Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2

Construction of contractual terms as ‘conditions’ and the right to terminate a contract.

Facts

In 1963, a German manufacturer entered into a distributorship agreement with an English sales company, to be in effect until 1968. One clause stated that “it shall be [a] condition” that the sales company shall send representatives to six listed firms once per week. In October 1964, the German company terminated the agreement for the sales company’s failure to comply with this clause, viewing it as a ‘condition’ of contract, breach of which gives a right to terminate.

Issues

The question arose as to (1) whether the term constitutes a contractual condition and (2) the factors relevant to contractual interpretation, including whether the parties’ subsequent conduct is relevant.

Decision/Outcome

Firstly, the Court held that whether the term of a contract constitutes an innominate term or a ‘condition,’ the breach of which by one party gives the other party an immediate right to terminate the whole contract, is dependant on the construction of the contract as a whole. The mere use of the word “condition” in a term does not render it a condition in its legal meaning. Secondly, the Court held that, such an interpretation depends on the prior intention of the parties and the circumstances indicating the possible meaning of the clause. The Court affirmed that the subsequent conduct of the Parties is not relevant to contractual interpretation. On the facts, the Court interpreted the clause as unreasonable and ambiguous in many respects. For example, one visit per week would require 1400 visits over the contractual period and the clause does not take into account factors relating to potential changing circumstances in the six firms. Thus, it, cannot within the holistic contract, be constructed as a condition and there was no right to terminate for breach thereof.

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