Henry Kendall & Sons v William Lillico & Sons Ltd
Holland Colombo Trading Society Ltd v Grimsdale & Sons Ltd
House of Lords
Citations:  2 AC 31;  3 WLR 110;  2 All ER 444;  1 Lloyd’s Rep 547;  CLY 3526.
The claimants were game farmers. They bought food for their birds from the defendants. However, when the chicks ate the food, many became sick and died. This was due to a toxic mould substance in the groundnuts from which the food was made. The defendants had bought the product from two third-parties.
The defendant’s contract with the third parties was made orally. However, the third-parties alleged that a clause stating that the buyer took responsibility for any ‘latent defects’ in the product was incorporated into the contract by a consistent course of dealing. In their previous dealings with the third-parties, the defendants had been given a note containing this term. However, they never read it.
The claimant sued the defendants for breach of contract. In the present proceedings, the defendants brought an action against the two third-parties. They argued that the third-parties should be required to indemnify them against the claimant’s claim. The third-parties, they alleged, were in breach of statutory terms with regards to the quality of the goods. The third parties relied on the ‘latent defects’ clause as excluding their liability.
- Were the third parties in breach of the statutory terms?
- Was the latent defects clause incorporated into the parties’ contract?
- Could they rely on the latent defects clause as excluding their liability?
The House of Lords held that:
- The third parties were in breach of the statutory terms.
- The latent defects clause was incorporated into the contract.
- The latent defects clause was not worded clearly enough to exclude liability for breach of the statutory terms. It should be construed as only excluding liability for those defects which did not prevent compliance with the statutory terms.
This Case is Authority For…
A clause must be clear if it is to exclude liability under a statutory implied term.
The Lords discussed the dicta of Lord Devlin in McCutcheon v David MacBrayne Ltd  1 WLR 125. In relation to terms incorporated into a contract by a consistent course of dealing, Lord Devlin commented that parties’ past course of dealing is only relevant if those dealings prove that the parties knew or ought to have known of the relevant clause and consented to them.
The House of Lords in this case clarified that there is no need for actual knowledge. The key issue is what the parties’ behaviour communicated to the other party. In particular, the parties past behaviour must communicate to the other party that they consent to the term in the present contract.
On these facts, the defendant, ‘by continuing to conduct their business with [the third-parties] on the basis of the sold notes which contained the relevant condition and by not objecting to the condition, must be taken to have assented to the incorporation of these terms in the contract.’ The fact that he never read the note was irrelevant.
This case also discusses the meaning of terms such as ‘merchantable quality’ under Sale of Goods legislation. These terms are no longer used in modern legislation (such as the Sale of Goods Act 1979) – the term ‘satisfactory quality’ is preferred and has a different meaning. It also includes a discussion of the meaning of ‘poultry’ under the Fertilisers and Feeding Stuffs Act 1926, explaining that it does not include pheasants and partridges.