L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2
Citation:L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2
Rule of thumb:is it always obvious whether a term of a contract is a condition or a warrant? Or a material term or minor term? No, sometimes this is a grey area. Sometimes a failure to comply with a term of a contract can divide opinion on whether it is a minor breach (term/warranty) or a material breach (condition). ie it is not always clear whether a breach makes the contract able to be ended or not.
Background facts:
The basic facts of this case were that Schuler agreed a contract with Wickman to be the sales agent of the Schuler’s panel press – a component used in the car by car manufacturers. The agreement was that Wickman would visit one car manufacturer a week on average to try to make sales. This part of the agreement was also listed in the 'conditions' part of the contract rather than the 'warranties' part. The agreement stated that if Wickman fell below one on average per week then measures to correct this must be taken within 60 days. Wickman did not get their average up to 1 per week within the 60 days and so Schuler terminated the contract. Wickman stated that they would up their average immediately but Schuler refused to do any further business under the contract with Wickman confirming that the contract was over. Wickman took Schuler to Court and argued that this was breach of a warranty rather than a condition.
Arguments:
Schuler argued that this was in the conditions so it therefore was a condition. They further argued that it was not their job to babysit their sub-contractors and make sure they were hitting their targets, and they deemed that not hitting the target was a breach of a condition. The Court upheld the arguments of Wickman - Wickman was deemeed not to be in breach of a fundamental material condition, and only in breach of a minor warranty, meaning an opportunity to rectify the breach should have been given.
Judgment:
The Court importantly affirmed that just because a term is listed in conditions this does not make it a condition - it is to be objectively judged whether a term is a condition or a warranty with the contract - parties cannot just Judge lots of terms to be conditions rather than warranties. A case like this falls right on the borderline between a condition and a warranty, or material and minor breach. There is no real rationale that can be provided for the Court's decision in why this was a condition rather than a warranty - where the line is drawn between condition and warranty will always divide opinion. The Court of Appeal Judges all thought this was a condition which put Wickman in fundamental breach, but the House of Lords did not, and indeed there was a dissenting Judgement in the House of Lords. In other words, whether conduct under a contract actually crosses the line into being considered a fail, rather than just of poor quality but still a pass, will always divide opinion making the performance principle in contract law one of the most debateable principles in the whole subject.
Ratio-decidendi:
'I am clear in my own mind that it is a condition, but your Lordships take the contrary view', Lord Wilberforce
‘Schuler maintains that the use of the word " condition " is in itself enough to establish this intention. No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract as a whole. Use of the word " condition " is an indication—even a strong indication—of such an intention but it is by no means conclusive. The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear. Clause 7(b) requires that over a long period each of the six firms shall be visited every week by one or other of two named representatives. It makes no provision for Wickman being entitled to substitute others even on the death or retirement of one of the named representatives. Even if one could imply some right to do this, it makes no provision for both representatives being ill during a particular week. And it makes no provision for the possibility that one or other of the firms may tell Wickman that they cannot receive Wickman's representative during a particular week. So if the parties gave any thought to the matter at all they must have realised the probability that in a few cases out of the 1,400 required visits a visit as stipulated would be impossible. But if Schuler's contention is right failure to make even one visit entitle them to terminate the contract however blameless Wickman might be. This is so unreasonable that it must make me search for some other possible meaning of the contract. If none can be found then Wickman must suffer the consequences. But only if that is the only possible interpretation. If I have to construe clause 7 standing by itself then I do find difficulty in reaching any other interpretation. But if clause 7 must be read with clause 11 the difficulty disappears. The word "condition" would make any breach of clause 7(b), however excusable, a material breach’, Lord Reid, ‘Does Clause 7(b) amount to a " condition " or a " term "? (to call it an important or material term adds, with all respect, nothing but some intellectual assuagement). 'My Lords, I am clear in my own mind that it is a condition, but your Lordships take the contrary view. On a matter of construction of a particular document, to develop the reasons for a minority opinion serves no purpose. I am all the more happy to refrain from so doing because the judgments of Mocatta J., Stephenson L.J., and indeed of Edmund Davies L.J., on construction, give me complete satisfaction and I could in any case add little of value to their reasons. I would only add that, for my part, to call the clause arbitrary, capricious or fantastic, or to introduce as a test of its validity the ubiquitous reasonable man (I do not know whether he is English or German) is to assume, contrary to the evidence, that both parties to this contract adopted a standard of easygoing tolerance rather than one of aggressive, insistent punctuality and efficiency. This is not an assumption I am prepared to make, nor do I think myself entitled to impose the former standard upon the parties if their words indicate, as they plainly do, the latter. I note finally, that the result of treating the clause, so careful and specific in its requirements as a term is, in effect, to deprive the Appellants of any remedy in respect of admitted and by no means minimal breaches’, Lord Wilberforce
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.