but a claim for the recovery of the price paid for shares under a contract induced by fraud. The plaintiff was unable to restore the shares, and the Court held therefore that his only remedy was an action for damages for deceit. Clarke v. Dickson ^ depended on a principle entirely different from that which governed Street v. Blay ; * and the decisions in Hunt v. Silk ^ and Blackburn v. Smith ^ both belong to a different category from that of either Clarke v. Dickson ^ or Street v. Blay.^ The doctrine of restitution properly apphes only in such oases as Clarke v. Dickson,^ — avoidance for fraud or misrepresentation, or mistake ; and the passing of the property in cases of fraud, and in some cases of mistake, does not operate to prevent rescission and restitution. In cases of irmocent misrepresentation the execution of the contract may prevent rescission, but where it does not, the doctrine applies.^ If a party is discharged by breach it is, according to the authorities, inmiaterial that he has received some benefit under the contract ; if, however, he has accepted a benefit when he might, consistently with the contract, have rejected it, he may be Hable on quantum meruit or quantum valebat for what he has accepted : Sumpter v. Hedges,^ Munro v. Butt,'' — not on the ground that the status quo must be restored. The doctrine of restitution or restoration of the status quo has no application to the case of discharge by breach. The party in default, in such a case, retains no rights under the contract, so also, in the case of rescission consequent on a repudiation ; General Billposting Co. V. Atkinson.^ We have seen that, at law, taking and retaining possession of the property was held to prevent the restoration of the status quo, and to bar avoidance of the contract, at all events where there was no fraud, but the jurisdiction which equity has always 1 5 East, 449. ' ,2 Exoh. 783. 3 E. B. & E. 148. « 2 B. & Ad. 456. = See Karberg's Case (1892), 3 C!h. 1. « (1898), 1 Q.B. 673. ' 8 E. & B. 738. " ^ (1909), A.C. 118. 184 RESTITUTION Part II exercised in personam has enabled it to give relief in cases where Chapter X reUef would have been refused at law. In Erlanger v. New Sombrero Phosphate Oo.} a case of avoid- ance of a contract obtained in breach of fiduciary duty, Lord Blackburn said : " It is I think clear on principles of general justice that as a condition to a rescission there must be a restitutio in integrum. The parties must be put in statu quo. See per Lord Granworth in Addie v. The Western Bank.^ It is a doctrine which has often been acted upon both at law and in equity. But there is a considerable difEerence in the mode in which it is applied in Courts of Law and Equity, owing, as I think, to the difierence of the machinery which the Courts have at command. I speak of these Courts as they were at the time when this suit commenced, without inquiring whether the Judicature Acts make any, or if any what, difierence. " It would be obviously unjust that a person, who has been in possession of property under the contract which he seeks to repudiate, should be allowed to throw that back on the otherparty's hands without accounting for any benefit he may have derived from the use of the property, or, if the property, though not destroyed, has been in the interval deteriorated, without making compensation for that deteriora- tion. But as a Court of Law has no machinery at its command for taking an account of such matters, the defrauded party if he sought his remedy at law must in such cases keep the property and sue in an action for deceit, in which the jury, if properly directed, can do complete justice by giving as damages a full indemnity for all the party has lost : see Clarke v. Dickson ^ and the cases there cited. But a Court of Equity could not give damages, and unless it can rescind the contract can give no relief. And on the other hand it can take accounts of profits and make allowance for deterioration, and I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just though it cannot restore the parties precisely to the state they were in before the contract." His Lordship after dealing with the question of delay, cited the judgment of the Judicial Committee in Lindsay Petroleum Co. v. Hurd * as follows : " The doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where, 1 3 A.C. 1218. 2 LR, I H.L. So. 165. => E. B. & E. 148. " L.R. 5 P.C. 239. RESTITUTION 185 by his conduct and neglect lie has, though perhaps not waiving that Part II remedy, yet put the other party in a situation in which it would not be Chapter X reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material. But in every case if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circum- stances always important in such cases are the length of the delay and the nature of the acts done during the interval, which might afiect either party and cause a balance of justice or injustice in taking the one course or the other so far as related to the remedy." His Lordship then proceeds : " I have looked in vain for any authority which gives a more distinct and definite rule than this ; and I think, from the nature of the inquiry, it must always be a question of more or less depending on the degree of diligence which might reasonably be required, and the degree of change which has occurred whether the balance of justice or injustice is in favour of granting the remedy or withholding it." His Lordship then proceeded to say that : " The determination of such a question must largely depend on the turn of mind of those who have to decide, and it must therefore be subject to uncertainty ; but that, I think, is inherent in the nature of the inquiry." The force of the observation just quoted may be illustrated by a comparison of the judgment of Lindley, L.J., with that of Righy, L.J., in Lagunas Nitrate Co. v. Lagunas Syndicate} In that case the company sought rescission of a contract which fastened on the company promoted by the syndicate, a property of the syndicate at a price fixed by the directors of the syndicate, who also became the first directors of the company. Misrepresentation and con- cealment were alleged, but not fraud. Lindley, L.J., said : ^ " The real difficulty in the way of rescission turns on the impossibility of restoring the parties to their original position. I have looked carefully into Erlangcr's Case where this difficulty had also to be considered ; but the reports do not show what was done, except that the property there acquired was more or less worked for a time, and always at a loss. That case moreover was one of fraud, and here there is none." The contract in The Lagunas Nitrate Case appears to have been 1 (1899), 2 Ch. 392. ^ Ibid. p. 433. 186 RESTITUTION Part 11 an executed contract/ but this ground for refusing relief does not ?£-!! appear to have been expressly taken by Lindley, L.J., though touched upon by Romer, J. in his judgment in the Court below. Apart from the question raised by this distinction,^ it is difficult to see how the nature of the inducernent, which led to the contract, can afEect the question whether or not restitution, subject to equitable adjustments, is practicable. If it be shown that the defendant insists on retaining the benefit of a contract which has been brought about by his own misrepresentation or concealment, the distinction between fraudulent and innocent misrepresentation is reduced to a fine, if not to a vanishing, point.' It may be, that, in a case of plain fraud, the Court will treat the Aivrongdoer as being less entitled to consideration in adjusting rights, than in the case where the parties' position has been altered innocently. If the contract were not rescinded he would be liable to pay damages. Where, however, the right to rescission is once estabHshed, subject to the possibiUty of doing what is ' practically just,' having regard to the extent to which the position of the parties has been altered, it is difficult to see how the presence or absence of mala fides in making the contract can have any real bearing on the difficulties of adjusting the parties' relative rights. It was held by Rigby, L.J., on the principle laid down in Erlanger's Case^ that the Coujt could in the circumstances do what practical justice required, and that the situation of the parties had not been so far altered as to deprive the plaintifE copipany of its remedy by rescission ; but as ColUns, L.J., agreed in the result with Lindley, L.J., and with Romer, J., who had refused rescission in the Court below, relief was refused, and the company's appeal dismissed. Where completed sales have been set aside by Courts of Equity, whether on the ground of fraud or even because the sale was uUra vires,^ the Courts, on the principle that he who seeks equity must do equity, have imposed the condition that the party against whom the decree is made must be allowed for improvements made bona fide to improve the lands, if there be an actual improvement. The decree will place the party obtaining relief ' as far as possible in the same situation as if such agreement had not existed ' : Bellamy V. Sabine,^ and see Davey v. Durrani "^ and the terms of the decree ^ (1899), 2 Ch. at p. 398. ^ geg p_ 143^ ante. 3 Redgrave v. Hurd, 20 CD. 1. * 3 A.C., 1218. 6 Stepney v. Biddulph, 13 W.R. 576. « 2 Phill. 425, 447, 452. ' 1 DeG. & J. 535. THE RIGHTS OF THIRD PARTIES 187 in Gibson v. D'Este} In the House of Lords this decision was Part II reversed on the ground that fraud was not proved, and on the C'^Pter X ground that, the contract having been executed, it could not, in the absence of fraud, be rescinded : Wilde v. Gibson.^ In Stanley Stamp Co. v. Brodie^ the sale of a stamp dealer's business was set aside, though part of the stock had been sold prior to rescission, and the amount of the sales was ordered to be taken into account. In that case Edwards, J. said : '■ The status quo is considered to be restored if the rights of the parties can be equitably adjusted by taking accounts of profits, making allowances for deterioration, or by taking other similar accounts and making other similar allowances so as to do, as was observed by Lord BlacJcburn, what is practically just." It wiU be seen from these later decisions that the dicta in Hunt v. Silk * and BlacJcburn v. Smith,^ as to restoration of the status quo, would not in equity be applied to the facts in these cases. The Bights of Third Parties In considering the question — how far the interposition of the rights of a third party will bar the right of the parties to a contract to determine their obhgations under it, by any of the modes coming under the general term ' rescission '—it is necessary to examine separately each mode of determination, as affecting or as afEected by the rights of third parties. For this purpose the cases hypotheti- cally group themselves as follows : 1. Where the parties by express agreement rescind a contract. 2. When a contract is rescinded in pursuance of an express term providing for rescission. 3. Rescission in consequence of repudiation. 4. Discharge by breach. 6. Avoidance for misrepresentation innocent or fraudulent, or for mistake. 1. Rescission by express agreement. Where one party to a contract has conferred rights under it upon a third party, it seems plain, upon principle, that he ought not to be permitted by his own voluntary act to join with the other party to the contract in putting an end to the contract to 1 2 Y. &"C. (Ch.) at p. 58L ^ i h.L.C. 606. 3 34 N.Z.L.R. 152 (CA.). * 5 East, 449. 6 2 Exch. 783. 188 RESTITUTION Farm the prejudice of suoh third party. The priaciple applicable in ?Eil[ . suoh a case seems to be that which underhes the maxim ' a man shall not derogate from his own grant,' and is apparently of even wider application. In Siirlinc/ v. Maitland,^ CocJcburn, C.J., in delivering the judgment of the Court, expressed himself as follows : " I look on the law to be that, if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there, is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances under which alone the arrangement can be operative." This statement of the law was expressly approved by Lord Haiherley in Rhodes v. Forwood? The principle is, however, difi&cult of apphcation in particular cases : compare Mclntyre V. Belcher^ and Telegraph Despatch Co. v. McLean^ with Hamlyn V. Wood ^ and Lazarus v. Cairn Steamship Co.^ In Pitcaiihley & Co. v. McLean,'' decided by the Court of Appeal in New Zealand, the respondents had entered into a contract with the Wellington Harbour Board for the construction of a concrete dock according to plans and specifications. They also entered into a contract with the appellants by which the appellants were to deUver all gravel and sand required by and in accordance with the specification for the Wellington Graving Dock " which shaU from time to time be ordered or required by the employers," and the respondents agreed to order from the appellants " all gravel and sand required in connection with the concrete works included in the said graving dock contract." The performance of the contract according to the plans and specifications turned out to be impracticable, and the Harbour Board and the respondents (without reference to the appellants) rescinded the principal contract. The appellants brought an action for damages against the respondents for refusing to take such gravel and sand as was required by the specification to be used, had the contract been completed. Sir Robert Stout, C.J., on the argument of a special case stated by. agreement, held (in the Supreme Court) that as there was no impUed warranty that the scheme was practicable,* there could be no impHed promise or warranty to the appellants that the contract would be completed, and for that reason there was not an absolute obhgation by the respondents to the appellants to take more gravel or sand than 1 5 B. & S. 840. 2 1 A.C. 256 at pp. 271, 272. 3 14 C.B. N.S. 654. * L.R. 8 Ch. 668. B (1891), 2 Q.B. 488. « 106 L.T. 378. ' 31 N.Z.L.R. 648. » Thorn v. The Mayor of London, 1 A.C. 120. THE RIGHTS OF THIRD PARTIES 189 they actually required up to the time of the contract being aban- Part II doned, and that this was the true construction of the contract, ^ihapter x In the Court of Appeal the appellants contended that the contract sued on was a sub-contract, and therefore the parties necessarily contemplated the continuance of the main contract, and the sub- contract implied an absolute promise that the main contract would be performed. The appeal was dismissed. Williams, J., dis- senting, said : '' If, however, the contract comes to an end in some other way than through the act or default of the principal contractor, there is no implication in the sub-contract that in such a case the principal con- tractor is liable to the sub-contractor. The implied agreement in the sub-contract by the principal contractor goes no further than that he will not by his act or default cause the principal contract to be determined to the prejudice of the sub-contractor." He held that the case came within the principle of the rule laid down in Stirling v. Maitland,} The majority of the Court of Appeal {Edwards and Chapman, J J.) held that the appellants were not sub-contractors, that they had merely the sole right of supplying whatever sand and gravel might actually be required by the re- spondents, and that there was, therefore, no imphed contract that the respondents would not determine the main contract, or that the dock would be completed in any event. It is conceived that, had the contract between the appellants and respondents constituted the appellants sub-contractors in the strict sense of the term, instead of being merely subsidiary and collateral, the law as stated by Williams, J. would have apphed. The appellants, however, by their contract, had no rights under the promises of the Harbour Board or in the continuance of the principal contract ; their rights were dependent on the principal contractors proceeding' with the construction of the dock. The statement of the law by Williams, J. may, however, be taken as a statement of the principle which governs the rights of a third party, that a contract, in which h^ has a derivative interest, shall not be determined by the act of thfe party under which he claims without his consent. The maxim ' a man shall not derogate from his own grant,'^ is illustrated by the decisions in The London & Westminster, etc., Co. v. Drake.^ In that case Williams, J., de- livering the judgment of the Court of Common Pleas, said : " The question in this case is, whether, if a lessee mortgages tenants' 15B. &S. 840. ^ Saint V. PiUey,L.n. 10 Exoh.. 137. » 6 C.B. N.S. 798. 190 RESTITUTION Part II fixtures, and afterwards surrenders his lease, tte mortgagee has a Chapter X rigiit to enter and sever them. " The principles of law applicable to this point are well settled ; the difficulty lies in the application of them. It is fully established that the right of the lessee to remove fixtures continues only during the term, and during such further period of possession by him as he holds under a right still to consider himself as tenant, and it is plain that the right of his assignee can extend no further. On the other hand it is laid down as to a surrender, in Co. Litt. 338, b., that ' having regard to strangers who were not parties or privies thereto (lest by a voluntary surrender they may receive prejudice touching any right or interest they had before the surrender) the estate surrendered hath in consideration of law a continuance.' " In Saint v. Pilley ^ the same principle was acted upon, and was referred by Amphlett, B. to the ' well-known rule that a man cannot derogate from his own grant.' There seems to be no good ground for suggesting that, if a third party acquired only a limited interest under a contract, the parties to the contract may not by agreement rescind the same so far as such rescission does not prejudicially affect the right or interest of such third party. It also seems plain that the restriction is on the acts of the contracting party under whom the third party claims, for, as will be seen presently, the other contracting party if a right arises by which he may determine the contract otherwise than by agree- ment, is not affected in the exercise of that right by the interest of a stranger to the contract with whom he has no privity of con- tract.^ If, however, he is, by his conduct, estopped from asserting Ms right different considerations may operate. It is sometimes said that unless a contract can be rescinded in toto it cannot be rescinded at all,^ but this rule can have no appli- cation to rescission by express agreement of the parties, for they may, by agreement, rescind the contract to any extent they please.* It will be noted that there is a distinction between cases where an estate or interest in the subject-inatter of the contract passes to a third person, and cases where no such interest passes, i.e. where the interest of the third party, as between him and the party through whom he claims, is executory.^ In the cases just referred 1 L.R. 10 Exoh. 137. 2 Kemp v. Bird, 5 CD. 974 ; Brigg v. Thornton, (1904), 1 C!h. 386. 3 See Hunt v. Silk, p. 180, ante. * P. 24, ante. s See Hill v. Oomme, 1 Beav. 540 aff. 6 Myl. & Cr. 250, where the contract was entered into for the benefit of a third person and rescinded while executory. THE RIGHTS OF THIRD PARTIES 191 to, of the surrender of a lease where there was a sub-tenancy, the Part II surrender was inoperative to aiiect the interest at law of the sub- Chapter x tenant, so that he still remained a sub-tenant, and was not, by the surrender, brought into privity with the landlord ; and, as appears by the decision in Pleasant v. Benson^ the landlord could not, even after the surrender, treat the sub-tenant as his immediate tenant so as to terminate the sub-tenancy by notice to quit. There the sub-tenant had vested in him a chattel interest in the land, which was held not to be divested from the immediate tenant by the surrender, and, as to the part underlet, the original tenancy still continued undetermined. It is conceived, however, that where no interest has passed in the subject-matter of the contract to the third person and his rights are merely executory, the parties to the contract may deter- mine the contract, leaving the third person to his action for damages against the party under whom he claims, for breach of the implied promise : Stirling v. Maitland. It may be that the Court would by injunction restrain a threatened rescission, the promise, though impUed, being negative in terms and substance. Lumley v. Wagner,^ Grimstone v. Cunningham,^ Whitwood Chemical Co. v. Hardman,* Metropolitan Electric Supply Co. Y.Ginder,^ Kerr on Injunctions.'^ In Clough v. The London and North Western Railway Co.'' in the Exchequer Chamber, the Court, in its judgment, in framing a plea of avoidance of a contract for fraud, considered that the plea should state ' that no interest had vested in any innocent person rendering it inequitable or unjust to rescind the contract.' It would appear from this statement, and indeed it seems to be sound on principle, that, where an innocent third person has, for value, actually acquired an interest in the subject-matter of the contract, a purported rescission as between contracting parties wiU be inoperative to divest such interest. If, however, the third person claims only as a volimteer it seems that where the contract is procured by fraud, the acquisition of an interest under it by such third person will not prevent avoidance : Morley v. Loughnan.^ In that case Wright, J., cited the opinion of Lord Eldon in Huguenin V. Basely as follows : " I should regret that any doubt could be entertained whether it is not competent to a Court of Equity to take away from third 1 14 East, 234. ' 1 DeG.M. & G. 604. ' (1894), 1 Q.B. 125. 4 (1891), 2 Ch. 416. 5 (1901). 2 C!h. 799. « 5th Edn. 438 e< sej. ' L.R. 7 Exch. 26. « (1893), 1 Ch. 736. 192 RESTITUTION Part II persons the benefits which they have derived from the fraud, imposi- Chapter X ^ign or undue influence of others," and of Lord Chief Justice Wilmof in the case of Bridgman v. Oreen also quoted by Lord Eldon : '' There is no pretence that Green's brother or his wife was party to any imposition, or had any due or undue influence over the plaintiff ; but does it follow from thence that they must keep the money ? No ; whoever receives it must take it tainted and infected with undue influence and imposition of the person procuring the gift ; his parti- tioning and cantoning it- out among his relations and friends wUl not purify the gift and protect it against the equity of the person imposed upon. Let the hand receiving it be ever so chaste, yet if it comes through a polluted channel, the obligation of restitution will follow it." These observations apply to rescission (avoidance) for fraud, but it is submitted that where a contract is not affected by fraud, a rescission by agreement of the parties cannot affect the rights vested in third persons even though volunteers. An executed gift made in accordance with law and equity cannot be revoked, and see cases collected in Pollock's Principles of Contract, 8th Edn., p. 206. 2. Where a contract is rescinded in pursuance of an express term providing for rescission. No person claiming under a party to a contract can, in respect of that contract, have greater rights against the other party than those conferred by the contract upon the party under whom he claims. If, therefore, it is a term of the contract, express or implied, that the party under whom the third party does not claim may put an end to the contract, the risk of this right being exercised affects such third party to the extent to which it affects the party imder whom he claims. For example, A and B enter into a contract conferring on A express power of rescission in the event of certain defaults by B, or in certain events. B mortgages his rights under the contract to C. It is quite plain that the rights obtained by C do not limit or affect the right of A to rescind the contract on the contingency happening which gives rise to the right. The mortgage of a lease does not restrict the power of re-entry , conferred on the lessor by the lease. Nor, at Common Law, could a sub-tenant prevent the head landlord from exercising his right of determining the lease for default of the tenant, though a voluntary surrender THE RIGHTS OF THIRD PARTIES 193 by the tenant to the landlord would leave the sub-tenant's rights, Part ii and the original tenancy of the part sub-let, unaffected : Pleasant v. °'"p*''^ ^ Benson} The mortgage or other assurance of a determinable right almost invariably contains a covenant by the mortgagor to the effect that he will do everything necessary to keep the right alive. No doubt a party to a contract who gives rights under it to a third person would be liable to answer to such third person in damages, on the principle laid down in Stirling v. Maitland, if he, by his own act or default, enabled the other party to the principal contract to determine it. 3. Repudiation. A contract rescinded by one party on the repudiation of the other is a contract rescinded by agreement of the parties, though this form of rescission entails, on the party repudiating, the con- sequences of a discharge by breach. The principle laid down in Stirling v. Maitland seems to apply to every case in which a contracting party, who has agreed to confer rights under the con- tract to a third person, by his own default or voluntary act puts an end to the contract. It would seem, therefore, that if one party repudiates the contract after he has conferred a right under it to a third person and the other party accepts the repudiation, the party repudiating is hable to the person claiming through him. Similarly, it would seem that, as rescission, in such a case, depends on the repudiation being accepted as an offer to rescind, the party accepting might in some cases be liable to a third person claiming through him. He need not accept the repudiation, and, if he does, it is a voluntary act on his part rescinding the contract. 4. Discharge by breach. This branch of the subject presents more difficulty. It has been submitted that the breach itself, if of sufficient importance, operates to discharge the party not in default, and that, strictly, notice of rescission by such party is not necessary excepting for the purpose of negativing waiver of the breach. If the breach or default be such that the whole object of the contract is frustrated it would seem that notice is unnecessary for any purpose ; see Jackson v. Union Marine Insurance Co.^ The effect of a breach sufficient to discharge the party not in default is, that, by reason of his default, the party in default is disabled from maintaining 1 14 East, 234. ^ l_r. iq C.P. 125. 194 RESTITUTION PmI II an action on the contract, just as by the failure to perform a condition Chapter x pj.e(,e(jent jq g, deed the party in default is disabled from main- taining an action on the dependent covenant. The term rescission seems to be no more applicable in the one case than in the other. The question, however, is, whether a party who has conferred rights under the contract on a third party is bound to waive a breach so as to keep the contract aUve for the benefit of the party claiming imder him. The rule laid down in Stirling v. Maitlamd is framed as not including such a case. The expression is " shall do nothing of his own motion to put an end to that state of circum- stances, etc." Whether deliberately abstaining from waiving the breach would be within the meaning of the rule is doubtful. The discharge of the party not in default does not appear to depend on any voluntary act on his part. 5. Avoidance for fraud, misrepreseniation, of mistake. In Chugh v. The London and North Western Railway Co} (in the Exchequer Chamber) the Court ^ framed, in its judgment, (delivered by Mellor, J.), what it deterinined to be a good equitable plea of rescission of a contract induced by fraud. The plea stated, as one of the elements of effective rescission, " that no interest had vested in any innocent person rendering it in- equitable or unjust to rescind the contract," and, after discussing the right of election, by the party not in default, either to affirm the contract or to avoid it, their Lordships said : " We think that so long as he has made no election he retains the right to determine it either way, subject to this, that if in the interval whilst he is deliberating an innocent third party has acquired an interest in the property, or if in consequence of his delay the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind." It was said, in the judgment in Basset v. Nosworthy^ of a pur- chaser for value without notice of a defect in title, that " equity shall not disarm a purchaser but help him," and it is conceived that, upon the broad principle of justice underlying this decision and many that have followed it, the rule now under consideration rests. In many of the cases where avoidance of a contract is refused, because a third party has acquired an interest, it may be possible to support the rights of the third party by an application ^ L.R. 7 Exch. 26. ^ Byles, BlacJcbum, Mellor, and Lush, J J. » (1673), Rep. temp. Pinch, 102 ; 2 W. & T. L. Cas. 8th Edn. 163. THE RIGHTS OF THIRD PARTIES 195 of the doctrine of estoppel, but the rule is plain, and it will be found Part II difficult to find a support in estoppel for all possible cases to which Chapter X the rule should apply. Where a party to a contract invites a third party to acquire an interest under it for valuable consideration, it may be said that he puts the contract forward as a vaUd contract and would be estopped from setting up its invalidity, or from claiming a right to avoid the contract, on grounds already con- sidered. But the rule does not apply only to cases of avoidance by the party who has invited the third party to acquire an interest ; it applies equally to the other party to the contract, and, it would seem, to any person claiming under him. The question is — has a third party acqiiired an interest under the contract ? It must, however, be borne in mind that the rule as stated in ChugKs Case ^ applies to contracts which are voidable, and not to contracts which are void ab initio. Nor does it apply to cases where a party having no title at all to goods disposes of them to a third party. The only cases in which the true owner of goods can, apart from Statute, lose his title thereto otherwise than by contract of sale or by gift are (1) where his conduct has induced the third party to purchase under circumstances creating an estoppel, and (2) where the goods are purchased in market overt ;^ see the judg- ments of Lord Ralsbury and Lord Macnaghien in Farquharson v. King,^ also Cundy v. Lindsay.^ For the purposes of the rule in ChugKs Case''- there must, ex hypothesi, be a contract voidable as between the parties to it, and not what is called a void contract which is, in law, no contract at all. At first sight it would appear that a simple case illustrative of the rule is that of a voidable promissory note which has been negotiated, and acquired for value by a third person without notice of any invaUdity ; but negotiable instruments are by the law merchant almost sui generis, and do not afford a satisfactory illustration. Another class of cases to which special considerations apply comprises contracts to take shares in the capital of a company. It is too late to apply for rescission of a contract to take shares after the company has gone into liquidation. In Oakes v. Turqucmd ^ the judgments of both the Lord Chancellor 1 L.R. 7 Exch. 26. ^ A purchase in market overt will not give title to stolen goods where the thief has been convicted : Bentley v. Vilmont, 12 A.C. 471. 3 (1902), A.C. 325. * 3 A.C. 459. 8 L.R. 2 H.L. 325, 326. 02 196 RESTITUTION Part II and Lord Cranworth seem to have proceeded on the ground stated Chapter X |jy Lqj.j Campbell in Henderson v. The Royal British Bank ^ " It would be monstrous to say that the party against whom the application was made, having become a partner and shareholder, and having held himself out to the world as such, and having so remained until the concern stopped payment, could by repudiating the shares on the ground that he had been defrauded, make himself no longer liable." Lord Cranworth said : " This observation commends itself so entirely to common sense that I cannot hesitate at once to accede to it." His Lordship, in a later part of the judgment,^ proceeds to distinguish the case of Venezuela Railway Co. v. Kisch^ on the ground that there the avoidance of the contract was prior to the liquidation, and " was the case of a person seeking against a company to be relieved from a contract into which he had by fraudulent representations of the company been induced to enter. . . . But it has no bearing on a question between the shareholders and creditors." It is sometimes said that rescission after liquidation is pre- cluded because the rights of creditors have intervened. In a sense this view is justified, but it is not an exhaustive statement of the grounds on which these cases proceed. The Companies Act 1862 provided* that " If the name of any person is without sufficient cause entered in ... . the register of members of any Company .... the person • • aggrieved may apply to the Court for an order that the register may be rectified," and further provided that " the Court may .... if satisfied of the justice of the case make an order for the rectification of the register, etc." In Oahes v. Turquand^ their Lordships considered all the pro- visions of The Companies Acts relating to shareholders' liability. In cases of application before liquidation , for removal from the register, on the ground that the contract is voidable, the principle on which relief is refused (assuming it is established that the con- tract was voidable) turns on a doctrine akin to estoppel or depending M E. & B. 336. 2 p_ 367, 3 L.R. 2 H.L. 99. * Sec. 35 ; see sec. 32 of The Companies (Consolidation) Act, 1908. B L.R. H.L. 325. THE RIGHTS OF THIRD PARTIES 197 on delay. The rule is stated by Lord Davey in Aaron's Reefs v. Pattli Twiss ^ as follows : Chapter x " Lapse of time without rescinding will furnish evidence of an intention to affirm the contract. But the cogency of this evidence depends on the particular circumstances of the case and the nature of the contract in question. Where a person has contracted to take shares in a company and his name has been placed on the register, it has always been held that he must exercise his right of repudiation with extreme promptness after the discovery of the fraud or misrepresenta- tion for this reason : the presence of his name on the register may have induced other persons to give credit to the company or to become members of it. ' If a man claims,' says James, L.J., ' to rescind his contract to take shares in a company on the ground that he has been induced to enter into it by misrepresentation, he must rescind it as soon as he learns the facts, or else he forfeits all claim to relief.' " This principle is framed having regard to the interests of third persons, and is an extension of the rule laid down in Clough v. The London and North-Western Railway Co? It is, generally speaking, not necessary for the company to show that the delay of the applicant for removal of his name from the register has actually induced new members to join the company, or has induced persons to give credit to the company on the faith of his being a member, but the Court proceeds on the common knowledge that " there was this company trading every day of necessity involving an alteration in its position and the position of his fellow shareholders and in their liabilities."* Delay in making an application for removal from the register would seem to have a double aspect : (1 ) It may be viewed as evidence on an intention to affirm the contract. (2) It may operate as creating a quasi-estoppel having regard to the probability of third persons joining the company as new members, or altering their position by giving the company credit. On the first aspect of the delay it can operate only from the time when the applicant became apprised of the fraud, or of the facts affording ground of relief ; on the second aspect, it does not seem that the discovery or non-discovery of the fraud or ground of relief is strictly relevant, if the reason for the rule be the protection 1 (1896), A.C. 273 at p. 294. ^ l jj, 7 ^^h. 26. ^ Ogilvie v. Currie, 37 L.J. Ch. 541 ; per Lord Cairns. 198 RESTITUTION Part II of the rights of third persons on the principle stated in Clough v. . P'^Pterx rj^i^ London and NoHh-Westem Railway Co,^ Apart from the two classes of cases abeady noticed, viz. cases of negotiable instruments, and cases of contracts to take shares in the capital of a company, there are few reported decisions illustra- tive of the principle laid down in dough's Case} In Pea^e v. Gloahec ^ it was held that the transfer of a bill of lading to a third person defeated the vendor's right of stoppage in transitu on the principle laid down in Kingsford v. Merry :^ " When a vendee obtains possession of a chattel with the intention, by the vendor, to transfer both the property and possession, although the vendee has committed a false and fraudulent representation in . order to efEect the contract or obtain the possession, the property vests in the vendee until the vendor has done some act to disaffirm the trans- action, and the legal consequence is, that if before the disaffirmance the fraudulent vendee has transferred either the whole or a partial interest in the chattel to an innocent transferee, the title of such trans- feree is good against the vendor." See also White v. Garden,'^ Stevenson v. Newnham,^ and Bdbcoch V. Lawson.^ 1 L.R. 7 Exch. 26. 2 l r i p c. 219. 8 11 Exch. 677. * 10 C.B. 919. » 13 C.B. 285. « 5 Q.B.D. 284. CHAPTER XI Rescission and /or Damages In Henty v. Schroder,'^ Jessel, M.R., held that : " The plaintifis could not at the same time obtain an order to have p^pj n the agreement rescinded and claim damages against the defendant for Chapter XI breach of the agreement." The rule as thus stated is not of general application to all cases of rescission in the wide sense of that term. If A repudiates his contract with B, and B treats the repudiation as an offer to rescind the contract, and rescinds it accordingly, it is quite plain that B may bring his action for damages for loss of the contract. In The Dominion Coal Co., Ltd., v. The Dominion Iron and Steel Co., Ltd.,^ Lord Atkinson, delivering the judgment of the Judicial Committee of the Privy Council, said : " The Goal Company were not justified in repudiating their contract, but the Steel Company are not entitled, at one and the same time, to specific performance of the contract and to damages for the loss of it. Inasmuch, however, as, according to their Lordships' view, this is not a contract of which, on the authorities cited, specific performance would ' be decreed by a Court of Equity, the plaintifis are entitled, owing to the wrongful repudiation of the contract by the defendants, to treat the contract itself as at an end and to recover damages for the loss of it, in addition to damages in respect of those breaches of it which may have been committed before repudiation." It is equally plain that, in the case of breach of contract dis- charging the party not in default, suoh party may recover damages for the breach, notwithstanding that, by the very breach sued upon, he is discharged from his obligation. The principle laid down by Jessel, M.R„ in Henty v. Schroder can apply only to cases where the whole contract is avoided, that is, where the plaintifE says in effect — " this contract was, from the beginning, not a binding obligation on me ; it was by reason of mis- representation, concealment or mistake, voidable ab initio, and I » 12 CD. 666 " 1909 A.C. at pp. 310, 311. 199 Chapter XI 200 RESCISSION AND/ OR DAMAGES ,'^*''-^,. avoid it accordingly " ; lie cannot approbate and reprobate ; he . cannot in one breath deny the existence of the contract as a binding obligation and (succeeding on that) in the next claim damages for the breach of it. But where the contract is rescinded or determined, not on some ground depending on matters extrinsic or collateral to the contract itself, but on the ground of some breach of its terms, then, notwith- standing that the contraot may be so determined, damages may be recovered for such breach. Curiously enough, the facts in Henty v. Schroder show that the contract, in that case, was rescinded by reason of the refusal of the defendant to execute the conveyance, and such refusal was treated as a repudiation and the Court was asked to rescind. It may be, however, that the observations of the Master of the Rolls had reference to the fact that the action was for specific performance, the refusal to execute the conveyance having taken place after the decree made in default of defence. It does not appear that damages were claimed. The learned editor of Lord Justice Fry's work on Specific Performance ^ says with reference to' the judgment in Hemy v. Schroder : " If this be so, it would seem that in many cases the Court must fail to give the plaintiff the full measure of relief requisite for replacing him in the position in which he stood before the contract — ^the repayment, for instance, of expenses incurred by him in showing his title." No doubt a plaintifE may claim avoidance, and, in the alternative, damages for a breach if he fails in estabhshing grounds for avoidance, and also proves the breach. He may also claim specific perform- ance and, in the alternative, damages, and, at equity, these could be awarded under Lord Cairns's Act. In Dillon v. Macdonald,^ where a plaintiff had brought an action for specific performance and had failed, and subsequently brought an action for damages for breach of the contract, it was held that the second action could not be maintained, but on the ground that the cause of action was the same in each case — namely, the contract and the refusal to perform it. The Court of Appeal affirmed the judgment of Edwards, J., who held that the decision in Hipgrave v. Case ' is applicable to the practice in New Zealand, and that the plaintiff in his first action should have claimed all the alternative relief to which he considered himself entitled on the cause of action » 5th Edn. p. 579. * 21 N.Z.L.B. 375 {C.A.). 3 11 Q.B.D. 464. RESCISSION AND/ OR DAMAGES 201 alleged, being a breach of contract, and that the judgment in the Part II first action concluded his rights in respect of that cause of action : Chapter xi Serrao v. Noel.^ It seems quite plain on principle that a person induced by fraud to make a contract, may bring an action for damages for deceit and claim to have the contract avoided. If he succeeds in having the contract set aside, he is still entitled to whatever incidental damage (caused by the fraud) he may have suffered, but the measure of damages will be different according as the contract is set aside or not. In the case of a contract induced by misrepresentation with- out fraud, the party induced to contract may avoid the contract, but he cannot recover damages, as such damages could be recovered only in an action for deceit : Newhigging v. Adam? Whittington v. Seale-Haye.^ As to how far the plaintiff is entitled to an indemnity, see the judgment in Newhigging v. Adam in the Court of Appenl.^ The general principles governing the recovery of money paid under a contract which has been determined, or the recovery of damages on rescission may be shortly summarised as follows : Recovery of Deposit. — ^Where a contract is rescinded while wholly executory, either by mutual consent or in pursuance of a power of rescission, and no agreement is made or can be in- ferred that the deposit shall be retained by the vendor it appears that it may be recovered. In Towers v. Barrett,* Buller, J. said : " The diBtinction between those cases where the contract is open and where it is not so is this : if the contract be rescinded either, as in this case, by the original terms of the contract, where no act remains to be done by the defendant himself, or by a subsequent assent by the defendant, the plaintiff is entitled to recover back his whole money ; and then an action for money had and received wiU lie. But if the contract be open, the plaintifi's demand is not for the whole sum, but for damages arising out of that contract." When one party is discharged by the other's breach, failure, or inabiHty to perform an executory contract, a deposit paid by the party not in default may be recovered as money had and received to his use on a consideration which has wholly failed : Giles v. Edwards,^ Ehrensperger v. Anderson." But the consideration 1 15 Q.B.D. 649. ^ 34 q.D. 682 ; 13 A.C. 308. ^ 82 L.T. 49. 1 1 T.R. 133, 136. ^ 7 T.R. 181. « 3 Exch. 148, 158. 202 RESCISSION AND/OR DAMAGES Part II must have wholly failed : HwM v. Silk} Where there has been Chapter XI part performance under the contract, to the benefit of the party not in default, it cannot be said that the consideration has wholly failed, and in such a case the party not in default must, if he would recover, sue for damages for breach. In most cases of contracts for the sale of land, where the contract ' goes off ' through the inabiHty of the vendor to make title, there is a total failure of consideration and the deposit may be recovered : Flight v. Booth ;^ Day V. Singleton ;* Powell v. Marshall^ A payment by way of deposit on a contract for sale and pur- chase is not merely a part payment of the purchase money, it is also a payment by way of guarantee for the performance of the contract : Howe v. Smiih.^ The deposit is therefore liable to forfeiture in case of default by the purchase* : Sfrague v. Booth.' Where a contract is rescinded, while executory, by one party, on a repudiation of obligation by the other, the same rule as to recovery of the deposit applies as in the case of discharge by breach : Ehrensferger v. Anderson.'' But if, before rescission, there has been part performance, to the benefit of the party not in default, then there is not a total failure of consideration, and the deposit paid is to be taken into account in the damages recoverable for loss of the contract. Where a contract is avoided for misrepresentation or mistake, there being a total failure of consideration, the deposit may, of course, be recovered as money had or received to the use of the plaintiff. Where a contract is avoided for fraud, the deposit may be recovered as on a failure of consideration, if the contract be exe- cutory, or, as damages, if the contract has been executed, or it may be recovered on the equitable principle of restitutio in integrum, and this principle applies to the recovery of money paid in all cases of the avoidance of executed or partly executed contractson any ground which entitles the plaintiff to restitution as part of the relief. Where a contract is dissolved by operation of the law, it appears that money paid by way of deposit cannot be recovered. This is certainly the case if anything has been done under the contract. 1 5 East, 449. ^ i Bing.N.C. 370. ' (1899), 2 Ch. 320. * (1899), 1 Q.B. 710. * 27 CD. 89. " (1909), A.C. 576. ' 3 Exoh. 148. RESCISSION AND /OR DAMAGES 203 It seems that the dissolution of the contract is prospective only part li in its operation, and the law leaves the parties with whatever they Chapter xi may have acquired under the contract prior to the happening (or non-happening) of the event which causes the dissolution: Civil Service Co-operative Society v. The General Steam Navigation Co. ;i Chandler v. Webster.^ If cases of dissolution by operation of the law are viewed as depending on the failure, without default of either party, of a condition on which the obligations of both parties depend, the result seems to be anomalous, in cases where the contract is wholly executory, and where nothing has been done under it except the payment of a deposit. In such a case there would seem to be, in one sense, a total failure of consideration, though not a failure of the consideration moving from one party to the other. Failure of consideration is not the ground of the dissolution, but it does not necessarily follow that money paid, for which nothing whatever has been done, could not be recovered on that ground as money had and received to the use of the party papng. The authorities cited above are, however, plainly to the efEect that not only may a deposit paid not be recovered, but that even money which ought, by the terms of the contract, to have been paid before the dissolution, may be claimed imder the contract after the dissolution. Damages. — ^When parties rescind a contract by agreement and make no provision for any payment, it seems plain that neither side can recover damages for any breach of the original contract : Lamburn v. Cruden,^ unless the new agreement expressly or by implication preserves rights which may have arisen from part performance. But if the contract be rescinded by one party as the result of repudiation by the other, though this, in one sense, is a rescis- sion by agreement, the result is the same as on discharge by breach- repudiation being viewed as anticipatory breach — and the party not in default may recover damages for the loss of the contract " in addition to damages in respect of those breaches of it which may have been committed before repudiation ", : Dominion Coal Co. v. Dominion Iron and Steel Co. ;* Frost v. Knight.^ Where one party repudiates his obligation and the other party 1 (1903), K.B. 756. ^ |;i904), i K.B. 493. * 2 M. & G. 253. « (1909), A.C. 293, 311. ^ L.R. 7 Exoh. 111. 204 RESCISSION AND /OR DAMAGES Part n thereupon rescinds, the party in default retains no rights under Chapter XI the contract : General Bill/posting Co. v. Atkinson.^ But a party committing a breach of contract may recover on quantum meruit or quantum valehat, in respect of part performance which has been accepted by the other party under circumstances which justify the inference of a new promise to pay what me part performance is worth : Sumfter v. Hedges.^ Where a party to a contract repudiates or abandons it, or prevents performance, the other party may sue for the value of part performance on quantum msruit instead of suing for loss of the contract. It may be that the contract as a whole would have been unprofitable, and, in such case, the contractor would, in an action for loss of the contract, be entitled to nominal damages only, but for work and labour done for which he has not been paid he is entitled to recover : Slowey v. Ladder f Ladder v. Slawey.^ No damages can be recovered for a misrepresentation or con- cealment unless it be made fraudulently,^ or in breach of duty arising from a fiduciary relation." 1 (1909), A.C. 118. 2 (1898), 1 Q.B. 673. = 20 N.Z.L.R. 321 (C.A.). * (1904), A.C. 442. « Derry v. Peek, 14 A.C. 337. ° Nocton V. Lord AsKburton (1914), A.C. 932. APPENDIX It will probably be a convenience to the reader to have the Appendix judgments in the more impor^ant cases which have been referred to, on the question of discharge by breach, printed in this volume. The cases are grouped as follows : (1) Boone v. Eyre and Camphell v. Jones, actions in covenant cited in the Notes to Pordage v. Cole, discussed in the text as being in conflict with Cutter v. Powell (p. 99 ante). (2) Flight v. Booth, Bannerman v. White, Forman v. Wright, and The Duke of St. Albans v. Shore, as illustrating the discharge of executory contracts for failure of inducement or consideration. (3) Kennedy v. The Panama Mail Co., Bettini v. Gye, and Poussard v. Spiers, as illustrating the principle applicable as to discharge or avoidance of a contract substantially executed, and (as to the two cases last mentioned) as illustrating the treatment of a simple contract, claimed to be discharged for failure of con- sideration, as if it were a contract under seal. (4) Behn v. Bwrness and Bentsen v. Taylor, as illustrating the presumption that every term of a contract is of importance to the party not in default until the contrary appears, and as illustrating the use of the term ' condition precedent ' in a secondary or extended sense. (5) Hoare v. Rennie, Simpson v. Crippin, and HoncJc v. Muller, as further illustrating the difference in judicial opinion as to the principle governing the discharge by breach of a contract while executory. 205 206 APPENDIX *PP°°^''^ Boone v. Eyre, 1 H.B1. 273 note (a) Campbell v. Jones, 6 T.B. 570 Note. The case of Boone v. Eyre, whicli was an action in covenant, has been fully discussed in the text ; see Chapter VI. The case of Campbell v. Jones, also an action in covenant, contains a reference to the judgment of Ashwrst, J., in Boone v. Eyre, which is not to be found in H. Black- stone's report of that case. In considering the question of discharge by breach of a simple con- tract, it is of the greatest importance to bear in mind the distinction between contracts under seal and simple contracts. A breach of one covenant is a good plea in an action on another covenant only if the defendant's liability on the covenant sued on be dependent on the performance by the plaintiff of the covenant broken. " The failure of consideration is nothing in the case of a contract under seal " : WaUis V. Day, per Parke, B., 2 M. & W. 273, 277. In the case of an action on a, simple contract, on the other hand, while the plea of breach of condition precedent o^ concurrent may be relied on, just as in the case of deed, a further defence, the plea of failure of consideration, is also available to the defendant where the plaintifE has committed a breach of contract. If the contract be executory, it is apparently sufficient if the stipulation broken be of such importance that it may have operated as a material inducement to the party not in default to enter into the contract ; see notes to Flight, v. Booth, etc., Behn v. Burness, etc., and Hoove v. Rennie, infra. If the contract be substantially executed mere failure of inducement is not a sufficient answer; failure of a condition precedent may be: Cutter v. Powell, 2S.L.C. 1 ; Munro v. Butt, 8 E. & B.738; but, if failure of consideration is relied upon, the failure must be such as to render what has been per- formed a thing different in substance from what was promised : Street v. Blay, 2 B. & Ad. 456, Kennedy v. The Panama, etc.. Mail Co., L.E. 2 Q.B. 580 ; DaUn v. Lee, 1916, 1 K.B. 566. Where the failure in performance is not substantial, that is where the contract has been substantially but not completely executed, the defendant's remedy, if complete performance is not a condition precedent, is a counter- claim for damages or a reduction in price. Boone v. Eyre. Covenant on a deed, whereby the plaintifi conveyed to the defen- dant the equity of redemption of a plantation in the West Indies, CAMPBELL ». JONES 207 together with the stock of negroes upon it, in consideration of £500, and Appendix an annuity of £160 per annum for his life ; and covenanted that he had a good title to the plantation, was lawfully possessed of the negroes, and that the defendant should quietly enjoy. The defendant covenanted that the plaintifi well and truly per- forming all and everything therein contained on his part to be per- formed, he the defendant would pay the annuity. The breach assigned was the non-payment of the annuity. Plea, that the plaintiff was not, at the time of making the deed, legally possessed of the negroes on the plantation, and so had not a good title to convey. To which there was a general demurrer. Lord Mansfield. — The distinction is very clear, where mutual cove- nants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they go only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent. If this plea were to be allowed, any one negro not being the property of the plain tifE would bar the action. Judgment for the Plaintiff. Campbell v. Jones. This was an action of covenant contained in an indenture dated 25th February, 1793, made between the plaintifi and the defendant. It recited that the plaintifi had obtained a patent for fourteen years from the 28th November, 1792, for his invention of an improved method of destrojdng and taking away all the carbonic, oleaginous and colouring elements and particles in linen, cotton, hemp, and in all coloured rags and other materials used in making paper ; and that the defendant, who then carried on the trade or business of a paper manufacturer, was desirous of bleaching and preparing the materials for making paper according to the improved method used by the plaintifi and as set forth in the specification, etc. ; that it had been agreed between the plaintiff and the defendant that in consideration of the sum of £500 to be paid by the defendant to the plaintifi in manner thereinafter mentioned, he the plaintiff should teach and instruct the defendant in the bleaching and preparing of all materials for making paper according to the said specification and improved method of the plaintiff, and should also permit and suffer the defendant during the continuance of the patent to bleach, etc., the materials for making paper according to the specification, etc., to the extent only and subject to such restrictions, provisoes and agreements as were and are thereinbefore mentioned expressly declared and contained. That in pursuance of the agreement, and for and in consideration of the sum of £250 to the plaintiff paid by the said defendant, and of the 208 ■■"-'■ CAMPBELL v. JONES Appendix further sum of £250 covenanted to be paid by the defendant to the plaintiff in manner thereinafter mentioned, and in consideration of the covenants and agreements of the defendant thereinafter contained, the plaintiff covenanted that he would, to the best of his skill and with all possible expedition, teach and instruct the defendant in the manner and method of bleaching, etc., linen and other materials used in making paper according to the direction of the specification, etc., and according to the method which he then used, or any improved method which he should or might thereafter use in bleaching, etc. That the defendant, in consideration of the plaintiff's covenants, covenanted that he would on or before the 25th of February, 1794, or sooner in case the plaintiff should before that time have sufficiently taught and instructed him in bleaching and preparing the materials for making paper, etc., pay to the plaintiff the further sum of £250. It then set forth a breach of covenant by the defendant by not paying the said further sum of £250 on or before the 25th February, 1794, or at any time afterwards. To this declaration there was a special demurrer ; and these causes were assigned, that it appears by the declaration that the plaintiff had covenanted to teach and instruct the defendant in the manner and method of bleaching, etc., used in making paper in the manner set forth in and by the covenant stated in the declaration, and that the defendant in consideration thereoi covenanted to pay to the plaintiff the said sum of £250, the breach of which covenant is alleged as the cause of action in the declaration, and yet it is not averred in the declaration that the plaintiff had taught and instructed the defendant in the manner and method of bleaching, etc., used in making paper according to the specification or in any other manner, etc. This case was argued in last Michaelmas term by Shepherd in sup- port of the demurrer, and by Lawes against it. The former referred to these cases, Kingston v. Preston, cited in Dougl. 668 ; Duke of St. Albans v. Shore, 1 H.Bl. Eep. C.B. 270 ; Hotham v. The East India Company, ante, 1 vol. 638 ; and Goodison v. Nunn, ante, 4 vol. 761. The latter cited these authorities, Martindale v. Fisher, 1 Wills, 88 ; Bo6ne V. Eyre, 2 Bl. Rep. 1312, and 1 H.Bl. C.B. 273, n. (a) ; Callond v. Briggs, Salk. 112 ; Thorpe v. Thorpe, Salk. 171, 1st point ; Jones v. Barclay, Dougl. 684 ; Bach v. Owen, ante, 5 vol. 409 ; and 2 Saund. 156. The Court took time to consider of this case, and now their opinion was delivered, as follows, by Lord Kenyan, Ch.J. fafter stating the case). In support of this demurrer it was said that the plaintiff's teaching the defendant his method of bleaching the materials used in making paper was a condition precedent to the plaintiff's right to demand payment of the last sum of £250 ; on the other hand it was insisted that they were mutual and independent covenants. Whether these kind of covenants be or be not independent of each other must certainly depend on the good sense of the case. If one thing is to be done by a plaintiff before his right of action CAMPBELL V. JONES 209 accrues on the defendant's covenant, it should be averred in the Appondix declaration that that thing was done. " Where there are mutual promises, yet if one thing be the con- sideration of the other, there a performance is necessary to be averred unless a day is appointed for performance." Per Holt, Ch-J., Salk. 113. " If a day be appointed for the payment of the money, and the day is to happen before the thing can be performed, an action may be brought for the payment of the money before the thing is done." li. 171. Upon the authority of these cases the judgment of the Court must be in favour of the plaintifi, if upon the true construction of the deed a certain day be fixed for the payment of the money, and the thing to be done may not happen until after. The plaintifE in this case covenants with all possible expedition, not by any fixed time, to instruct the defendant in bleaching linen, etc. ; and in consideration of the plaintifi's covenants " the defendant covenants that he will on or before the 25th of February, or sooner in case the plaintiff should before that time have instructed the defendant, pay him the further sum of £250." To support the construction contended for by the defendant this covenant must be understood as if it had been written thus, " And the said Griffiths, the defendant, doth hereby covenant that he will, on or before the 25th February, in case the plaintiff shall before that time have instructed him, pay the further sum of £250 " ; which is in effect covenanting to pay the money as soon as the plaintiff should have instructed him. Now had this been the intention of the parties, the natural and obvious way of expressing such intent would have been for the defen- dant to covenant to pay as soon as he should be taught. But if the design of the parties were that the plaintiff at all events, should be paid on the 25th February, and sooner in case the defendant should be sooner instructed, the expression here used is a natural expression, and the words, " in case the said Hector, the plaintiff, should, before that time have instructed the said Griffiths," the defendant, will be confined to the word sooner. The intent of the parties appears to be that the payment might be accelerated, but should not in any event be delayed. But another ground on which the plaintiff is entitled to judgment is this, that the teaching of the defendant is not the whole consideration of the covenant to pay. The agreement of the parties is that in con- sideration of one entire sum of £500 the plaintiff should teach and instruct the defendant in the art of bleaching materials for making paper and permit him, during the period of his patent, to bleach such materials according to his specification ; and though this sum is divided into two sums of £250 each, and is to be paid at different times, no part is denominated to be the consideration of using the patent, nor any part as the consideration of teaching, but one integral sum is adapted to the whole. 210 CAMPBELL w. JONES Appendix Under this agreement tte defendant has a perfect title to use the patent, and the instruction of the defendant cannot be taken to be the most material part of the consideration, as the specification must be suj)posed to contain full instruction for that purpose, though some advantage might arise from the assistance of the inventor. In the case of Boone v. Eyre, 17 Geo. 3, Lord Mansfield said : " The distinction is clear, where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions ; but where the covenants go only to a part, and where a recompense may be had in damages, it is a difierent thing." ^ And Mr. J. Ashurst added, " there is a difference between executed and executory covenants ; here the covenants are executed in part, and the defendant ought not to keep the estate because the plaintifi has not a title to a few negroes." So here the covenant to teach is but part of the consideration of the £500, for not doing which the defendant may recover a recompense in damages. And the agreement of the plaintiff having been executed in part by transferring to the defendant a right to ©xerciae his patent, he ought not to keep that right without paying the remainder of the consideration, because he may have sustained some damage by the plaintifi's not having instrticted him. For these reasons we are all of opinion that judgment must be for the plaintiff. APPENDIX 211 Flight V. Booth, 1 Bing. N.C. 370. Appendix Bannerman v. White, 10 C.B. N.S. 844. Forman v. Wright, 11 C.B. 488. Duke of St. Albans v. Shore, 1 H.BI. 273. Note. Tte cases of Flight v. Booth, Bannerman v. White, Forman v. Wright, and The Duke of St. Alians v. Shore may be conveniently considered \ together as illustrating the principle that the importance of a promise or representation broken or unfulfilled, while the contract is executory, is to be measured by the extent to which such promise or representation has operated or may have operated as an inducement to the party not in default to enter into the contract. This principle is applicable in deciding whether a contract should be treated as determined by a breach or failure to perform, or whether damages (compensation) should be awarded for the breach or failure. The special importance of the decision in Flight v. Booth lies in the fact that the conditions of sale expressly provided for compensation for error in the particulars, but it was held, in effect, that where the misdescription was such as to have induced tjie contract, the case was not one for compensation, but the contract was ' avoided altogether.' It seems to foUow from this, that the breach of a term which is of such importance as to amount to a material inducement to the contract will, in the case of an executory contract, discharge the party not in default. The importance of the misrepresentation in each of the two cases first referred to was measured having regard to its effect on the making of the contract, and not with regard to the result of the breach or failure as affecting the performance of the contract as a whole. The decision in Bannerman v. White may be regarded as the link between the cases at Law and the cases in Equity on discharge and avoidance for misrepresentation. It is to be gathered from this decision that a term without which a contract would or might not have been entered into is in law a ' con- dition,' that is a condition of entering into the contract. As the term ' condition ' is, in its use, apt to be confused with ' condition prece- dent,' it is better to measure the importance of the stipulation broken as a failure of inducement or consideration, than to use the term ' con- dition ' as a test, in order to decide whether or not a particular breach discharges a contract (while executory), or merely gives a right to damages. In the case of The Duke of St. Alhans v. Shore the identity of inducement and consideration is explicit, but it must be borne in mind that the action, in that case, was for the recovery of a penalty, and the plaintifE was for that reason bound to prove his case with strictness. P2 212 FLIGHT v. BOOTH AppendiK In Flight v. Booth it was held that a misdescription or misrepresenta- tion is sufficient to avoid a contract altogether, if it so far aSects the subject-matter of the contract that it may " reasonably be supposed, that, but for such misdescription, the purchaser might never have entered into the contract at all." This is simply a mode of defining failure of consideration or inducement as applying to an executory contract. A misrepresentation embodied in a contract is a promise. The decision in Forman v. Wright shows that even partial failure of consideration may be pleaded to a promise to pay money induced by an innocent misrepresentation, and these four cases viewed together justify the conclusion that failure of inducement in the case of an executory contract is failure of consideration. It must be borne in mind that a misrepresentation not embodied in a contract, though it may afford ground for avoidance of the contract, even if it does not amount to a warranty, will not give a cause of action for the recovery of damages unless either (a) it amounts to a warranty, or (&) it is made fraudulently. Nevertheless, money paid under a contract which has been induced by innocent misrepresentation, and avoided, may be recovered as money had and received to the use of the plaintifi on a consideration which has failed. A material misrepresenta- tion inducing the contract, whether embodied in the contract or not, is a ground for determining the contract, the only difference being, appa- rently, that if it be not embodied in the contract the onus of proof is on the party seeking to avoid the contract ; if it be embodied in the con- tract it operates as a promise, and is presumed to be important unless the contrary is shown ; see note to Behn v. Burness, infra ; see also Bowes V. Shand, 2 A.C. 455, per Lord Cairns, pp. 463, 465, and 467, and per Lord Hatherley, pp. 475, 476. Flight v. Booth. TiNDAL, C.J. — The question in this case arises upon the special facts found by the arbitrator on his award, and it is this, whether the plaintiff was at liberty under the circumstance stated in the award to consider the contract of sale to be rescinded. For if rescinded, the plaintiff is entitled to recover the deposit as money had and received to his use ; but if the contract is still unrescinded and open, the present action is not maintainable, but whatever injury the plaintiff has sus- tained by the misdescription must form the subject of a special action on the contract of sale. Now the arbitrator having expressly found that no wilful conceal- ment or misrepresentation was proved against the defendant, we must consider the case as standing clear from any fraud, and take the mis- description of the premises to have originated either from ignorance, inadvertence, or accident. The question, therefore, is narrowed to the single point, whether the FLIGHT V. BOOTH 213 misdescription in tte printed particulars of sale of the premises to be Appendix sold was such as to entitle the purchaser to rescind the contract alto- gether ; or whether it was such as was contemplated by the sixth con- dition of the printed particulars of sale, by which it was provided that " if through any mistake the estate should be improperly described, or any error or misstatement be inserted in that particular, such error or misstatement should not vitiate the sale thereof ; but the vendor or purchaser, as the case might happen, should pay or allow a propor- tionate value according to the average of the whole purchase-money as a compensation, either way." It is extremely difficult to lay down, from the decided cases, any certain definite rule which shall determine what misstatement or mis- description in the particulars shall justify a rescinding of the contract, and what shall be the ground of compensation only. All the cases concur in this, that where the misstatement is wilful or designed it amounts to fraud ; and such fraud, upon general principles of law, avoids the contract altogether. But with respect to misstatements which stand clear of fraud, it is impossible to reconcile all the cases ; some of them laying it down that no misstatements which originate in carelessness, however gross, shall avoid the contract, but shall form the subject of compensation .only : Duke of Norfolk v. Worthy,^ Wright v. Wilson ;^ whilst other cases lay down the rule — that a mis- description in a material point, although occasioned by negligence only not by fraud, will vitiate the contract of sale : Jones v. Edney,^ Waring v. Hoggart,* and Stewart v. Alliston.^ In this state of dis- crepancy between the decided cases, we think it is, at all events, a safe rule to adopt, that where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject-matter of the contract that it may reasonably be supposed that, but for such misdescription, the purchaser might never have entered into the contract at all, in such case the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation. Under such a state of facts, the purchaser may be con- sidered as not having purchased the thiag which was really the subject of the sale ; as in Jones v. Edney, where the subject-matter of the sale was described to be " a free public-house," while the lease contained a proviso that the lessee and his assigns should take all their beer from a particular brewery ; in which case the misdescription was held to be fatal. In the case \mder discussion the particulars represent the house as calculated for an extensive business in various trades therein enumerated ; to which it was added " that no offensive trades are to be carried on ; the premises cannot be let to a coffee-house keeper or 1 1 Campb. 340. ^ 1 Mood. & Rob. 207. 3 3 Campb. 284. « IRy. & Mood. 39. 6 1 Mer. 26. 214 FLIGHT v. BOOTH Appendix working hatter." Any person reading this particular, and having no ' information but what he derives from it, that is, perhaps, every person attending the sale, would conclude, that he was not prevented by the terms of the lease from carrying on any trade in it, except those which were of a class generally acknowledged to be offensive and the two enumerated trades of cofiee-house keeper and working hatter. He would never suppose, nor have any reason to suppose, that he was prevented from carrying on the trade of a baker, a fruiterer, or a herb seller in a house situated in the piazza of Covent Garden Market, much less that the lease was to become void if the house, so situated, was used as a place for the sale of any provisions whatever. The latter restriction would extend to prevent trades of the most innocent and inofiensive kinds from being exercised on the premises, such as a flour factor, a biscuit seller, or the like ; yet such are the restrictions found to exist in the lease when it is first submitted to the inspection of the purchaser. Under these circumstances, it appears to us, that a lease which is described as containing a restriction against ofiensive trades, and a lease containing restrictions, not only against offensive trades but also against some trades that are inoffensive, are not one and the same thing, but a difierent subject-matter of contract, and that where a man purchases by the former description, it may very well be supposed that he would not have become the purchaser, whether he bought for the purpose of carrying on trade upon the premises himself or for a money investment, if he had known the lease had contained the larger and more extensive restrictions ; and, indeed, the very terms of the sixth condition of sale scarcely apply to a c^se where the difference of value is so uncertain and arbitrary as in the present case. The condition, that the parties are to pay or allow a proportionate value according to the average, will comprehend a case where there is half an acre more or less than is described, or cases which resolve themselves into simple calculations of that nature ; but how will it govern such a misstatement as the present ? What action at law can be framed upon it ? It would at least involve the purchasers in great difiiculties. The lease being in the hands of the vendor, he had peculiarly, and indeed, exclusively, the means of knowledge of the exact restrictions con- tained in it ; the purchaser at the auction had none. For the reading the lease at the auction by the auctioneer has been decided to be no excuse for a misdescription of the terms of the lease in the particulars of sale.'- And as to any laches on the part of the purchaser in not sooner demanding an inspection of the lease, which was urged as an argument on the part of the defendant, he had not the most distant reason to suspect any misdescription, until the abstract was delivered, and then the suspicion would come too late ; for the question is, whether he was bound or not at the time the contract was made. If, indeed, ' Jones V. Edney, 3 Campb. 285. BANNERMAN v. WHITE 215 there had been any waiver of the objection in this case, our decision Appendix would have been different, but a waiver should have been found by the arbitrator ; and so far as can be inferred from the facts found upon the award, the lease was never seen by the purchaser, nor the objection ever taken, until the trial of the cause. He stood then, as he might do, upon his legal right to recover the deposit. Upon the whole, we see no reason to be dissatisfied with the arbitra- tor's award, and therefore the rule for entering the verdict for the defendant must be discharged. Rule discharged. Bannebman v. White, Judgment of Erie, G.J., Williams, J., Willes, J., and Byles, J., delivered by Eblb, C.J. — In this case the plaintiff obtained a rule to set aside the verdict for the defendants, and enter it for the plaintifi, on the ground that the stipulation that no sulphur had been used in the growth of the hops did not amount to a condition that the hops might be rejected if sulphur had been used. The plaintifi argued that the contract must be so construed because it related to a specifically ascertained chattel ; and for this he cited some expressions in the judgment of Street v. Blay, 2 B. & Ad. 456. The defendants, on the other hand, contended that the contract here in question was an executory contract ; that the intention of the parties governs in all contracts whatsoever ; that, upon the evidence, it was clear that the stipulation in question was intended by these parties to be a condition ; and that the case of Street v. Blay had no application. We propose to state the evidence in some detail, so to show the meaning of the finding of the jury. At the close of the trial, the jury was requested to give specific answers to certain questions. Those questions comprised all that was in contest between the parties, and cannot be properly understood without taking them in combination with all that was uncontested, and keeping present to the mind the issue to which they relate. The action was for hops sold and deUvered. The first plea was, in effect, fraud, viz. that the plaintiff induced the defendants to buy by making a false representation that no sulphur had been used, and so forth. The second plea was non assumfsit. The evidence in support of the first plea consisted of these facts — that, in 1854, sulphur had been used in the growth of hops, and the brewers affirmed that the hops had been injured thereby and their beer spoiled ; and the hop-merchants had given notice to the hop-growers of their objection to buy hops in the growth of which any sulphur had been used : and the plaintiff and defendants, each knowing these facts, met and treated for the contract 216 BANNERMAN v. WHITE Appendix in question, the samples being produced. There was no substantial variance in the account given of that which passed at the interview when the contract was made. There were six witnesses present. All agreed that, before the price was asked, the defendants inquired if sulphur had been used in the growth. The three witnesses for the defendants stated that the plaintifi answered distinctly, " No," and that the defendants said they would not ask the price if sulphur had been used. The plaintifi's witnesses did not contradict them, but said the answer waa, " There was no mould this year, and no occasion to use any sulphur," and did not remember that the defendants had said they would not ask the price if any sulphur had been used. The treaty then went on, and eventuated in a contract to seU and deliver the bulk in accordance with the samples after some days should have elapsed. The hops were accordingly sent, and corresponded with sample, and were weighed and delivered into the defendants' possession. Afterwards the defendants repudiated the hops, and proved that sulphur had been used. The uncontroverted facts were, that sulphur had been used on five acres out of three hundred ; that those sulphured hops were so mixed with the unsulphured as to be undistinguishahle ; that- the plaintifE represented that no sulphur had been used ; that the defendants would not have bought the hops if they had known that fact, and could not sell them as they were, in the ordinary course of their dealings with their customers. The counsel agreed with the judge that here were two principal questions for the jury. On the first, the contest was in substance confined to the point whether the representation was wilfully false : and this question was answered by the jury in the negative. The second question then became material, and it was framed with reference to the same evidence, and on the assumption that the same facts were undisputed, the term ' affirmation ' being substituted for ' represen- tation ' as more appropriate to a matter of contract, to the minds of all concerned in the trial. Thus the question was : " Was the affirmation that no sulphur had been used intended between the parties to^be part of the contract of sale, and a warranty by the plaintifE ? " As to this, it was contended on one side that the conversation relating to the sulphur was preliminary to entering on the contract, and no part thereof, both from the form of expression and also from the written guarantee which was shown to have been given. On the other side it was contended that the whole interview was one trans- action, that the intention of the parties was alone to be regarded, that the defendants had declared the importance they attached to the inquiry, and that the plaintifE must have known it. And the jury answered this question in the affirmative. The efiect of this finding of the jury, taken with the evidence, is now FORMAN V. WRIGHT 217 to be considered. We avoid the term ' warranty,' because it is used Appendix in two senses, and tbe term ' condition,' because the question is whether that term is applicable. Then, the effect is that the defendants required, and that the plaintiff gave his undertaking that no sulphur had been used. This undertaking was a preliminary stipulation ; and, if it had not been given, the defendants would not have gone on with the treaty which resulted in the sale. In this sense it was the condition upon which the defendants contracted ; and it would be contrary to the intention expressed by this stipulation that the contract should remain valid if sulphur had been used. The intention of the parties governs in the making and in the con- struction of all contracts. If the parties so intend, the sale may be absolute, with a warranty superadded ; or the sale may be conditional, to be nuU if the warranty is broken. And, upon this statement of facts, we think that the intention appears that the contract should be null if sulphur had been used ; and upon this ground we agree that the rule should be discharged. Rule discharged. FoEMAN V. Weight. Jeevis, C.J. — In the case last argued — Forman v. Wright — I think the rule must be made absolute. The jury found that the plaintiff, without fraud, made a misrepresentation, by which the defendant was induced to give him the promissory note declared on. The plea alleges that the defendant was indebted to one Fawcett in the sum of £10 14s. \ld., and no more ; that the plaintiff fraudu- lently, deceitfully, and falsely represented to the defendant that there was due from the defendant to Fawcett the sum of £32 6s. \Qd., and then demanded of, and by means of such representation as aforesaid induced the defendant to deliver to him the note in the first count mentioned. The question is, whether the facts so found by the jury support the plea. It is clear that they do not, unless the plea would be good the words ' fraudulently and deceitfully ' being; struck out. If in showing the ground of the alleged partial failure of con- sideration, it would be enough to state that the note was obtained by any misrepresentation — ^whether of law or of fact — going to the amount of consideration, the plea would clearly be good without those words. Upon consideration, I am of opinion that a plea alleging a failure of consideration may be supported as well by showing that the bill or note ■was obtained by a misrepresentation of law, as by a misrepresentation of fact. A bill or note prima facie imports consideration ; and it is not enough in a plea of want of consideration merely to say that the defen- dant never had any value or consideration ; the plea must go on to aver the circumstances which show that there was no consideration. Want of consideration is altogether independent of knowledge either 218 FORMAN v. WRIGHT Appendix of the facts or of the law. I apprehend a man might say that, in adding up an account, he erroneously supposed himself to be indebted in £100, whereas in truth £10 only was due ; that, in the case of a bill or note, would be a good plea of want of consideration except as to £10. How does this case difier from the present, before the matter has been completed by payment ? What the defendant here, in substance, says is : "I was induced by the plaintiff's misrepresentation to believe that I was indebted to Fawcett to the extent of £32 6s. \QA. whereas in truth I was indebted only to the extent of £10 14«. \\d." I am of opinion that a plea alleging a representation innocently false, of a matter going to the amount of the consideration, is a good plea, though the misrepresentation might be in a matter of law ; and that the facts proved and found by the jury in this case sustain the plea, the words ' fraudulently and deceitfully ' being rejected. The same principle will govern our decision in Southall v. Rigg. That also was an action upon a promissory note. The plea, as it originally stood, stated that there never was any value or consideration for the making, etc., of the note, and that it was made for the accommo- dation of the plaintiff. It appearing at the trial that the note was not given for the plaintifi's accommodation, but that the defendant had been induced to give it by an incorrect representation made by the plaintiff that the defendant was liable to pay a certain sum, the defen- dant obtained leave to amend, and the plea was accordingly amended by striking out the words, " for the accommodation'of the plaintiff " and alleging that the note was obtained from the defendant by the plaintiff upon a representation made by the plaintifi to the defendant that there was then due and owing from the defendant to the plaintiff a large sum of money, to wit, the sum in the note specified, as and for the deficiency in the amount of certain dividends payable to the plain- tiff under and by virtue of a certain indenture of apprenticeship there- tofore made between the plaintiff and the defendant ; whereas, in truth and in fact no such sum of money, or any part thereof, was ever due and owing by the defendant to the plaintifi as aforesaid, or other- wise. Upon the discussion of the rule in this case, the question for the decision of the Court was, whether, upon the plea as amended, and upon the evidence, the defendant was entitled to the verdict. It appears from the evidence that the plaintifi did represent to the defen- dant that he was liable to pay the money, whereas in truth he was not, and that the defendant made and delivered the note declared on upon the faith of that misrepresentation. Inasmuch, therefore, as the plea would have been good if it had expressly alleged that the misrepresenta- tion complained of was upon a matter of law, I am of opinion that the amendment was properly made. It was suggested in argument that the defendant was morally bound to pay the money, and that that would be a sufficient consideration. But the note was not, in fact, given for the consideration. It was further suggested that the giving DUKE OF ST. ALBANS v. SHORE 219 up of the first note for £77 was a sufficient consideration for tlie second App endix note. But tKe second note was not in reality given by way of com- promise for the first, but in substitution — the whole, in fact, was one transaction. If the first note was without consideration, the second was equally so. I think the rule must be made absolute. Ceesswell, J. — I am entirely of the same opinion. The plea in Forman v. Wright is in substance a plea of absence of consideration to a certain amount. The decision the Court now come to does not, in any degree, interfere with the doctrine that a small consideration may sustain a larger promise. Where there is a promise to pay a certain sum, all being, as in this case, supposed to be due, each part of the money expressed to be due is the consideration for each part of the promise ; and the consideration as to any part failing, the promise is, pro ianto, nudum pactum. The rules of pleading require that a plea of no con- sideration, to a bill or note, which prima facie imports consideration, shall show how the want of consideration arises. In the present case it is shown thus : by a statement that the note was obtained from the defendant by the plaintifi by a false representa- tion that £32 6s. lOd. was due, when, in fact, £10 14s. lid. only was due. The plea, it is true, goes on to state that that representation was made fraudulently and deceitfully. It was enough, however, that the representation was untrue ; and whether the misrepresentation was in a matter of fact or of law, is quite immaterial. The consideration for the note failed as to so much as the mis- representation applied to. The decision in Forman v. Wright necessarily involves that of Southall V. Rigg also. Williams, J. — The plea in Forman v. Wright is a perfectly good plea of partial failure of consideration. It was not necessary to the validity of that plea, that the representation therein alleged should have been stated to be fraudulent and deceitful ; nor was it necessary to prove it. Enough of the plea was proved to entitle the defendant to a verdict on that issue. I also agree with the rest of the Court, that the same principle must govern Southall v. Bigg. Talpoued, J., concurred. Rule absolute. Duke of St. Albans v. Shoee. Judgment of LoED LouGHBOEOUGH. — It is clear in this case, that unless the plaintiff has done all that was incumbent on him to do, in order to create 220 DUKE OF ST. ALBANS v. SHORE Appendix a performance by the defendant (if I may use the expression), he is not entitled to maintain the action. If he has not set forth a sufficient title, judgment must be against him whatever the plea is, and if a plea 1 be a good bar, the same consequence must follow. It was argued on the part of the plaintiff that the agreement respecting the trees was not a condition precedent, and therefore a breach of that agreement could not be pleaded in bar of the action. In support of this argu- ment, the case of Boone v. Eyre was cited ; but in that case, though the Court of King's Bench held the plea insufficient, yet they laid down a clear and well-founded distinction, that where a covenant went to the whole of the consideration on both sides, there it was a condition prece- dent, and each party must resort to his separate remedy ; and for this plain and obvious reason, because the damages might be imequal. The cases also of Hunlocke v. Blacklowe, 2 Saund.^ and Cole v. Shallet, 3 Lev.,* were cited as being in favour of the plaintiff. But it is unnecessary to enter into the discussion of those cases, though perhaps doubts may reasonably be entertained of the doctrine laid down in Saunders, and though the case cited by him in his argument may deserve full as much consideration as that which was the subject of the deter- mination of the Court. For we found our opinion on the present case, on the ground of the distinction in Boone v. Eyre, which we think a fair and sound one. Then the question is, whether the covenant of the plaintiff goes to the whole consideration of that which was to be done by the defendant ? Now the Duke clearly covenanted to convey an estate to the defendant, in which all the timber growing on the estate was necessarily included. The timber was not disjoined from the estate by the separate valuation of it. It was expressly agreed that all trees, etc, which then were upon any of the estates should be valued. But it is not to be permitted to a party contracting to convey land which includes the timber, by his own act to change the nature of it between the time of entering into the contract and that of performing it. There may be cases where the timber growing on an estate is the chief inducement to a purchase of that estate. But it is not necessary to inquire whether it be the chief inducement to a purchase or not ; for if it may be in any sort a consideration to the party purchasing to have the tirclber, the party selling ought not to be permitted to alter the estate by cutting down any of it. This is not an action of covenant where one party has performed his part, but is brought for a penalty on the other party refusing to execute a contract. But to entitle the party bringing the action to a penalty, he ought punctually, exactly, and literally, to complete his part. We are therefore of opinion that the plea is a good bar to the action. S My brother Marshall made some exceptions to the declaration, which it is not necessary to go into, but which, speaking for myself, I » P. 119. =■ P. 41. DUKE OF ST. ALBANS v. SHORE 221 think material. It is to be observed, that this is not a contract abso- Appendix lutely and at all events to convey. Where a man midertakea to convey he imdertakes to convey by a good title. There are cases where a Court of Equity has holden, that a party so undertaking might make a title by procuring an Act of ParUament, and that he was bound to purchase in all outstanding terms to make a good title. But in this case if the plaintifi was not entitled to make a good title before a certain day, the agreement was to be at an end, he might be ofE, and was released from his engagement. He therefore undertook to make a good title before a given time ; the breach assigned is, that the defen- dant refused to accept the title. But what title ? What exhibition of title ? What title was tendered to him 1 What was there for him to accept ? This perhaps is rather dehors the question ; though it might be material if it were necessary to take it into consideration. But the ground of our determination is, that the plea is good, as I before stated, within the distinction laid down by the Court of King's Bench in the case of Boone v. Eyre. Judgment for defendant. 222 APPENDIX Appendix Kennedy v. The Panama, etc.. Mail Co., L.B. 2 Q.B. 580. Bettini v. Gye, 1 Q.B.D. 183. Poussard v. Spiers, 1 Q.B.D. 410. Note. The first of these cases illustrates the principle which obtains at law when it is sought to avoid an executed contract for innocent misrepre- sentation, viz. " if there be a misrepresentation as to the substance of the thing, there is no contract, but if it be only a difEerence in some quality or accident, even though the misapprehension may have been the actuating motive to the purchaser, yet the contract remains bind- ing . . . and the difficulty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole consideration, going, as it were, to the root of the contract, or only to some point, even though a material point, an error as to which does not afEect the substance of the whole consideration." This principle is simply an application of the rule of law, that when the property in the subject-matter of the contract has passed, the remedy of the purchaser for a minor default, such as a breach of war- ranty, is limited to the recovery of damages, and the case of Street v. Blay is cited as illustrating the general rule. Bettini v. Gye on the other hand was a case of the breach of a term of an executory simple contract. A perusal of the judgment will show that the Court proceeded as if the action were in covenant, that is, it stated the question for decision as depending on whether the stipulation broken was intended by the parties to be a condition precedent or inde- pendent. The judgment then proceeds to define ' condition prece- dent ' not as depending on the order in time of performance relatively to the other terms of the contract, but as depending on the importance of the breach. If the definition of ' condition precedent ' adopted by the judgment, be compared with the principle laid down in Kennedy V. The Panama Mail Company, it will be seen that it is practically a paraphrase of that principle. Thus the breach of an executory contract was treated as if the contract were substantially executed, the action was treated as an action in covenant, and the importance of the result of the breach was taken as the criterion of ' condition precedent.' In other words, the intention of the parties in making the contract is assumed to be ascertained by reference to the results of a breach which, so far as appears, was not in the contemplation of either party when the contract was made. The importance of the stipulation broken as an inducement to the partynot in default, to enter into the contract is not taken into account at all. It is true that the element of failure of KENNEDY v. THE PANAMA, ETC., MAIL CO 223 consideration was considered in estimating the result of the breacli A ppendix having regard to the contract as a whole. But a failure of consideration which may be sufficient to discharge a contract while executory may be quite insufficient in the case of an executed contract : Street v. Blay, or for the purposes of such a case as Kennedy v. The Panama Mail Com- pany. In the case of an executory contract a failure of some promise or representation inducing the contract may be sufficient to discharge the contract or afiord ground for avoidance, while in the case of a contract alleged to be executed or substantially executed, the failure of consideration must be so far reaching that the performance, viewed as a whole, amounts to something substantially different from what was promised, or, as was said in Bettini v. Gye, " a thing different in sub- stance." The Court in Bettini v. Gye, in adopting the view as to failure of consideration expressed in Kennedy's Case, seems to have applied to the case of an executory contract a principle applicable to the case of an executed or substantially executed contract. Whether the decision in Bettini v. Gye would or would not have been the same, had the stipulation broken been weighed as a material inducement to the con- tract, we need not stay to consider : the question is, whether the prin- ciple applied is the principle properly applicable in deciding whether a particular breach of a contract while executory discharges the party not in default, or merely affords him a ground for the recovery of damages. In Poussard v. Spiers a similar question was again made to turn on the result of an inquiry whether the stipulation broken was or was not a condition precedent, and, again, the intention of the parties in making the contract was sought to be ascertained by weighing the result of the breach in special circumstances which neither party could have had in contemplation when the contract was made. It is to be noted, however, that this judgment seems to have proceeded partly on the ground of breach of condition precedent and partly on the view that the breach amounted to " a sufficient failure of consideration to set the defendants at liberty." On the latter ground the case presents no difficulty. Kennedy v. Panama, Etc., Mail Co. Extract from judgment of the Court, delivered by Blackbuen, J.— The only remaining question is one of much greater difficulty. It was contended by Mr. Mellish, on behalf of Lord Gilbert Kennedy, that the effect of the prospectus was to warrant to the intended shareholders that there was really such a contract as is there represented, and not merely to represent that the company bona fide believed it ; and that the difference in substance between shares in a company with such a contract and shares in a company whose sup- posed contract was not binding, was a difference in substance in the 224 KENNEDY v. THE PANAMA, ETC., MAIL CO. Appendix nature of the thing, and that the shareholder was entitled -to return the shares as soon as he discovered this, quite independently of fraud, on the ground that he had applied for one thing and got another. And, if the invalidity of the contract really made the shares he obtained different things in substance from those which he applied for, this would, we think, be good law. The case would then resemble Gomjiertz v. Bartlett^ and Gurney v. Wormersley,^ where the person, who had honestly sold what he thought a bill without recourse to him, was nevertheless held bound to return the price on its turning out that the supposed bill was a forgery in the one' case, and void under the stamp laws in the other ; in both cases the ground of the decision being that the thing handed over was not the thing paid for. A similar principle was acted upon in Ship's Case? There is, however, a very important difference between cases where a contract may be rescinded on account of fraud, and those in which it may be rescinded on the ground that there is a difference in substance between the thing bargained for and that obtained. It is enough to show that there was a fraudulent representation as to any part of that which induced the party to enter into the contract which he seeks to rescind ; but where there has been an innocent misrepresentation or misapprehension, it does not authorise a rescission unless it is such as to show that there is a complete difference in substance between what was supposed to be and what was taken, so as to constitute a failure of con- sideration. For example, where a horse is bought under a belief that it is sound, if the purchaser was induced to buy by a fraudulent represen- tation as to the horse's soundness, the contract may be rescinded. If it was induced by an honest misrepresentation as to its soundness, though it may be clear that both vendor and purchaser thought that they were dealing about a sound horse and were in error, yet the pur- chaser must pay the whole price, unless there was a warranty ; and even if there was a warranty, he cannot return the horse and claim back the whole price, unless there was a condition to that effect in the contract : Street v. Blay.* The principle is well illustrated in the civil law, as stated in the Digest, lib. 18, tit. 4. De Contrahenda Emptione, leges 9, 10, II. There, after laying down the general rule, that where the parties are not at one as to the subject of the contract there is no agreement, and that this applies where the parties have misapprehended each other as to the corpus, as where an absent slave was sold, and the buyer thought he was buying Pamphilus and the vendor thought he was selling Stichus, and pronouncing the judgment that in such a case there was no bargain because there was " error in corpore " the framers of the digest moot that point thus : " Inde quaeritur, si in ipso corpore non erretur, sed 1 2 E. & B. 849 ; 23 L. J. (Q.B.) 65. ^ 4 e. & B. 133 ; 24 L.J. (Q.B.) 46 3 2 DeG. J. & S. 544. « 2 B. & Ad. 456. KENNEDY v. THE PANAMA, ETC., MAIL CO. 225 in substantia error sit, ut, puta, si acetum pro vino veneat, aes pro auro. Appendix vel plumbum pro argento vel quid aliud argento simile : an emptio et venditio sit " ; and the answers given by the great jurists quoted are to the efiect, that if there be misapprehension as to the substance of the thing, there is no contract ; but if it be only a difference in some quality or accident, even though the misapprehension may have been the actuating motive to the purchaser, yet the contract remains binding. Paulus says : " Si aes pro auro veneat, non valet, aUter atque si aurum quidem fuerit, deterius autem quam emptor existimarit : tunc enim emptio valet." Ulpianus, in the eleventh law, puts an example as to the sale of a slave very similar to that of the unsound horse in Street v. Blay}- And, as we apprehend, the principle of our law is the same as that of the civil law, and the difficulty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole consideration, going, as it were, to the root of the matter, or only to some point, even though a material point, an error as to which does not affect the substance of the whole consideration. Some cases were referred to on the argument, in which the question was, whether a stipulation in a contract was a condition precedent or not. Those cases are, no doubt, analogous, as the question in such cases very much depends on whether the stipulation goes to the root of the matter or not ; but they are only remotely analogous ; and after all, the decisions can never do more than illustrate the principle, and the question must depend on the construction of the contract and the particular circumstances of the particular case. In the present case the prospectus stares that the issue of the new shares was authorised by a meeting. Had that been a mistake, we think it would have been in the substance, as the applicant would not have had shares at all ; but that statement was quite accurate, and he got shares in the company. It was stated in the prospectus that the motive for the increase of the capital was to enable the company to work the new contract. That also was strictly accurate. It was, by implication, stated that the contract was binding, and this was a misstatement, though an innocent ore ; but we do not think that it affected the substance of the matter, for the applicant actually got shares in the very company for shares in which he had applied ; and that company has, by means of the invalid contract, got the benefit, and is now carrying the mails on terms, not the same as those they supposed, and perhaps not so profitable, but stiU on profitable terms ; and the shares obtained in the company, such as it is, are far from being of no value ; indeed, the fall of £2 per share, which is stated in the case to be the discount at the time of action brought, is not greater than may be very well accounted for by the change of times, quite independently of the dispute about the contract. We think there was a misapprehension as to that which was a material part » 2 B. & Ad. 456. Q 226 BETTINI V. GYE \ Appendix of tte motive inducing the applicant to ask for the shares but not preventing the shares from being in substance those he applied for. And we are a good deal influenced by the consideration that, from the nature of the company, those who applied for the new shares ■ must have known that the increased capital was wanted at once to build fresh ships and meet other expenditure for the purpose of working the contract ; and that all such contracts must be exposed to risk of repudiation, whether justified in law or not ; and that if the new shareholders are set free, the existing shareholders must be left subject to liabilities incurred on the faith of their subscription. These would not be legitimate considerations if there had been fraud in those acting for the company ; doubtless in such a case the company must bear all the consequences of the fraud of those they employ. But if the question be, as we think it is, whether the misapprehension as to the contract goes to the root and substance of the matter, so as to make the shares which the applicant has obtained in a company with this questionable contract substantially diff^^ent things from shares in a company with a vahd contract, we think those considerations are legitimate ; and they lead us to the conclusion that the case is analogous to that of the horse supposed to be sound and not really so, and not to the case of a thing substantially difierent. It follows that in our opinion the judgment ih both actions should be for the company. Bettini v. Gye Judgment of the Court delivered by Blackbuen, J. — In this case the parties have entered into an agreement in writing, which is set out on the record. The Coujt must ascertain the intention of the parties, as is said by Parke, B., in delivering the judgment of the Court in Graves v. Legg,^ " to be collected from the instrument and the circumstances legally admissible in evidence with reference to which it is to be construed." He adds : " One particular rule well acknowledged is, that where a covenant or agreement goes to part of the consideration on both sides, and may be compensated in damages, it is an independent covenant or contract." There was no averment of any special circumstances existing in this case, with reference to which the agreement was made, but the Court must look at the general nature of such an engagement. By the seventh paragraph of the agreement, " Mr. Bettini agrees to be in London without fail at least six days before the commencement of his engagement for the purpose of rehearsals." The engagement was to begin on the 30th March, 1875. It is admitted on the record that the plaintifi did not arrive in London till the 28th of March, which is less 1 9 Exch. at p. 716 ; 23 L.J. (Exch.) 228. BETTINI V. GYE 227 than six days before tte 30tli, and therefore it is clear that he has not Appendix fulfilled this part of the contract. The question raised by the demurrer is, not whether the plaintiff has any excuse for failing to fulfil this part of his contract, which may prevent his being hable in damages for not doing so, but whether his failure to do so justified the defendant in refusing to proceed with the engagement, and fulfil his, the defendant's, part. And the answer to that question depends on whether this part of the contract is a condition precedent to the defendant's liability, or only an independent agreement, a breach of which will not justify a repudiation of the con- tract, but will only be a cause of action for a compensation in damages. This is a question which has very often been raised ; and the numerous cases on the subject are collected in the first volume of Sir E. V. WilUams' Notes to Saunders, p. 554, in the notes to Pordage V. Cole, and in the second volume, p. 742, notes to Peelers v. Opie. We think the answer to this question depends on the true con- struction of the contract taken as a whole. Parties may think some matter, apparently of very little import- ance, essential ; and if they sufficiently express an intention to make the Uteral fulfilment of such a thing a condition precedent, it wUl be one ; or they may think that the performance of some matter, appa- rently of essential importance a.nd frima facie a condition precedent, is not really vital, and may be compensated for in damages, and if they sufficiently expressed such an intention, it will not be a condition precedent. In this case, if to the seventh paragraph of the agreement there had been added words to this efiect : " And if Mr. Bettini is not there at the stipulated time, Mr. Gye may refuse to proceed further with the agreement," or it, on the other hand, it had been said, " And if not there Mr. Gye may postpone the commencement of Mr. Bettini's engagement for as many days as Mr. Bettini makes default, and he shall forfeit twice his salary for that time," there could have been no question raised in the case. But there is no such declaration of the intention of the parties either way. And in the absence of such an express declaration, we think that we are to look to the whole contract, and appljring the rule stated by Parke, B., to be acknowledged,-"- see whether the particular stipulation goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for ; or whether it merely partially affects it and may be compensated for in damages. Accordingly as it is one or the other, we think it must be taken to be or not to be intended to be a condition precedent. 1 In Graves v. Legg, 9 Exch. at p. 716 ; 23 L, J. (Exch.) 228. Q2 228 POUSSARD v. SPIERS Appendix If the plaintifi's engagement had been only to sing in operas at the theatre, it might very well be that previous attendance at rehearsals with the actors in company with whom he was to perform was essential. And if the engagement had been only for a few performances, or for a short time, it would afiord a strong argument that attendance for the purpose of rehearsals during the six days immediately before the com- mencement of the engagement was a vital part of the agreement. But we find, on looking to the agreement, that the plaintiff was to sing in theatres, halls, and drawing-rooms, both public and private, from the 30th of March to the 13th of July, 1875, and that he was to sing in concerts as well as in operas, and was not to sing anywhere out of the theatre in Great Britain or Ireland from the 1st of January to the 31st of December, 1875, without the written permission of the defendant, except at a distance of more than fifty miles from London. The plaintiff, therefore, has, in consequence of this agreement, been deprived of the power of earning anything in London from the 1st of January to the 30th of March ; and though the defendant has, perhaps, not received any benefit from this, so as to preclude him from any longer treating as a condition precedent what had originally been one, we think this at least affords a strong argument for saying that subsequent stipulations are not intended to be conditions pre- cedent, unless the nature of the thing strongly shows they must be so. And, as far as we can see, the failure to attend at rehearsals during the six days immediately before the 30th of March could only affect the theatrical performances and, perhaps, the singing in duets or con- certed pieces during the first week or fortnight of this engagement, which is to sing in theatres, haUs, and drawing-rooms, and concerts for fifteen weeks. We think, therefore, that it does' not go to the root of the matter so as to require us to consider it a condition precedent. The defendant must, therefore, we think, seek redress by a cross- claim for damages. Judgment must be given for the plaintifi. PoussAED V. Spikes Judgment of the Court delivered by Blackbuen, J.— This was an action for the dismissal of the plain- tifi's wife from a theatrical engagement. On the trial before my brother Field it appeared that the defendants Messrs. Spiers & Pond had taken the Criterion Theatre, and were about to bring out a French opera, which was to be produced simultaneously in London and Paris. Their manager, Mr. Kingston, by their authority made a contract with the plaintifi's wife, which was reduced to writing in the following letter : POUSSARD V. SPIERS 229 " Criterion Theatre, Appendix " Octdber 16ih, 1874. " To Madame Poussaed. " On behalf of Messrs. Spiers & Pond I engage you to sing and play at the Criterion Theatre on the following terms : " You to play the part of Friquette in Lecocq's opera of Les Pris Saint-Gervais, commencing on or about the fourteenth of November next, at a weekly salary of eleven pounds (£11), and to continue on at that sum for a period of three months, providing the opera shall run for that period. Then, at the expiration of the said three months, I shall be at liberty to re-engage you at my option, on terms then to be ar- ranged, and not to exceed fourteen pounds per week for another period of three months. Dresses and tights reqiiisite for the part to be pro- vided by the management, and the engagement to be subject to the ordinary rules and regulations of the theatre. " Ratified : " E. P. Kingston, Manager. " Spikes & Pond. " Madame Poussard, 46 Gunter Grove, Chelsea." The first performance of the piece was announced for Saturday, the 28th of November. No objection was raised on either side as to this delay, and Madame Poussard attended rehearsals, and such attendance, though not expressed in the written engagement, was an implied part of it. Owing to delays on the part of the composer, the music of the latter part of the piece was not in the hands of the defendants till a few days before that announced for the production of the piece, and the latter and final rehearsals did not take place till the week on the Satur- day of which the performance was announced. Madame Poussard was unfortunately taken ill, and though she struggled to attend the rehearsals, she was obliged on Monday, the 23rd of November, to leave the rehearsal, go home and go to bed, and call in medical attendance. In the course of the next day or two an interview took place between the plaintiff and Mr. Leonard (Madame Poussard's medical attendant) and Mrs. Listen, who was defendants' stage manager, in reference to Madame Poussard's abihty to attend and undertake her part, and there was a conflict of testimony as to what took place. According to the defendants' version, Mrs. Listen requested to know as soon as possible what was the prospect of Madame Poussard's recovery, as it would be very difficult on such short notice to obtain a substitute ; and that in the result the plaintifi wrote stating that his wife's health was such that she could not play on the Saturday night, and that Mrs. Liston had better, therefore, engage a young lady to play the part ; and this, if believed to be accurate, amounted to a rescission of the contract. According to the evidence of the plaintifE and the doctor, Mrs. Liston told them that Madame Poussard was to take care of her- self and not come out tiU quite well, as she, Mrs. Liston, had procured, 230 POUSSARD v. SPIERS Appendix or would procure, a temporary substitute ; and Madame Poussard ' could resume her place as soon as she was well. This, it was contended by the plaintifi, amounted to a waiver by the defendants of a breach of the condition precedent if there was one. The jury found that the plaintiff did not rescind the contract, and that Mrs. Liston, if she did waive the condition precedent (as to which they were not agreed), had no authority from the defendants to do so. These findings, if they stand, dispose of those two questions. There was no substantial conflict as to what was in fact done by Mrs. Liston. Upon learning, on the Wednesday (the 25th of November), the possi- bility that Madame Poussard might be prevented by illness from fulfilling her engagement, she sent to a theatrical agent to inquire what artistes of position were disengaged, and learning that Miss Lewis had no engagement till the 25th of December, she made a provisional arrange- ment with her, by which Miss Lewis undertook to study the part and be ready on Saturday to take the part, in case Madame Poussard was not then recovered so far as to be ready to perform. If it should turn out that this labour was thrown away. Miss Lewis was to have a douceur for her trouble. If Miss Lewis was called on to perform, she was to be engaged at £15 a week up to the 25th of December, if the piece ran so long. Madame Poussard continued in bed and ill, and unable to attend either the subsequent rehearsals or the first night of the performance on the Saturday, and Miss Lewis' engagement became absolute, and she performed the part on Saturday, Monday, Tuesday, Wednesday, and up to the close of her engagement, the 25th of December. The piece proved a success, and, in fact, ran for more than three months. On Thursday, the 4th of December, Madame Poussard, having re- covered, ofiered to take her place, but was refused and for this refusal the action was brought. On the 2nd of January Madame Poussard left England. My brother Field, at the trial, expressed his opinion that the failure of Madame Poussard to be ready to perform, under the circumstances, , went so much to the root of the consideration as to discharge the defendants, and that he should therefore enter judgment for the defen- dants ; but he asked the jury five questions. The first three related to the supposed rescission and waiver. The other questions were in writing and were : (4) Whether the non-attend- ance on the night of the opening was of such material consequence to the defendants as to entitle them to rescind the contract ? To which the jury said, " No." And (5) was it of such consequence as to render it reasonable for the defendants to employ another artiste, and whether the engagement of Miss Lewis, as made, was reasonable ; to which the jury say, " Yes." Lastly, he left the question of damages, which the jury assessed at £83. On these answers he reserved leave to the plaintifE to move to enter judgment for £83. POUSSARD V. SPIERS 231 A cross rule was obtained on the ground that the verdict was against Appendix evidence, and that the damages were excessive. We think that, from the nature of the engagement to take a leading, and, indeed, the principal female part (for the prima donna sang her part in male costume as the Prince de Conti) in a new opera which (as appears from the terms of the engagement) it was known might run for a longer or shorter time, and so be a profitable or losing concern to the defendants, we can, without the aid of the jury, see that it must have been of great importance to the defendants that the piece should start well, and consequently that the failure of the plaintiff's wife to be able to perform on the opening and early performances was a very serious detriment to them. This inability having been occasioned by sickness was not any breach of contract by the plaintifi, and no action can lie against him for the failure thus occasioned. But the damage to the defendants, and the consequent failure of consideration, is just as great as if it had been occasioned by the plaintifi's fault, instead of by his wife's misfor- tune. The analogy is complete between this case and that of a charter- party in the ordinary terms, where the ship is to proceed in ballast (the act of God, etc., excepted) to a port and there load a cargo. If the delay is occasioned by excepted perils, the shipowner is excused. But if it is so great as to go to the root of the matter, it frees the charterer from his obligation to furnish a cargo : see per Bramwell, B., delivering the judgment of the majority of the Court of Exchequer Chamber in Jackson v. Union Marine Insurance Go} And we think that the question, whether the failure of a skilled and capable artiste to perform in a new piece through serious illness is so important as to go to the root of the consideration, must to some extent depend on the evidence, and is a mixed question of law and fact. Theoretically, the facts should be left to and found separately by the jury, it being for the judge or the Court to say whether they, being so found, show a breach of a condition precedent or not. But this course is often (if not generally) impracticable ; and if we can see that the proper facts have been found, we should act on these without regard to the form of the questions. Now, in the present case, we must consider what were the courses open to the defendants under the circumstances. They might, it was said on the argument before us (though not on the trial), have postponed the bringing out of the piece till the recovery of Madame Poussard, and if her illness had been a temporary hoarseness in- capacitating her from singing on the Saturday, but sure to be removed by the Monday, that might have been a proper course to pursue. But the iUness here was a serious one, of uncertain duration, and if the plaintifi had at the trial suggested that this was the proper ^ Law Rep. 10 C.P. at p. 141. 232 POUSSARD ». SPIERS Appendix course, it would, no doubt, have been shown that it would have been a ruinous course ; and that it would have been much better to have abandoned the piece altogether than to have postponed it from day to day for an uncertain time, during which the theatre would have been a heavy loss. The remaining alternatives were to employ a temporary substitute until such time as the plaintifE's wife should recover ; and if a temporary substitute capable of performing the part adequately could have been obtained upon such a precarious engagement on any reasonable terms, that would have been a right course to pursue ; but if no substitute capable of performing the part adequately could be obtained, except on the terms that she should be permanently engaged at a higher pay than the plaintifE's wife, in our opinion it follows, as a matter of law, that the failure on the plaintifE's part went to the root of the matter and discharged the defendants. We think, therefore, that the fifth question put to the jury, and answered by them in favour of the defendants, does find all the facta necessary to enable us to decide as a matter of law that the defendants are discharged. The fourth question is, no doubt, found by the jury for the plaintifi, but we think in finding it they must have made a mistake in law as to what was a sufficient failure of consideration to set the defendants at liberty, which was not a question for them. This view taken by us renders it unnecessary to decide anything on the cross rule for a new trial. The motion must be refused with costs. APPENDIX 233 Behn v. Bumess, 3 B. & S. 751. Appendix Bentsen v. Taylor, (1893), 2 Q.B. S74. Note. There are five important points to be noted as having been decided by the judgment in Behn v, Burness : 1. A representation is a statement or assertion made by one party to the other before or at the time of the contract, of some matter or circumstance relating to it. 2. Unless the representation is an integral part of the contract, the contract is not broken though the representation proves to be untrue, and its untruth afiords no cause of action, nor has it any efB.cacy whatever unless made fraudulently. 3. A breach of contract in order to give ground for rescission (discharge) must be the breach of an important term. 4. A statement (term) in a contract is more or less important in proportion as the object of the contract more or less depends upon it. 5. Every important statement (or term) in a contract ought to be held to be a condition unless there can be gathered from the contract itself, or the surrounding circumstances, reason for thinking the parties did not so intend. According to the law as it stands to-day the second point could not be supported. A representation though not forming an integral part of the contract has efficacy in law, though not made fraudulently. If it be material to the inducement, and has, in fact, operated as an inducement to the contract, it will, though made innocently, afiord ground for rescission (avoidance) : Redgrave v. Hurd} Berry v. Peek.^ It is submitted that, a fortiori, if the representation be embodied in the contract as a term, and, if it be a term without which the party to whom it was made might never have entered into the contract at all (in other words, an important term inducing the contract), and proves to be untrue, it will afford ground for the discharge of the other party : Flight V. Booth -^ Bannerman v. White.* As to the third and fourth points, it appears from the cases just cited that, if the contract be executory, the importance of a term is not viewed " in proportion as the object of the contract more or less depends upon it," but rather in proportion as it might have operated as an inducement to the party not in default to enter into the contract. 1 20 CD. 1. 2 14 A.C. 337 per Lord BramweU at p. 347. 3 1 Bing.N.C. 370. * 10 C.B. N.S 844. 234 APPENDIX Appendix As to tKe fiftli point it is to be noted that the judgment contains the following statement : " If the Court should come to the conclusion that such a statement by one party was intended to be a substantive part of the contract, and not a mere representation, the often-discussed question may, of course, be raised, whether this part of the contract is a condition precedent or only an independent agreement a breach of which will not justify a repudiation of the contract but will only be a cause of action for compensation in damages;" The judgment accordingly finds that the statement was a sub- stantive part of the contract, and, therefore, that it was a condition, which, it- is plain from the context, means ' condition precedent ' as distinguished from ' independent stipulation.' The efiect of the finding of the Court as indicated by the fifth point is, therefore, that every important stipulation in a contract is presumed to be a condition precedent, in other words, a stipulation for the breach of which the contract may be determined. This definitely points to the conclusion (in view of the decision ia Redgrave v. Hurd^ and other recent cases) that the only difference between a misre- presentation embodied in the contract and one not so embodied lies in the onus of proof that it induced the contract. The test of a ' con- dition precedent ' as laid down in this judgment, and adopted by the judgments on appeal in Bentsen v. Taylor ^ (which are printed here- under), shows that the term is used in a secondary or extended sense, i.e. synonymous with 'warranty,' as stated in the opening paragraph of the judgment. The Court in Behn v. Burness seems to have overlooked the im- portant distinction between deeds and simple contracts with regard to the efiect of failure of consideration or inducement, and to have dealt with the contract as if it had been a deed. It has been pointed out in the foregoing pages that, in the case of a deed, the only breach which can operate as a discharge is the breach of a condition precedent or concurrent. The Court does not seem to have considered the representation from the point of view of inducement or consideration. The reasoning of the judgment may be viewed as an endeavour to express in terms of ' condition precedent ' what was in reality a failure of consideration or inducement, and, for this purpose, the Court formulated a test of condition precedent as depending, not on necessary priority of performance, but on the importance of the stipulation, and it was said " a statement is more or less important in proportion as the object of the contract more or less depends upon it." It is submitted that the importance of the statement really lay in the fact that it was an important part of the consideration or induce- ment, and, the statement having proved untrue, its untruth constituted 1 Ut supra. ^ Ut supra. BEHN V. BURNESS 235 a sufficient failure of consideration or inducement to discharge the Appendix party not in default. Had the representation not been embodied in the contract, the solution of the question would, according to the modern authorities, have been a simple matter. It is difficult to see why the inclusion of the representation in the contract should alter its importance or render a difierent test applicable. The question of its being embodied iij the contract or not seems only to afiect the onus of proof (a) as to its having been made, (&) as to its materiality, (c) as to its having operated as an inducement. Behn v. Bueness. Judgment of the Court delivered by Williams, J. — The question in this case is, whether the statement in the charter-party that the ship is " now in the port of Amsterdam," is a 'representation ' or a ' warranty,' using the latter word as synony- mous with ' condition,' in which sense it has been for many years understood with respect to poUcies of insurance and charter-parties. It may be expedient to commence the consideration of this question by some examination into the nature of representations. Properly speaking, a representation is a statement, or assertion, made by one party to the other, before or at the time of the contract, of some matter or circumstance relating to it. Though it is sometimes contained in the written instrument, it is not an integral part of the contract ; and, consequently, the contract is not broken though the representation proves to be untrue ; nor (with the exception of the case of policies of insurance, at all events marine policies, which stand on a peculiar anomalous footing) is such untruth any cause of action, nor has it any efficacy whatever, unless the representation was made fraudulently, either by reason of its being made with a knowledge of its untruth, or by reason of its being made dishonestly, with a reckless ignorance whether it was true or untrue. (See Elliott v. Von Glehn ;^ Wheelton V. Hardisty.^) If this be so, it is difficult to understand the distinction which is to be found in some of the treatises, and is in some degree, perhaps, sanctioned by judicial authority (see Barker, appellant ; Windle, respondent 3), that a representation, if it difEers from the truth to an unreasonable extent, may affect the validity of the contract. Where, indeed, the misrepresentation is so gross as to amount to sufficient evidence of fraud, it is obvious that the contract would on that ground be voidable. Though representations are not usually contained in the written instrument of contract, yet they sometimes are. But it is plain that their insertion therein cannot alter their nature. A question, however, 1 13 Q_B. 632. 2 g E. & B. 232 ; on appeal, 8 id. 285. 3 6 E. & B. 676, 680. 236 BEHN v. BURNESS Appendix may arise, whether a descriptive statement in the written instrument is a mere representation, or whether it is a substantive part of the contract. This is a question of construction which the Court, and not the jury, must determine. If the Court should come to the conclusion that such a statement by one party was intended to be a substantive part of his contract, and not a mere representation, the often-discussed question may, of course, be raised, whether this part of the contract is a condition precedent, or only an independent agreement a breach of which wiU not justify a repudiation of the contract, but wiU only be a cause of action for a compensation in (damages. In the construction of charter-parties, this question has often been raised, with reference to stipulations that some future thing shall be done or shall happen, and has given rise to many nice distinctions. Thus a statement that a vessel is to sail, or be ready to receive a cargo, on or before a given day, has been held to be a condition (see Glaholm v. Hays,^ Oliver v. Fielden,^ Crooclceivit v. Fletcher,^ Seeger v. Duthie *), while a stipulation that she shall sail with all convenient speed, or within a reasonable time, has been held to be qnlj an agreement (see Tarrdbochia v. Hickie,^ Dimech v. Corlett,^ Clifsham V. Vertue ') ; but with respect to statements in a contract descriptive of the subject-matter of it, or of some material incident thereof, the true doctrine, established by principle as well as authority, appears to be, generally speaking, that if such descriptive statement was intended to be a substantive part of the contract, it is to be regarded as a warranty, that is to say, a condition on the failure or non-performance of which the other party may, if he is so minded, repudiate the contract in toto and so be relieved from performing his part of it, provided it has not been partially executed in his favour. If, indeed, he has received the whole or any substantial part of the consideration for the promise on his part, the warranty loses the character of a condition, or, to speak perhaps more properly, ceases to be available as a condition, and becomes a warranty in the narrower sense of th,e word, viz. a stipula- tion by way of agreement, for the breach of which a compensation must be sought in damages (see Ellen v. Tofp,^ Graves v. Legg ;^ adopting the observations of Serjeant Williams on the case of Boone v. Eyre^'* in 1 Saund. 320 d, 6th Ed. ; Elliott v. Yon Glehn ^). Accordingly, if a specific thing has been sold, with a warranty of its quality, under such circumstances that the property passes by the sale, the vendee having been thus benefited by the partial execution of the contract, and become the proprietor of the thing sold, cannot treat the failure of the , 1 2 M. & G. 257. ^ 4 Exoh. 435. 3 1 H. & N. 893. * 8 C.B. N.S. 45. 5 1 H. & N. 183. s 12 Moo. P.C.C. 199. ' 5 Q.B. 265. 8 6 Exoh. 424. »|9 Exch. 709. 1° 1 H.Bl. 273, n. [a). " 13 Q.B. 632. BEHN ». BURNESS 237 warranty as a condition broken (unless there is a special stipulation to appendix ttat effect in the contract : see Bannerman v. WUte% but must have recourse to an action for damages in respect of the breach of warranty. But in cases where the thing sold is not specific, and the property has not passed by the sale, the vendee may refuse to receive the thing proffered to him in performance of the contract, on the ground that it does not correspond with the descriptive statement, or, in other words, that the condition expressed in the contract has not been performed. StiU, if he receives the thing sold, and has the enjoyment of it, he cannot afterwards treat the descriptive statement as a condition, but only as an agreement, for a breach of which he may bring an action to recover damages. In the present case, as the defendant has not received any benefit or advantage under the contract, but has wholly repudiated it, the question is simply whether, in the true construction of the charter- party, the Court ought to infer that the statement as to the ship's being at that date in the port of Amsterdam was meant to be a substantive part of the contract, or a representation collateral to it. And this question appears to be properly raised by the averment in the plea that time and the situation of the vessel were essential and material parts of the contract. On the trial of the issue joined thereon, it was no part of the judge's duty to leave to the jury any question as to the construction of the contract or the materiality of any of its statements. It was his function to construe the contract with the aid of the surrounding circumstances found by the jury, and to decide for himself whether the statement that the ship was in the port, supposing it to be untrue, was an essential part of the contract or a mere representation, and to direct the jury to find for the defendant or plaintiff accordingly. The question, it should seem, might also be raised by pleading the material circumstances (as was done in Graves v. Legg 2) on which the defendant relies as leading to the construction which the plea seeks to put on the instrument. Unless one or other of these modes of pleading were adopted, the Court, in case there should be a demurrer to the plea or on an application for judgment non obstante veredicto, would be precluded from taking the surroimding circumstances into consideration in aid of the construction. It is plain that the Court must be influenced in the construction, not only by the language of the instrument, but also by the circum- stances under which, and the purposes for which, the charter-party was entered into. For instance, if it was made in the time of war, the national character of the vessel is of such importance that a statement of it in the charter- party might properly be regarded as part of the shipowner's contract, 1 10 G.B. N.S. 844. ^ 9 Exch. 709. 238 BEHN v. BURNESS Appendix and so amounting to a warranty ; whereas, tte very same statement in tte time of peace, being wholly unimportant, might well be construed to be a mere representation. So if it were shown that the charter-party was made for a purpose such that, unless the vessel began her voyage from the port of loading with her cargo on board by a certain time, it was manifest that the object of the charter-party would in all probability be frustrated, the Court might properly be led by this circumstance to conclude that a statement as to the locality of the ship, coupled with a stipulation that she should sail with all convenient speed, was a warranty of her then locality. But we feel a difficulty in acceding to the suggestion which appears to have been, to some extent, sanctioned by high authority (see Dimech v. Corlett^), that a statement of this kind in a charter-party, which may be regarded as a mere representation if the object of the charter-party be still practicable, may be con- strued as a warranty if that object turns out to be frustrated ; because the instrument, it should seem, ought to be construed with reference to the intention of the parties at the time it was made, irrespective of the events which may afterwards occur. It is true that in some of the cases, where the question has been whether a stipulation in a charter-party amounted to a condition, the Court decided that question in the negative, and in so doing took occasion to suggest that neglect or delay on the part of the shipowner to execute his part of the contract might be a breach of such an essential stipulation on his part as to justify the charterer in treating the contract as brought to an end thereby, and in refusing on that account to perform his part of it, and further suggested that, in deciding whether the breach on the shipowner's part was of such an essential stipulation as that described, the Court might advert to the fact whether such breach had frus- trated the whole object which the charterer had in view (see Freeman V. Taylor;^ TandbocJiia v. Hichie-^ Dimech v. Corktt*). But the Court did not, we apprehend, mean to intimate that the frustration of the voyage would convert a stipulation into a condition, if it were not originally intended to be one. The question on the present charter-party is confined to the state- ment of a definite fact — the place of the ship at the date of the contract. Now, the place of the ship at the date of the contract, where the ship is in foreign parts and is chartered to come to England, may be the only datum on which the charterer can found his calculations of the time of the ship's arriving at the port of loading. A statement is more or less important in proportion as the object of the contract more or less depends upon it. For most charters, considering winds, markets and dependent contracts, the time of a ship's arrival to load is an essential fact for the interest of the charterer. In the ordinary course of 1 12 Moo. P.CC. 199. " 8 Bing. 124. 3 1 H. & N. 183. " 12 Moo. P.CC. 199, 224, 227. BEHN V. BURNESS 239 cliarters in general it would be so : the evidence for the defendant Appendix shows it to be actually so in this case. Then, if the statement of the place of the ship is a substantive part of the contract, it seems to us that we ought to hold it to be a condition upon the principles above explained, unless we can find in the contract itself or the surrounding circumstances reason for thinking the parties did not so intend. If it was a condition and not performed, it follows that the obligation of the charterer dependent thereon ceased at his option, and considera- tions either of the damage to him or of proximity to performance on the part of the shipowner are irrelevant. So was the condition of Glaholm v. Hays} where the stipulation in the charter of a ship to load at Trieste was that she should sail from England on or before the ith February, and the non-performance of this condition released the charterer, notwithstanding the reasons alleged in order to justify the non-performance. So, in Ollive v. BooJcer,^ the statement ia the charter of a ship which was to load at Marseilles was that she was " now at sea, having sailed three weeks ago," and it was held to be a condition for the reasons above stated. And we would note that the marginal abstract of this case states the stipulation to have been " having sailed three weeks ago or thereabouts." If the statement had really been so indefinite, it may be that the Court would have come to a different conclusion. We think these cases weU decided, and that they govern the present case. We think that the decision of Dimech v. Corleit^ does not conflict with them, because it is immersed in the specific facts there set out, so as to be a precedent only for cases with very analogous specific facts. The statement in that charter, that the ship was " now at anchor in this port " (Malta) did not avail to release the charterer because the ship was in the port in the dry dock ; and, although the statement of the fact that she was at anchor in the port was definite, and indicated that she was ready for sea, while in truth she was in a dry dock being built, and was not complete for a month, yet, as the defendant was at Malta and was presumed to have known the state of the ship, and also to have known of the delay, and did not insist that the charter-party was broken, but allowed the ship to sail from Malta to Alexandria without objection, his defence on this point failed. The Court below in a manner referred the present case to a Court of Error to say whether the decision should be governed by Ollive v. Booker * or Dimech v. Corlett? We are of opinion, for the reasons assigned, that the decision of Ollive V. Booker was sound, and that it governs our decision here ; and we are further of opinion that, in so holding, we do not at all conflict with the decision in Dimech v. Corlett, as above explained. 1 2 M. & G. 257. ^ 1 Exch. 416. » 12 Moo. P.C.C. 199 240 BENTSEN v. TAYLOR Appendix On these grounds we tMnk that the judgment of the Queen's Bench ' should be reversed. Judgment reversed. Bentsen v. Taylor, Sons & Co. Wi- LoED EsHEB, M.K. — The Court has to determine the question whether the statement in this charter-party is a condition or a warranty. In the charter-party the ship is described as " now sailed or about to sail from a pitch-pine port to the United Kingdom." The question we have to deternune is, whether that description amounts to anything more than a representation of a fact, and, if it does, whether it amounts to a condition precedent or only to a warranty. In order to construe the ■ words the Court has a right to know what were the facts existing at the date of the contract. If there is any doubt about the facts, it is for the jury to determine upon the evidence what they were, and, when they have done this, it is for the Court to construe the contract. The only thing which appears to have been in doubt in the present case was, what did the parties mean by their contract, and that question was unfortunately left by the judge to the jury. The only material fact was, as it seems to me, that both parties knew that the ship had gone to Mobile, where she was to load a cargo of timber which she was to bring to the United Kingdom. Both parties knew that the ordinary time for loading a timber cargo at Mobile was about a month, and the plaintifE calculated that the ship was already loaded and had sailed, - or that, if she were not actually loaded, she would be so in a day or two, and would then immediately sail. Knowing these facts, what do the words " now sailed or about to sail " represent to the charterers ? To say that a ship " has sailed " is obviously to represent that she has done so. To say that she is " about to sail " is to represent either that she is loaded and just about to saU, or that, if she is not already loaded, she wiU be loaded in a day or two, and will then sail. Taken in connection with the first words " now sailed," it seems to me that the words " or about to sail " amount to a representation that the ship is just ready to sail. Is it, then, a mere representation ? A knowledge of the place where the ship is is material, in order that the charterer may know when she is likely to come to him. It is material as informing him what sort of a voyage it is which she will have to make, and how long a time is likely to elapse before she comes to him. In the present case the place where the ship was is not stated in the charter-party ; but both parties knew that she was, or had just been, at Mobile. It appears to me impossible to say that the statement that the ship was " about to sail " was a mere representation. It was inserted for a purpose, in order that the charterers might know when the ship was likely to arrive at the port in Great Britain. The statement was, I think, a substantive part of the contract. Was it a condition precedent ? It is for the BENTSEN V. TAYLOR 241 Court to determine whether it was a mere representatibn, or whether it Appendix formed part of the contract. The case of Behn v. Burness^ supplies a canon of construction. In my opinion, the present case falls within the canon there laid down. The statement is a substantive part of the contract, and we ought to hold it to be a condition precedent, unless we can find in the contract itself or the surrounding circumstances any- thing to lead us to a contrary conclusion. To my mind, it is clearly a condition precedent, and there is nothing on which anyone can rely as a reason for saying that it is not. The meaning of the statement is, that the ship has either loaded her cargo and has sailed, or that she is nearly loaded and will sail forthwith. In fact, she was not nearly loaded, and did not sail forthwith. She did not sail till nearly a month afterwards, and there was a breach of the condition. The defendants had then a right to treat the contract as at an end, or they could, if they chose, treat it as still subsisting. But, if they intended to treat the contract as at an end, it was their duty so to exercise their rights as not to lead the plaintifE to believe that he was still bound by the contract. Was the plaintifE led by the defendants to suppose that he was still bound ? The defendants' letters, to my mind, clearly come to this : " You, the plaintiS, are bound to send the ship out to Quebec, and we shall load her there ; but we shall do so under protest — ^that is, we shall claim damages from you for breach of contract." No reasonable man can say that the plaintifE was not told by the defendants that he was still bound by the con- tract. The defendants cannot, therefore, now t^eat the contract as at an end ; but they have a right to claim damages from the plaintifi if they can prove that they have sustained any by reason of the delay LQ the sailing of the ship from Mobile. The question of the amount of damages will be referred to an arbitrator, in accordance with the agreement which, we are told, has been made between the parties. The plaintifE is entitled to judgment on the claim for the freight under the charter-party, and the defendants are entitled to judgment for damages for the breach of contract. There wiU be a set-ofE and execution for the difEerence, and costs will be given in the ordinary way. BowEN, L.J. — I am entirely of the same opinion. The first question we have to consider is, What is the true effect and meaning of the words in the charter-party, " now sailed or about to sail to the United Kingdom " ? The law as to the construction of contracts, and especially of charter- parties, in reference to conditions precedent, and in reference to all representations made in the contract, or at the time when it is entered into, is, I think, clear. When a contract is entered into between two parties, every representation made at the time of the entering into the 1 3 B. & S. 751. 24^ iBENTSEN v. TAYLOR Appendix contract may or may not be intended as a warranty, or as a promise that the representation is true. When the representation is not contained in the written document itself, it is for the jury to say whether the real representation amounted to a warranty, and the jury are always in such a case directed to find whether the representation amounted to a warranty, and whether it was so intended by the parties. But when you have a representation made in a written document, it is obviously no longer for the jury, but for the Court, to decide whether it is a mere representation, qr whether it is what is called (I admit not very happUy) a ' substantive part of the contract,' that is, a part of the contract which involves a promise in itself. It might be necessary to take the opinion of the jury on matters of fact which would throw light on the construction, but the question of construction itself would remain until the end of the case for the Court to decide. But, assuming the Court to be of opinion that the statement made amounts to a promise, or, in other words, a substantive part of the contract, it stiU remains to be decided by the Court, as a matter of construction, whether it is such a promise as amounts merely to a warranty, the breach of which would sound only in damages, or whether it is that kind of promise the per- formance of which is made a condition precedent to all further demands under the contract by the person who made the promise against the other party — a promise the failure to perform which gives to the opposite party the right to say that he will no longer be bound by the contract. Of course it is often very difficult to decide, as a matter of construc- tion, whether a representation which contains a promise, and which can only be explained on the ground that it is in itself a substantive part of the contract, amounts to a condition precedent, or is only a warranty. There is no way of deciding that question except by looking at the contract in the light of the surrounding circumstances, and then making up one's mind whether the intention of the parties, as gathered from the instrument itself, wiU best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability. In order to decide this question of construction, one of the first things you would look to is, to what extent the accuracy of the statement — the truth of what is promised— would be likely to afEect the substance and foundation of the adventure which the contract is intended to carry out. There, agaia, it might be necessary to have recourse to the jury. In the case of a charter-party it may well be that such a test could only be applied after getting the jury to say what the eSect of a breach of such a condition would be on the substance and foundation of the adventure ; not the efiect of the breach which has, in fact, taken place, but the eSect likely to be produced on the foundation of the adventure by any such breach of that portion of the contract. It was by the application of that train of reasoning that the Court BENTSEN V. TAYLOR 243 in Behn v. Burness ^ appears to have come to the conclusion that if a Appendix ship, which at the date of a charter-party is in foreign parts, is chartered to come to England, a statement of the place where she is ought frima facie to be construed as a condition precedent. And the Court gave this reason^ for that, because they say : " The place of the ship at the date of the contract, when the ship is in foreign parts and is chartered to come to England, may be the only datum on which the charterer can found his calculations of the time of the ship's arriving at the port of loading." In other words, the non-accuracy of such a statement is likely to affect the very foundation of the adventure, because its in- accuracy would displace the only basis, or one of the chief bases, of the calculations on which the parties would act. It is obvious that when you are dealing with a voyage, the contemplated date of its commence- ment may be of the utmost importance. Having regard to the time of the year at which it is intended to prosecute the voyage, delay in its commencement, if it is protracted beyond a certain point, may, in many cases, be so vital a matter as to render the voyage impossible, or the risk may be so much increased as to make it no longer possible to have a voyage of the same kind. That is the ground on which it was decided in Behn v. Burness^ that, the place of the ship at the date of the charter being the only or main basis on which the charterer can found his calculation of the time of her arrival, a statement in reference to her place ought to be construed as a condition precedent, unless there is to be found in the contract itself, or in the surrounding circumstances, reason for thinking that the parties did not so intend. Now, if that is true as regards the place of a ship which is in foreign parts, and is chartered to come to England, the same train of reasoning ought to apply to the time at which a ship is stated to have sailed or to be about to sail, from the place at which she has been loading. Unless the language be so vague as to lead anyone to suppose that it was not intended to be a condition precedent. I quite agree that the vagueness or ambiguity of the statement is one of the elements which would influence the Court very much in deciding whether the parties intended that the statement should be a promise, the fulfilment of which was to be a condition precedent. That drives us to consider what is the real meaning of these words. Is there anything in them so vague or so ambiguous that they cannot fairly be treated as a statement of a condition precedent ? I agree that a condition precedent ought to be clearly expressed. The state- ment is, that the ship " has now sailed or is about to sail." Having regard to what we have heard of the history of the port of Mobile, I have not the sKghtest doubt that, if that statement does not mean that the ship has actually sailed, it does mean that she is loaded, or may at all events, for busiuess purposes, be treated as actually loaded ; that she 1 3 B. & S. 751, 757. ^ 3 B. & S. at p. 759. => 3 B. & S. 751. r2 244 BENTSEN v. TAYLOR Appendix tas got past tte embarrassments and dangers attendant on loading, and ttat Ler sailing is the next thing to be looked for. And, with regard to the suggested ambiguity in the phrase, " about to sail " when it is read in conjunction with the other words, it seems to me clear that it does not mean that the ship is to sail within a ' reasonable ' or inde- finite time, a statement which might lead to endless difficulties and expense, but that, if she has not already sailed, she is about to sail forth- with. If that is so, then, applying the reason which lies at the root of Behn v. Burness,^ I have no hesitation in saying that I believe the phrase to be a condition precedent. It is a representation, the accuracy of which is made a condition precedent, though I do not doubt that the fulfilment of a promise may be equally made a condition precedent. If that is so, there is an end of the first point in the case. The appellant is clearly in the wrong as to that. But then comes the question, Is not the appellant right in saying that the jury could only reasonably draw one inference from the corre- spondence between the parties, namely, that the condition precedent had been waived by the defendants ? In order to succeed, the plaintiff must show, either that he has performed the condition precedent, the onus being on him, or that the defendants have excused the performance of the condition ; and we have to consider whether the plaintifi has sustained that burthen so that no reasonable man could doubt that there has been a waiver of the condition or an excuse of its performance. In other words, if the defendants by their acts or conduct, led the plaintifi reasonably to suppose that they did not intend to treat the contract for the future as at an end, on account of the failure to perform the condition precedent, but that they only intended to rely on the misdescription as a breach of warranty, treating the contract as still open for further performance. Did the defendants lead the plaintifi to believe that they intended to treat the misdescription as a breach of contract only, and not as a failure to perform a condition precedent ? As soon as you state the case in that way, looking at the facts, the letters which passed before the vessel left for Quebec can only be treated by business men as amounting to an intimation by the defendants to the plaintifi that, although they would insist on treating the contract as broken, by reason of the non-fulfilment of the promise that the ship was ready to sail from Mobile immediately, they did not intend to rely upon that as a failure of a condition precedent, but only as a breach of warranty. In my opinion, the plaintifi has sustained the burthen which lay on him to prove a waiver of the condition, and therefore this appeal ought to succeed, and the judgment ought to be entered in the way in which the Master of the Rolls has suggested Kay, L.J. — I am of the same opinion, and I will add very little upon the construction of the charter-party. It is quite plain that the 1 3 B. & S. 761. BENTSEN V. TAYLOR 245 words " now sailed or about to sail " were very material words. The Appendix charter-party contemplated a voyage to be made by a ship, which was then at Mobile, to the United Kingdom, and from thence to Quebec, where she was to load a cargo of timber for the United Kingdom. The only mode in which, or at any rate, the principal datum by means of ■ which, the charterers could ascertain at what time the ship was likely to arrive in England and get back to Quebec, was the statement of the time at which she had left or would leave Mobile, and that statement was made in the words " now sailed or about to sail." They were very important words, and, in my opinion, they are in no way ambiguous. They mean either that the ship was already at sea, or that she was on the point of sailing — almost ready to start. If it were necessary to decide this point, I should be of opinion that these words amounted to a condition rather than to a mere warranty. But it is not really neces- sary to decide the point, for if there was a condition precedent, I have no doubt as to the waiver. The ship did not leave Mobile tiU April 23rd, and there can be no doubt that, whether there was a condition precedent or a mere warranty, there was a breach of it. On May 16th at the latest, the defendants were aware of the breach. The ship arrived at Greenock on June 5th, and she sailed again for Quebec on June 18th, and arrived there on August 7th. Meanwhile, the defendants, being perfectly aware of the breach of the condition or warranty, had written the letter of June 16th to the plaiatifi's brokers. I have no doubt that that letter would convey to those who received it this meaning : " If you send the ship out to Quebec we shall load her there, but we shall claim from you the difierence in the amount of freight' and in- surance premium upon the goods then shipped." The refusal of the defendants to load the ship was not communicated to the plaintifE till August 12th. If the defendants had, by their conduct, allowed the plaintifE to believe that the ship was to go out to Quebec, notwithstand- ing the breach of the condition, I should think that their conduct would have amounted to a waiver of the condition. But, in my opinion, the defendants certainly induced the plaintiff to believe that they wished the ship to go out, and that when she arrived at Quebec they would load her with a cargo of timber, and that they intended to treat the words " about to sail " in the charter-party, not as a condition precedent, but only as a warranty for the breach of which they would claim damages from the plaintiff. I feel no doubt that the letter of June 16th amounted to a distinct waiver of the condition, and that the subsequent refusal of the defendants to load the ship was a wrongful act for which they are liable to the plaintiff. 246 APPENDIX Appendix Hoare v. Rennie, 5 H. & N. 19. Simpson v. Crippin, L.R. 8 Q.B. 14. Honck V. MuUer, 7 Q.B.D. 92. Note on Hoakb v. Rennie. In his judgment in Hoare v. Rennie, PollocJc, G.B., makes it plain that, where a contract is broken while executory, the party not in default may be discharged although the stipulation broken is not a condition precedent. Although the judgment does not proceed explicitly on the ground of failure of part of the consideration, it is plain that the decision really depends on that principle. The plaintiffs had contracted with the defendants to sell and deliver about 667 tons of hammered iron to be delivered in about four equal monthly instalments in June, July, August, and September. In June, the plaintifis, instead of delivering about 160 tons, tendered only 21 tons 6 cwt. 1 qr., which the defendants refused to accept, and gave notice to the plaintiffs that they refused to receive the residue of the iron. The decision plainly turned on the importance of the breach. Pollock, C.B., said : " It does not turn upon any question of condition prece- dent." It was a breach amounting to failure in the performance of part of an executory consideration, and, therefore, the plaintiff had not, according to the rule in assumpsit, performed the whole. If the decision be tested by the rule in Flight v. Booth, the inducement to the defendants to enter into the contract may reasonably be supposed to have been the promise of delivery of about 160 tons in each month. The contract was a mercantile contract. The defendants may have had other obligations of their own, the performance of which by them depended on the performance by tte plaintifis of their contract ; and it may reasonably be supposed, from the nature of the contract, that but for the plaintiffs' promise the defendants might never have entered into the contract at all. In Bowes v. Shard ^ Lord Cairns seems to have proceeded on similar grounds ; he said :^ " My Lords, if that is the natural meaning of the words, it does not appear to me to be a question for your Lordships, or for any Court to consider whether that is a contract which bears upon the face of it some reason, some explanation why it was made in that form, and why the stipulation is made that the shipment should be made during these particular months. It is a mercantile contract and merchants are not in the habit of placing upon their contracts stipulations to which they do not attach some value and importance, and that alone might 1 2 AC. 455. 2 P. 463. APPENDIX 247 be a sufficient answer. But if necessary a further answer is Appendix obtained from two other considerations. It is quite obvious that merchants making contracts for the purchase of rice, I contracts which oblige them to pay in a certain manner for the * rice purchased, and to be ready with the funds for making that payment, may well be desirous that the rice should be forth- coming to them not later than a certain time, and also that the rice shall not be forthcoming to them at a time earlier than it suits them to be ready with funds for its payment. There- fore it may well be that a merchant making a number of rice contracts, ranging over several months of the year, will be desirous of expressing that the rice shall come forward at such times, and at such intervals of time, as that it will be con- venient for him to make the payments, and it may well be that a merchant will consider that he has obtained that end if he provides for the shipment of the rice during a particular month or during particular months, and that he will know that provided he has made that stipulation the rice will not be forthcoming at a time when it will be inconvenient for him to provide the money for the payment. My Lords, there is still another explanation which appears upon part of the evi- dence in this case : because sufficient appears upon the evidence to show that these contracts were made for the purpose of satisfy- ing and fulfilling other contracts which Messrs. Bowes, Martin and Kent had made with other persons, and it is at least doubt- ful whether if they had made a contract in any other form than that which is before your Lordships, a contract made in another form, or a contract made without this stipulation as to the shipment during these months, would have been a fulfilment of those other contracts which they desired to be in a position to fulfil. . . . " ^ My Lords, I must submit to your Lordships that if it be ad- mitted, as the Lord Justice is willing to admit, that the literal meaning would imply that the whole quantity must be put on board during a specified time, it is no answer to that literal meaning, it is no observation which can dispose of or get rid of, or displace that literal meaning, to say that it puts an addi- tional burden on the seller, without a corresponding benefit to the purchaser ; that is a matter of which the seller and the purchaser are the best judges. Nor is it any reason for saying that it would be a means by which purchasers without any real cause would frequently obtain an excuse for rejecting contracts when prices had dropped. The non-fulfilment of any term in any contract is a means by which a purchaser is able to get rid J P. 465. 248 APPENDIX Appendix of the contract when prices have dropped ; but it is no reason why a term which is found in a contract should not, be fulfilled. ' ^ It was suggested that even if the construction of the contract be as I have stated, still if the rice was not put on board in the particular, months that would not be a reason which would justify the appellants in having rejected the rice altogether, but that it might afford a ground for a cross-action by them if they could show that any particular damage resulted to them from the rice not having been put on board in the months in question. My Lords, I cannot think that there is any founda- tion whatever for that argument. If the construction of the contract be as I have said that it bears, that the rice is to be put on board in the months in question, that is part of the description of the subject-matter of what is sold. What is sold is not 300 tons of rice in gross or in general. It is 300 tons of Madras rice to be put on board at Madras during the particular months. The construction may be shown by evidence to be difierent from what I have supposed, but if the construction be that which I have supposed, the plaintifi, who sues upon the contract, has not launched his case until he has shown that he has tendered that thing which has been contracted , for, and, if he is unable to show that, he cannot claim any damages for the non-fulfilment of the contract." The decision in Bowes v. Shand ^ plainly supports the judgment in Hoare v. Rennie.^ In Simpson v. Grifpin * the argument seems to have proceeded on the question whether the stipulation broken was or was not a condition precedent, and the judgment of BlacMiurn, J., is based on the notes to Pordage v. Cole and, apparently, treats the breach of a simple contract as analogous to a breach of covenant. The Supreme Court of the United States, in Norrington v. Wright,^ discussed the conflict of authority as shown by the decisions of Simp- son V. Crippin * on the one hand, and Hoare v. Rennie * and Bowes V. Shand ^ on the other, and the judgment of the Court delivered by Mr. Justice Gray contains the following statement : " Upon a review of the English decisions, the rule laid down in the earlier cases of Hoare v. Rennie * and Coddington v. Paleologo,^ as well as in the later cases of Renter v. Sola ' and Honck v. Muller,^ appears to us to be supported by a greater weight of authority than the rule stated in the intermediate cases of Simpson v. Crippin * and Brandt v. Lawrence ^ and to accord 1 p. 467. a 2 A.C. 455. 3 5 H. & N. 19. 4 L.R. 8 Q.B. 14. 5 115 U.S. Rep. 188. « L.R. 2 Exch. 193. ' i C.P.D. 239. 8 7 Q.B.D. 92. » 1 Q.B.D. 344; APPENDIX 249 better with the general principlea affirmed by the House of Appendix Lords in Bowes v. Shand,^ while it in no wise contravenes the decision of that tribunal iu Mersey Co. v. Naylor."^ The cases of Bowes v. Shand} Hoare v. Rennie? Coddington v. Paleologo* Honck V. Muller,^ Renter v. Sala,^ and Bradford v. Williams,'' as well as Simpson v. Crip-pin ^ and Brandt v. Lawrence,^ were all cases in which the plaintiff, having himself committed a breach of the con- tract, while executory, sought to enforce the contract against the other party who claimed to be discharged in consequence of the plaintiff's breach. Stipulations as to Time. In Simpson v. Crippin ^ Mr. Justice Lush, referring to Hoare v. Rennie^ §aid : " The Court must have interpreted the contract in that case as if time were of its essence. There are no words here which import such a condition. If the parties intended that a breach of this kind should put an end to the contract they ought to have provided for it by express stipulation." Mr. Justice Lush seems to have assumed that a stipulation as to time in a contract must either amount to a ' condition ' (presumably ' condition precedent ') of the contract, or be merely a stipulation for the breach of which damages may be recovered. The performance of a stipulation as to time may, either expressly or by implication, be a condition precedent, but it by no means follows from this, that, if such obligation be not a condition precedent, the only alternative, in the case of a simple contract, is the recovery of damages for breach. A stipulation as to time may, according to circumstances, be rela- tively important or relatively unimportant to the party in whose favour it is made. If the parties choose to make it a condition prece- dent, the degree of its beneficial importance to the party in whose favour it is made becomes negligible. As Mr. Justice BlaoJcburn said in Bettini v. Gye : ^^ " Parties may think some matter apparently of little importance essential ; and if they sufficiently express an intention to make the literal fulfilment of such a thing a condition precedent it will be one ; or they may think that the performance of some matter, apparently of essential importance and prima facie a condition precedent, is not really vital, and may be com- 1 2 A.C. 455. " 9 A.C. 434. 3 5 H. & N. 19. * L-R- 2 Exch. 193. B 7 Q.B.D. 92. ' 4 C.P.D. 239. ' L.R. 7 Exch. 259. « L.R. 8 Q.B. 14. 9 1 Q.B.D. 344. " 1 QB.D. 183. 250 APPENDIX Appendix pensated for in damages, and if they sufficiently expressed such intention, it will not be a condition precedent." This statement, so far as it goes, is plainly unexceptionable. It does not follow, however, that a stipulation as to time which the parties have not expressly made a condition precedent, and for a breach of which they have not expressly provided for payment of damages, may not be of such importance as to have operated as a material inducement to the' contract, so that a breach of it will dis- charge the party not in default for failure of consideration. The expression ' of the essence of the contract,' though almost consecrated by long use, does not indicate clearly the limits of its own meaning. It may, of course, include in its meaning that the stipula- tion to which it is applied is a condition precedent, but it may also mean something short of that, viz. that the term is so important (although not a condition precedent) that a breach of it will discharge the party not in default. Lord Justice Fry in his work on Specific Performance,''- in a chapter dealing with ' Default on the part of the plaintifi ' as a defence to an action, says : " Of what terms must the plaintifE show the performance ? The answer is that he must show performance of — " (i) All conditions precedent. " (ii) The express and essential terms of the contract. " (iii) Its implied and essential terms. " (iv) All representations made at the time of the contract on the faith of which it was entered into." It will be observed that the learned Judge and writer groups ' essential terms ' as distinct from ' conditions precedent.' No doubt every condition precedent may be said to be an essential term, but every essential term is not necessarily a condition precedent. It is submitted that the legal effect of groups (ii), (iii) and (iv) in Lord Justice Fry's classification may be accurately summarised thus ; " All terms of the contract and material representations on the faith of which it was entered into ; " in other words, ' all terms and representations which operated as material inducements to the contract ' or, to use the expression in Flight V. Booth,^ all terms and representations without which ' the purchaser might never have entered into the contract at all.' It must, of course, be noted that these observations apply to executory or unperformed contracts, to which only Lord Justice Fry's work applies. It is submitted, therefore, that many of the cases which present • 5th Edn. 458. " 1 Bing. N.C. 370. APPENDIX 251 a difficulty as to the effect of a breach as to time, may be satisfactorily ^^i*^"^'^ applied if we view stipulations aa to time as operating, not in two modes only, but in tkree : 1. A failure in punctuality of performance of a particular stipula- tion may be relatively unimportant and will not necessarily operate as a ground of discharge, as in many cases of stipula- tions for the payment of money on a given date, such as rent ; and see Naylor, Benzon v. Mersey Iron and Steel Co} 2. A stipulation as to time may, on the other hand, be expressly or impliedly a condition precedent ; or 3. Such a stipulation, while not amounting to a condition precedent, may be of such importance, that it may have operated as a material inducement to enter into the contract, so that its breach amounts to a sufficient failure of consideration to dis- charge the party not in default, at all events, while the contract is executory. In Bowes v. Shand ^ the stipulation broken was the failure to ship a cargo of rice in the months of March and /or April. The cargo was partly shipped in February, and the purchaser was held, by the House of Lords, entitled to refuse to accept delivery. Lord Cairns, in his judgment, does not even discuss whether the stipulation amounted to a ' condition ' or ' condition precedent,' but considers merely its probable importance from the buyer's standpoint. In Eeuter v. Sala,^ Cotton, L.J. expressed himself as follows : " It was argued that the rules of Courts of Equity are now to be regarded in all Courts, and that Equity enforced contracts though the time fixed therein for completion had passed. This was in cases of contracts such as purchases and sales of land, where, unless a contrary intention could be collected from the contract, the Court presumed that time was not an essential condition. To apply this to mercantile contracts would be dangerous and unreasonable. We must, therefore, hold that the time within which the pepper was to be dehvered was an essential condition of the contract, and in such a case the de- cisions in equity, on- which reliance is placed, do not apply." What his Lordship meant exactly by ' essential condition ' is not quite clear, but if it be a sound view that stipulations as to time have a possible operation according to the third mode above suggested, the difficulty, assumed by Cotton, L.J., to arise, in applying the rules of equity to mercantile contracts, disappears ; for equity will not enforce an executory contract where there is a failure of material inducement to the making of the contract. The observations of Lord 1 9 AC. 434. ' 2 A.C. 455. ' 4 CRD. 239. M HOARE ». RENNIE Appento Cairns and of Lord Hatherley in Bowes v. Shcmd ^ seem to be entirely consistent with this view, as also the judgments in Hoare v. Rennie ^ and Honch v. Mullet? HoAEE V. Rennie, 5 H. & N. 19. Pollock, C.B. — We are all agreed that the defendants are entitled to judgment upon the pleas. The foundation of my opinion is shortly this, that a man has no right to say that that which is a breach of an agreement is a performance of it. On that ground this case is dis- tinguishable from almost every other which has been cited. It does not turn upon any question of condition precedent. The only question is whether, if a man who is bound to perform his part of a contract does not do so, he can enforce the contract against another party. The plaintifis contracted with the defendants to ship a large quantity of iron in June, July, August, and September, about one-fourth part in each month ; but instead of shipping about 160 tons in June, as they should have done, they shipped little more than twenty tons as a performance of the contract. The first count states that the plaintiffs performed all things necessary on their part to be performed, that they were ready and willing to do all things which, according to agreement, it was necessary they should be willing to do, and that all things happened to entitle the plaintiffs to a performance of the agreement on the part of the defendants. This is denied by the plea. The second count states that the plaintiffs, in part performance of the contract, shipped a certain portion of the iron, and, in further performance of the agreement, tendered and offered to deliver the said portion so shipped, yet defendants refused to accept the same. The pleas raise the question whether the defendants were bound to accept and pay for what was sent and tendered ; the plaintiffs having in June shipped from Sweden a quantity much less than they were bound to have shipped, and the defendants, having insisted that this was a breach of the contract and given notice that they refused to accept the residue. The pleas expressly state that the plaintiffs were not ready to deliver such a quantity of iron shipped from Sweden-, in June as is specified in the contract, and were not ready and willing to deliver the small quantities shipped until after the month of June had elapsed, and until after the defendants had notice that the plaintiffs were not ready and willing to perform their part of the agreement. The only question we have to deal with is whether, on a contract like this, if the sellers at the outset send a less quantity than they are bound to send, so as to begin with a breach, they can compel the purchasers to accept and pay for that the sending of which was a breach and not a performance of the agreement. The argument on 1 2 A.C. 465. 2 5 H. & N. 19. =7 Q.B.D. 92. HOARE V. RENNIE 253 the part of the plaintiffs is that this was not a condition precedent. Appendix 1 do not think that is the test. It was said that if the plaintiffs had sent the one-hundredth part instead of one-fourth part in June, the defendants' remedy would have been by a cross-action. The case was put of the plaintiffs sending a short quantity after one shipment had been accepted. Possibly that might have made a difference. Where a person has derived a benefit from a contract, he cannot rescind It because the parties cannot be put in statu quo. Probably, therefore, in such a case, the defendants could not have repudiated the contract and must have been left to their cross-action. Here, however, the defendants refused to accept the first shipment, because, as they say, it was not a performance but a breach of the contract. Where parties have made an agreement for themselves, the Courts ought not to make another for them. Here they say that, in the events that have happened, one-fourth shall be shipped in each month, and we cannot say that they meant to accept any other quantity. At the outset the plaintiffs failed to tender the quantity according to the contract ; they tendered a much less quantity. The defendants had a right to say that this was no performance of the contract, and they were no more bound to accept the short quantity than if a single delivery had been contracted for. Therefore the pleas are no answer to the action. ' Watson, B. — I am of the same opinion. [His Lordship read the contract stated in the declaration.] The contract is for the ship- ment of a quantity of iron in certain proportions to be paid for on delivery. On performance of the contract the defendants agree to pay for the iron. The breach charged here is that the defendants shipped a small quantity in June, and declared that they would not ship more. The pleas aver that the shipment was not according to the contract. The obligation on the part of the defendants is merely to receive and pay for the goods according to the contract. Looking at the contract, the options given are all for the purpose of accelerating the shipments. Instead of shipping in June, the defendants may ■ ship a portion in May. The plaintiffs might have accelerated, but had no right to c^elay the delivering of the iron. Having done so, they have not performed their contract. The substance of the agree- ment in Ritchie v. Atkinson ^ was that the plaintiff should go to Russia and bring home a cargo . . . and that was done ; though in consequence of the embargo, a full cargo had not been loaded. A similar observation applying to Boone v. Eyre.^ But on the sale of goods, where the price is to be paid on delivery, can it be said that there is no condition to deliver them ? Therefore, the defendants were not obKged to accept a small portion of that which should have been the shipment in June. 1 10 East, 295. ^ 1 H.Bl. 273 n. 254 SIMPSON t}. CRIPPIN Appendix Channell, B. — On tlie pleas the defendants are entitled to judg- ment. The substantial question is, whether the defendants were bound to accept the portion which was tendered, at the time at which it was tendered. That does not depend on the month in which it was tendered, but on the position of the parties at the time of the tender, by which the defendants were placed in the same position as if, at the time of the tender, notice had been given to them that there would be no further shipment in all June. I think that there was not in the month of June such a shipment as was made necessary by the contract. Mr. Wilde admitted that the pleas might have been good if they had contained an averment to that effect. In some cases such an averment may be necessary. It would be so here, but that this is substantially a contract to ship one-fourth of the iron in Juiie. There are options to vary the time of performance, which gave the plaintifis the right to accelerate but not to delay it. The plaintifis have not performed their part of the contract, and the defendants have not accepted anything which can be construed as an imperfect execution of the contract by the plaintiffs. The defendants were thus at liberty to rescind the contract, and our judgment must there- fore be for the defendants upon the demurrer to the pleas. Judgment for the defendants. Simpson v. Crippin, L.E. 8 Q.B. 14. Blackburn, J. — I think that the rule ought to be discharged. It cannot be denied that the plaintifis were bound in every month to send waggons capable of carrying at least 500 tons, and that by failing to perform this term they have committed a breach of the contract ; and the question is, whether by this breach the contract was deter- mined. The defendants contend that the sending of a sufficient num- ber of waggons by the plaintifis to receive the coal was a condition precedent to the continuance of the contract, and they rely upon the terms of the letter of August 1. No sufficient reason has been urged why damages would not be a compensation for the breach by the plaintifis, and why the defendants should be at liberty to annul the contract ; but it is said that Hoare v. Rennie ^ is in point, and that we ought not to go counter to the decision of a Court of co-ordibate juris- diction. It is, however, difficult to understand upon what principle Hoare v. Rennie ^ was decided. If the principle on which that case was decided is that, wherever a plaintifi has broken his contract first he cannot sue for any subsequent breach committed by the defendant, the decision would be opposed to the authority of many other cases. I prefer to follow Pordage v. Cole.'' No reason has been pointed out why the defendants should not have delivered the stipulated quantity of coal during each of the months after July, although the plaintifis 1 5 H. & N. 19 ; 29 L.J. (Ex.) 73. ^ j ^jy^g Saund. 319 L. HONCK V. MULLER 255 in that month failed to accept the number of tons contracted for. Appendix Hoare v. Rennie ^ was questioned in Jonassohn v. Young? Melloe, J. — I agree generally with what my brother Blackburn has said ; and I think that it is difficult to reconcile Hoare v. Rennie ^ with some of the other cases which have been cited ; but I cannot dis- tinguish that case from the present. Where the facts are not distin- guishable, I think we are bound to give efiect to the judgment of a Court of co-ordinate jurisdiction. I should have thought, therefore, if the decision depended upon me, that in deference to that case we ought to make the rule absolute, and leave the plaintiifs to appeal. Lush, J. — I am of opinion that the rule should be discharged. I cannot understand the judgments in Hoare v. Rennie?- The Court must have interpreted the contract in that case as if time were of its essence ; there are no words here which import such a condition. If the parties intended that a breach of this kind should put an end to the contract, they ought to have provided for it by express stipulation. HoNCK V. MuLLEE, L.E. 7 Q.B.D. 92. Beamwell, L.J. — I think it unnecessary to determine which of the several meanings put on the agreement in this case is right. For whichever is adopted I think the result should be the same. But it seems to me that the meaning is, that the plaintifi had the option to have the 2,000 tons in November, or in equal portions in November, December, and January ; and that unless he elected in November in time to have the whole delivered in November if he so elected, or in time to have one-third delivered in November if he elected to have the iron in three deUveries, he has no cause of action. And I think he did not elect. Such election, of course, includes notice of his option to the defendant. He certainly did not say in November that he would have all in November, nor did he say he would have three deliveries. What I have said seems to me the natural meaning. If it is not, then the contract means 2,000 tons Lq November, unless the plaintiff should elect as he might to have them in equal portions in November, December, and January. I think he did not so elect; and, having failed to take the 2,000 tons in November, has no cause of action. But I will assume as the plaintiff says, though I think otherwise, that whichever construc- tion is right the plaintifi elected to have the iron in three equal portions in November, December, and January. I am of opinion even then that the defendant is entitled to our judgment. Before saying why, I think it fair to the defendant to say I can see no shuffling in his con- duct nor any motive for repudiating the bargain other than a legitimate one. I do not find that iron had risen in price. I think it very likely the iron was at the wharf of the seller, and that the plaintifi was pressed 1 5 H. & N. 19 ; 29 L.J. (Ex.) 73. ^ 4 B. & S. 296 ; 32 LJ. (Q.B.) 256 HONCK v. MULLER Appendix fcy ^jm jq take it. But however this may be, I think his contention right. The case for the plaintiff is, that by the contract, or what was done under it, he was to take and was entitled to have 666 two-thirds tons iu each of the months of November, December, and January. That though he (the plaintifi) broke his contract in not taking the 666 two- thirds in November, and though the defendant at once gave notice he would not go on with the contract, he (the plaintifi) has a right to insist on the December and January deliveries. In other words, the plaintiff says that having agreed to take 2,000 tons he has a right or power to demand and take 1,333 one-third and no more. I cannot think so. I think that contention is contrary to law and justice alike. I think where no part of a contract has been performed, and one party to it refuses to perform the entirety to be performed by him, the other party has a right to refuse to perform any part to be performed by him. I think if a man sells 2,000 tons of iron he ought not to be bound to deliver 1,333 one-third only, if it can be avoided. I can see no difierence in principle between where the deliveries are at different dates and where they are to be all at once. I think the plaintiff no more entitled to the delivery of these 1,333 one-third tons than he would be if he was to take 2,000 tons in November, and send shipping for 1,333 one-third tons only in that month at such a time that no more could be delivered, and he said that he would take no more. Suppose it was a purchase of 100 yards of silk at so much a yard, and the buyer came for fifty only, could he insist on it ? Would it make any difference that 50 yards were to be taken and paid for on Monday and fifty on Tuesday, and the Monday's delivery was not taken but refused, and then the Tuesday's was demanded ? If there was a charter for an out-and-home voyage, and the charterer refused to load for the out voyage, could he insist on the ship taking his cargo for the home voyage ? Suppose 10,000 tons of coal bought to be delivered at Gibraltar, Aden, and Bombay, in equal quantities — at Bombay in January, at Aden in February, and at Gibraltar in March, and no delivery at Bombay, could the buyer be made to take the other de- liveries ? Suppose a contract to supply bread to a workhouse for a year from January 1, and the contractor says he will supply and does supply none in January, can he insist on supplying in the other eleven months ? Suppose he does not supply for eleven months, can he insist on supplying in December ? Would it make any difference if he was paid monthly ? I hope not — I think not. Suppose a man orders a suit of clothes, the price being £7 — £4 for the coat, £2 for the trousers, and £1 for the waistcoat, can he be made to take the coat only, whether they were all to be delivered together, or the trousers and waistcoat first ? The party to a contract so broken has a right not to rescind the contract, for rescission is the act of both parties, but a right to declare he will not perform a part only of his contract, viz. what would HONCK V. MULLER 257 remain to be performed if tlie other party kad performed his part, and Appendix so enabled the performance of the whole. If, indeed, the contract has been part performed and cannot be undone, then it must be proceeded with without such power of declaring off. If ia this case the plaintiff had taken the November delivery, but had refused the December, the defendant would have been bound to make the January delivery. See what the consequence is of a different conclusion. The defendant would sell 2,000 tons of iron and have so many pounds sterling. He is made to sell two-thirds only of the iron and have two-thirds only of the pounds sterling and a right of action. Suppose the November delivery would have been a profit to the defendant, and the December and January deliveries a loss, why is he to bear the loss and have no security that he will get the profit ? This reasoning would no doubt apply where there is part performance, but then there is no help for it. It is asked whether every trifling breach of contract is attended with this consequence. I know not ; but 666 two-thirds tons out of 2,000 are not a trifle. If it must be something which goes to the ' root ' of the contract, as was said, surely one-third of the subject-matter does. The case of Hoare v. Rennie ^ is in point. The same thing was decided a few days ago in Englehart v. Bosanquet.^ It was there held that on a sale of 2,000 tons of sugar to come in two ships, when the first ship was not equal to contract, the buyer was not bound to take the other. Butitissaidthatjffoare v. Rennie ^ has been overruled by Simpson v. Cripfin-^ That is rot so. That decision was quite right. The case was distiaguishable from Hoare v. Rennie ^ for the contract had been part performed, and could not therefore be undone, One may express a respectful agreement with what the learned judges said in Simpson v. Gripping viz. that they did not understand Hoare v. Rennie} The other cases cited are distinguishable on the same ground. It has never yet been held that a man may break his contract, render the performance of the whole impossible, and, though nothing has been done under it, insist on the performance of the remainder. Pordage v. Cole * has absolutely nothing to do with the case. That was an action on a specialty. This is not. As to the argument that in a case like the present there are really three contracts for three parcels, that is wholly erroneous. In parol contracts, the whole of what is to be done on one side is the consideration for the whole of what is to be done on the other. The seller does not sell, the buyer does not buy, any parcel of 666 two- thirds tons any more than when the suit of clothes is sold there is a separate sale of coat, waistcoat, and trousers. I am of opinion that the judgment should be reversed. Baggallay, L.J. — The agreement in this case was for the sale by the defendant to the plaintiff of 2,000 tons of iron, to be delivered at 1 6 H. & N. 19 ; 29 L.J. (Ex.) 73. ^ ^ot reported. 8 L.R. 8 Q.B. 14. * 1 Wms. Saund. 319. s 258 HONCK v. MULLER Appenflix Middlesbrough in November, 1879, or at the option of the plaintiS in equal proportions, but at an increased price of 6d. per ton, in the months of November, December, and January. In the course of the argument three different views have been suggested as to the true meaning of the agreement : 1. That relied on by the plaintiff, that, unless he made an election to take all in November, the contract was for the delivery in three equal portions in the three months. 2. That relied upon by the defendant, that the plaintifi was bound to make his election in November, and to communicate it to the defen- dant in sufficient time to enable the defendant to deliver the whole or the one-third, as the case might be, in that month. 3. An alternative suggestion of the defendant that the plaintifi was to take the 2,000 tons in November, unless he gave notice to the de- fendant before the expiration of that month that he elected to have the cargo delivered in equal portions in the three months. I agree with Lord Justice Bramwell in thinking that the second view, that contended for by the defendant, is the most in accordance with the language of the correspondence, and further, that, whether ■it or the third be adopted, the plaintifi has no cause of action. It is not suggested that any notice was given by the plaintifi in the month of November. This would appear to me to be sufficient to entitle the appellant to a reversal of the decision from which he has appealed. But so strong an argument has been addressed to us in support of the construction of the contract contended for by the plaintifi, that I deem it right to express my opinion as to what our decision ought to be, upon the basis of such construction beiag adopted. As to this also, I have arrived at the same conclusion as Lord Justice Bramwell. Were it not ifor the authority of Simpson v. Criffin} which has been much pressed upon us, I should have felt no doubt as to the propriety of holding that the refusal by the plaintifi to accept the first portion of the cargo, in accordance with the provisions of the contract as construed by himself, was a sufficient justification for the defendant's refusal to deliver the remaining portions. It is, to my mind, impossible to reconcile the decision in Simpson v. Crippin ^ with that in Hoare v. Rennie ^ except in the manner pointed out by Lord Justice Bramwell, b^iAj do not find that the decision in Simpson v. Crippin '^ was in any way tested upon the distinotiompoiated out by the Lord Justice. Indeed, Mr. Justice Mellor stated in his judgment that he was unable to distinguish the two cases. If, then, the decision in Simpson v. Crippin ^ is to be considered as conflicting with that in Hoare v. Rennie,^ and I think it was so considered by the judges who decided it, I am bound to say that I adopt the principles enunciated in the latter case as being mote in accordance with reason and justice 1 L.R. 8 Q.B. 14. » 5 H. & N. 19 ; 29 L.J. JEx.) 73. HONCK V. MULLER 259 tliaii those upon wMch the former was expressed to be decided. The ^"^^"^^ principles upon which that case was decided are so clearly expressed in the reported judgments, that I need not refer to them in detail. I may mention that in the case of Bradford v. WilUams,"^ which was decided in the early part of the same year as Simpson v. Crifpin,^ Hoare v. Rennie^ was quoted and recognised, and the principles upon which it was decided adopted. Bradford v. WilUams''- was mentioned in argument in Simpson v. Crippin,^ but was not noticed in any of the judgments. I am of opinion that the judgment should be reversed. Bkett, L.J. — I am sorry to say that in this case I differ from the views of the two other members of this Court. This is the case of a contract for the sale and delivery of goods at a price per ton. If the price were one whole price for the whole amount to be delivered, the sort of question which has arisen in this case would not have arisen. The long discussion which has taken place as to this kind of contract, is where the contract is for separate and successive deliveries of goods at a price per ton. It does not seem to me to be necessary in this case to determine precisely the rights of the parties as to deliveries under this contract. I am, however, inclined to think that where, as in this case, the contract is for the delivery of goods by the vendor free on board, the choice as to whether the whole is to be delivered in November or whether it is to be in three successive periods, is the choice of the person who has to deliver, and therefore that the choice was with the defendant, but it is immaterial to determine this. In the result, this case seems to me to be a bontract for the delivery of iron at three different periods at a price per ton. The action is for non- deliyery, and the question is whether the failure of the plaintifE to take the first delivery prevents him from requiring a delivery at the two successive periods. Now it is admitted that if the first delivery was made, and the second was not, but the third was, that then the failure by the seller to offer the second delivery would be no objection to his right to insist upon the acceptance of the third. That is admitted. But it is said that if there be a faUuxe to offer the fiist delivery the acceptance of the second cannot be insisted upon. Now what is the rule of law by which a Court of law ought to deal with mercantile transactions of this kind ? To my mind merchants are not bound to make their contracts according to any rule of law, but the Court of law, from the language which has been used, and from the known course of business amongst merchants with regard to the subject-matter of such contracts, must determine what is the interpretation to be put on such contracts amongst reason- able merchants, and when they have ascertained what that is, the Court ought to appjy it to the particular contract in question in the I L.R. 7 Ex. 259. ^ L.R. 8 Q.B. 14. s 6 H. & N. 19 ; 29 L.J. (Ex.) 73. s 2 260 HONCK V. MULLER Appendix ^^y in which reasonable business men, in the ordinary course of busi- ness, would apply it. Now such a contract as this in the present case, for successive de- liveries of goods at a sum per measure, is a somewhat modem kind of contract, but it has now been in existence for many years. It has been frequently considered, and the rule with regard to its construction seems to me to be this, that where the deliveries are to be so made, and the price of each to be so determined, then, inasmuch as the failure to perform one of the deliveries can be satisfied by damages, the failure in respect of one delivery does not prevent the party from having the other deliveries. That is not what is decided in Pordage v. Colej'- but is the doctrine contained in the notes to that case. The Courts have not laid down that doctrine as an abstract proposition of law, but they have gathered it from the course of business amongst merchants, that where merchants have so contracted by separating the price, as in case of failure of one of the deliveries, to give an adequate remedy for it, that it is not their intention that such non-delivery should put an end to the contract and prevent the party so failing from having a right to make subsequent deliveries. But it is suggested that, if there is a failure in the first delivery, then the party against whom that failure is committed may throw up the contract. But why ? Supposing at the time of the first delivery there is no difference between the market price and the contract price of the goods, the person against whom the failure is made suffers positively no loss. But at the time of the second delivery the difference between the market price and the contract price may be enormous ; yet at the time of the third delivery it is said if you have fulfilled the contract as to the first delivery, where it did not signify whether you did or not, but have failed in the second delivery, where it was of the utmost consequence, nevertheless, you can insist upon the third delivery, but if you have failed in the first delivery, where it was of no consequence at all, then, although the question of delivery of the second and third is of the utmost consequence, your right to them is to be of no avail. It seems to me that such a conclusion is so strained that, with the greatest possible respect, I should say as matter of business it is absurd. Then is one boimd to come to such a conclusion when one's duty is to apply that which would be the conduct of all reasonable merchants ? It seems to me that one is not. The notes to Pordage v. Cole ^ seem to me to be clear, and to make no distinction whatever as between the first delivery or any other. The case of Simpson v. Crispin " distinctly states there is no difference with regard to the first dehvery or any other. It is objected to that case that the learned judges said they did not understand the case of Home v. Renme.'^ It seems to me not that they meant to say they did not understand Hoove v. Rennie,^ but they 1 1 Wms. Saund. 319 1. ^ L.R. 8 Q.B. 14. 3 5 H. & N. 19 ; 29 L.J. (Ex.) 73. HONCK V. MULLER 261 could not understand that the principle of law was rightly applied Appendix there. In other words, they meant to say they difEered from Hoare v. Rennie.^ So do I, for the reasons I have given. In my opinion Hoare V. Rennie ^ was wrongly decided and I prefer Simpson v. Cripjdn.^ I prefer what Lord BlacM>urn said in that last case, namely, in such a contract as this the doctrine contained in the notes to Pordage v. Cole * ought to be applied. With regard to the case of Engleha/rt v. Bosom- quet* the facts there seem to have been exactly like those in Hoare v. Rennie,^ and therefore the judges were bound to follow that case. But in the Court of Appeal we are not bound to do so, and I prefer the doctrine laid down in Simpson v. Crippin ^ by the judges who, to my mind, showed that in their opinion Hoare v. Rennie^ was wrongly decided. I think that they were right and that Hoare v. Rennie ^ wai wrong. 1 5 H. & N. 19 ; 29 L.J. Ex. 73. ^ ^.r. g q b. 14. * 1 Wms. Saund. 319 1. - Not reported. INDEX A AcnoN — In Covenant p^aa Contrasted with action in assumpsit - 19, 20, 57, 58, 59 Failure of consideration not a defence - 59 Failure of condition precedent or concurrent a defence 59 On Contract (action in assumpsit) Failure of consideration a defence 20, 59 Onus on plaintifE suing on contract to prove the perfor- mance of the whole of executory consideration 59 Agreement — Bescission by, see Rescission \ AVOIBANCE — (1) For Misrepresentation Executory Contracts Essential matters to be proved 133 Fact, misrepresentation must be of a - 133 Failure of inducement - 128, 133 Failure of consideration - 133 Law, misrepresentation of, as applied to particu- lar facts sufficient : misrepresentation as a failure of consideration, Forman v. Wr\ght, 11 C.B. 481 133 Opinion expressed, how far a misrepresentation 132 Principle of failure of consideration in purchaser's action for specific performance when price affected by misrepresentation - 135-143 Relation between avoidance for misrepresentation and (a) Avoidance for mistake - 129 (6) Discharge by breach 129 Executed Contracts Contract is executed when what has been pro- mised is performed - - - 7, 143 Contract is not executed when something essenti- ally different has been performed - - - 7, 144 INDEX 263 . PAGS AVOIDANCE — corainmd. Rule at law, where contract executed : Kennedy v. Panama Mail Co., L.R. 2 Q.B. 581 ; Street v. Blay, 2 B. & Ad. 456 - 7, 144 Fraud a ground of avoidance whetker contract executory or executed 129 Innocent misrepresentation as a ground for avoid- ing an executed contract considered 143-153 (a) Contracts to take shares 150 (6) Contracts of partnership 149 (2) For Mistake Resulting in want of consensus ad idem : no contract in law - 154-158 Mistake must extend to subject-matter of contract 157, 158 Rendering contract voidable 159 Affording ground for refusing specific performance Mutual mistake Unilateral mistake Mistake of law as applied to given facts Estoppel, doctrine of as answer to plea of mistake B Bannerman v. White, judgment in and notes on Behn v. Burness, judgment in and notes on Bentsen v. Taylor, judgment in and notes on Bettini v. 6ye, judgment in and notes on Boone v. Eyre — As reported in 1 H. Bl. 273 note (a) Principle of, as stated in notes to Pordage v. Cole, ] Wms. Saunders, 1871 Edn. 548 Contradicts principle of Cutter v. Powell Rule based on, responsible for confusion as to principle governing discharge of executory contracts 100 note 3 Modified in Ellen v. Topp, 6 Ex. 424 102 Principle of, substantially identical with rule in equity on which specific performance with compensa- tion is ordered 103 Plain words of condition precedent disregarded on grounds of ' commonsense and justice,' Newson v. Smythies, 3 H. & N. 840 - - 112 Breach op Contract — Generally If sufficient failure of consideration, discharges party not in default ; see Failure of Consideration 166 166 156 159 -166 211, 215 233, 235 233, 240 222, 226 101, 206 99, 100 99, 100 264 INDEX PAGE Breach of Contract — continued. Inability of party in default to enforce contract by action is test of other party's diacharge - 69 Similarly in actions in covenant - 70 Breach, must amount to failure of inducement (or breach of condition precedent or concurrent) where contract executory - 40, 41, 42 Entire consideration by failing partially fails entirely if contract executory (Chanter v. Leese, 5 M. & W. 698, 700) - - - - 42, 43 Though of a term collateral to main pxirpose of contract (independent stipulation) may discharge party not in defaidt if contract executory - - - 96 See Im'portance of Stipulation Broken ; Importance of Breach Campbell v. Jones, judgment in and notes on - - 206, 207 Collateral Stipulation — Breach of, while contract executory, may discharge contract 96 Independent stipulation - - - 61 Condition {as distinguished from Condition, Concurrent or Precedent) Breach of, as ground of discharge, means important failure of consideration, or failure of inducement where contract executory - - 61, 80 note 6 Conditions Concurrent — To be performed at the same time 68 In terms of express agreement 68 Or impUed from the nature and intent of the transaction - 68 An extension of principle of condition precedent - 62, 63 Reason for doctrine of implied concurrent conditions, to prevent failure of consideration - 62, 63 Stipulations going to the whole consideration on both sides 64 AppUcation to deeds of principle peculiar to simple contracts does not afEect application of doctrine of failure of consideration to simple contracts - - 65 Condition Precedent — (1) According to primary meaning, i.e. condition proper Defined 18, 19, 53, 54 Involves necessary prior performance - - 53, 54, 65 Breach or failure of, discharges party not in default - 17, 70 INDEX 265 Condition Peecedent— cow«wMe(?. Unless waived - - . . . 103, 104, 105 Rule the same as to contracts under seal and simple contracts - - - 17, 60, 70 Failure of - - . 60 Distinct in principle from failure of consideration - 58, 59 Intention of both parties material on question whether stipulation in condition precedent 55, 67, 86, 87 Actuating motive of one party only material on question of inducement - - - - 89 (2) According to secondary or extended meaning 54r-58 As indicating important term, or important part of consideration {Behn v. Burness, 3 B. & S. 751 ; Bentsen v. Taylor, 1893, 2 Q.B. 274 ; Bettini v. Gye, 1 Q.B.D. 183 ; Poussa/rd v. Sjners, 1 Q.B.D. 410) - - - 53, 54, 55 May apply to independent stipulation or covenant - 56 Originated the use of term ' condition ' as indicating test of importance of broken stipulation - - 80, 89 Confused with failure of consideration, as in Poussa/rd V. Spiers ut sup. ... 75 Consensus ad Idem^ Necessary to valid contract - - 23 Necessary to rescission by agreement i23 Mistake as to subject-matter may prevent 154-158 CONSIDEKATION — Not generally necessary to validity of contracts under seal- 40, 59 But necessary to validity of simple contracts - 40, 59 Doctrine imknown in Roman Law as it obtains in English Law - 12 See Failure of Consideration D Damages — When recoverable on rescission, Henty v. Schroder, 12 CD. 666, considered 199 In cases of rescission for fraud 201 In cases of rescission for innocent misrepresentation, not recoverable 201 Right of indemnity - - - - - 201 266 INDEX FAGK DiSCHAEGE BY BeEACH — Principle of, depends on party in defaidt being by Lis default disabled from enforcing contract by action 8, 17, 18, 21, 22, 69 Principle of, applies equally to deeds and simple contracts - 17, 70 Limited, in action in covenant, to breach of condition pre- cedent or concurrent - - - - 70 " Failure of consideration is nothing in the case of a contract under seal " - - - 40 Operates in the case of simple contract on a sufficient failure of consideration . . . . . 42 See Failure of Consideration : Conditions Concwrent, Con- dition Precedent Dissolution by Opeeation of the Law — Both parties are discharged - 167 Classification of cases (a) Failure of existing state of things 168 (6) , Contemplated future events failing 168 (c) Contract becoming legally impossible - - 168 Condition " equally afEecting both parties " must fail, Appleby V. Myers, L.R. 2 C.P. 651 - 169 Condition failing must be basis or foundation of the contract 171 Law leaves the parties where they were ; but - - - 173 Money actually due and payable under the contract before the dissolution is recoverable 173 Principle does not depend on intention of parties that con- tract should be dissolved - - - 174 Unexpected destruction of substantial part of subject- matter will not necessarily dissolve contract - - 177 Duke of St. Albans v. Shoee, judgment in and notes on 211, 219 E Executed Conteact — Definition of - 40 note 1 See Failure of Consideration Executoey Conteact — Definition of - - - - - 40 note 1 See Failure of Consideration F Failuee of Considbeation — Generally - - - 9, 22 A ground of discharge of a simple contract - 20, 40, 41, 67 INDEX 267 PAGB Failube of Consideration — continued. Nothing in the case of a contract under seal " (per Parke, B., Wallis v. Day, 2 M. & W. 273, 277) 40, 67 Principle of, distinct from failure of condition precedent or concurrent - 58, 59 Failure of inducement involves - 49 Relations between doctrines of consideration and condition proper accidental - - - 52, 61 (o) Failure of condition may incidentally involve failure of consideration 59 (6) Consideration, merely a guide in ascertaining if mutual covenants or stipulations are mutual conditions - - - - 62, 64 While contract eocecutory A ground of discharge, it amounting to a failure of material inducement 48, 49, 50, 71, 81-85, 91-93 Breach in performance, or failure or inability to perform may amount to - - 69 Innocent misrepresentation inducing a promise may at law support a plea of [Forman v. Wright, 11 C.B. 481) - - - 51 Discharge for, substantially identical with principle of avoidance for innocent misrepresentation (Flight V. Booth, 1 Bing. N.C. 370 ; Banner- man V. White, 10 C.B.N.S. 844) 91 Difference between application of principles depends on onus of proof (cf. Behn v. Burness, 3 B. & S. 751, and Bentsen v. Taylor, 1893, 2 Q.B. 274, with Redgrave v. Hurd, 20 CD. 1, and Smith v. Chadwick, 9 A.C. at p. 196) 91 Must be so important as to amount to failure of in- ducement - 81—97 When contract substantially executed Must involve more than mere failure of inducement to discharge party not in default 122, 123 Operation of misrepresentation as ' actuating motive ' immaterial {Kennedy v. Panama Mail Co., L.R. 2 Q.B. 580) - 85 The thing done must be substantially different from the thing promised {Dakin v. Lee, 1916, 1 K.B.) 120 See Importance of Breach Importance of Stipulation Broken Specific Performance mth Compensation FiJGHT V. Booth, judgment in and notes on 211,212 FOBMAN V. Weight, judgment in and notes on - 211, 217 268 INDEX PAQB Fbaud — See Avoidance for Misrepresentation H HoAEE V. Rennie, judgment in and notes on - - 246, 252 HoNCK V. MuLLER, judgment in and notes on - - 246, 255 Importance of Stipulation Broken — Presumed where stipulation a term of contract, but pre- sumed importance may be disproved : {Behn v. Bn/rness, 3 B. & S. 751 ; Bowes v. Shand, 2 A.C. 455) 93, 95, 96 (1) Where contract executory Regarded from point of view of inducement to the con- tract, not from point of view of results of breach either actual or probable - 81, 86, 86-97 Parties contemplate performance, not breach - - - 86 Unless consequence of specific breach expressly pro- vided for ... 86 (2) Where contract partly but not substantially executed Contract partly but not substantially executed seems to be in the position of executory contract : Chanter v. Leese, 5 M. & W. 698, Ellen v. Topp, 6 Ex. 424 126, 127 Party in default may have remedy on qitantum meruit or quantum valebat if he can establish new promise : Sumpter v. Hedges (1898), 1 Q.B. / 673 - - - - - 114,124 (3) Where contract substantially executed (see Importance of Breach) Importance of part unperformed is viewed in relation to performed part rather than as inducement 119, 123 Unless stipulation broken be a condition precedent - 105 Difierence of principles in law and equity as to partial breach of condition precedent 103 American doctrine of substantial performance - - 102 Question is — Does the non-performance render the performance a thing substantially different from what was promised ? Kennedy v. The Panama Mail Co., L.R. 2 Q.B. 581 ; Dahin v. Lee (1916), 1 K.B. 566 - - - . . 120 INDEX 269 PAGE Impoetance of Breach — Compared with importance of stipulation broken - - 86 Is, in case of substantially executed contracts, ascertained with reference to the part performed - 123 Excepting where complete performance a condition pre- cedent 105 Not directly in question in the case of an executory contract 87 Objection to interpreting contract by reference to matters ex fost facto - 88 Inducement — • Failure of, afiords ground for plea of failure of consideration 49-52 The essence of consideration - 50 Intention — Of both parties, condition precedent depends on - - - 87, 89 Irrelevant on question of faUuie of consideration - 87 Kennedy v. The Panama, Etc., Mail Co., judgment in and notes on - 222, 223 M Misbepbesentation — See Avoidance Failure of consideration N Notice of Eescission — Necessary in cases of discharge by breach, only to negative waiver . - - ifi 17 Necessary in cases of repudiation - 16, 17 ■»T " 23, 26 Novation - POBDAGE V. Cole, 1 WiUiams' Saunders, 1871 Edn. 548 Notes to, rules in, for ascertaining whether covenants are dependent or independent ' , ' ' k, Vn Application of these rules to simple contracts discussed - - 57-67 ■ Ss do not afiect principle of failure of consideration m case of a simple contract - - - " ' ' Eules apply in cases of conditions precedent and concurrent 57-67 PoirssABD vSpiebs, judgment in and notes on - - - 222,228 270 INDEX FAOE Peevention of Performance — Gives a cause of action - - - - 38 And semble determines the contract - 16, 38 K Repudiation — See Rescission Rescission — A generic term - - 8 Including (1) Determination by agreement of the parties - - 9 (2) Discharge by breach - 9 (3) Avoidance for matters extrinsic and collateral to the contract itself — fraud, misrepresentation, mistake, etc. .... iQ (4) Dissolution by operation of the law - - 10 By agreement of the parties (a) New agreement - - 15, 25 Expressly rescinding original agreement 23 Complete consensus required - - - 23 May be implied by new agreement or conduct of parties 23 Novation - 23, 26 Verbal agreement may discharge written agreement even though required to be in writing - 25 Agreement required to be in writing cannot be varied or modified by verbal agreement - 25 Unless unperformed terms could be the subject of a valid verbal contract - 26 (b) Rescission pursuant to express power reserved (resolutive condition) - 29 Equity places limitations on exercise of 31 Must be exercised in good faith and reasonably 29-30 Operating as forfeiture in the nature of a penalty may be restrained - 31, 32 Onus of proof on party rescinding that ground has arisen - - - - 33 Compared with breach of condition precedent 33 (c) Repudiation - - 10, 16, 21, 34 A ground of rescission proper - 34 General principles - - 34 What amounts to - - - 36 Must be accepted as an offer to rescind - 37 INDEX 271 _ PAGE Kescission — continued. Rights and remedies of party rescinding - 34, 35 Term ' rescission ' not strictly applicable to dis- charge by breacb 19, 20, 70 See Avoidance, Discharge, Dissolution Restitution — A condition of rescission in certain cases Doctrine of does not apply in (a) Rescission by agreement - - 179 (6) Repudiation 179 (c) Resolutive condition - 178 (d) Discharge by breach - 180 (e) Dissolution by operation of the law 181 Alteration of subject-matter does not prevent rescission if Court can do what is practically just 184 Eqiiitable jurisdiction in personam enables this to be done where the Courts of law were powerless - - 184 See Rights of Third Parties Resolutive Condition — See Rescission Restoration of Status Quo — See Restitution : Rights of Third Parties Rights of Thied Parties — If executory, will not prevent rescission ; but Rescission may give third party right of action under rule in Stirling v. Maitland, 5 B. & S. 840 187 If executed, vested rights of third parties may prevent rescission : rule in Clough v. London & North- western Railway Co., L.H. 7 'Ex.2Q - - - 194 Lessee sub-letting cannot surrender lease as to part sub-let - 190 Operation of maxim ' a party shall not derogate from his own grant ' - 189 Volunteer not in same position as a purchaser for value 191 Contracts to take shares in companies - 195 Effect of liquidation on member's right to rescind - 196 S Simpson v. Crippin, judgment in and notes on 246, 254 Specific Performance with Compensation — Amount of price affected by misrepresentation - - 136 Application of principle of failure of consideration in pur- chaser's action - - - 137-143 272 INDEX T PAGE Thied Parties — See Rights of Third Pwrties iJiME, operation of stipulations as to - - . . , . 249 V Voidable Conteacts — See Avoidance for Misrepresentation Avoidance for Mistake W Waivee — Notice of discharge necessary in order to negative - 8, 18, 69 Waeranty — Breach of, while contract executory will discharge party not in default - - - 96 Provision in Sale of Goods Act - - - 116m. PBINTKD BY »»OTTIBWOODB, BALLANTyNE AND CO. LTD. I.OHDOI;, COLnHCSIEB AND BION