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Snelling v John G Snelling Ltd

[1973] QB 87, [1972] 1 All ER 79, [1972] 2 WLR 588, 116 Sol Jo 217

Court: QBD

Judgment Date: circa 1973

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CONTRACT - DEFINITIONS AND CLASSIFICATIONS - DEFINITIONS - DEFINITIONS - MUST BE CAPABLE OF BEING ENFORCED IN COURT OF JUSTICE

Plaintiff and second and third defendants were brothers and co-directors of first defendants ('the company'). Prior to 1967 the company had been financed by loans from each of the brothers. In 1968 additional finance was required and, on 22 March, a mortgage on the company's properties was executed under which a finance company agreed to advance £40,000 to the company repayable over ten years. All three brothers were parties to this mortgage agreement and each of them covenanted with the mortgagees that they would not reduce the amounts of their respective loans to the company below the sum shown in the accounts on 31 March 1966. On 22 March 1968, the brothers entered into an agreement between themselves which was to remain in force until the loan by the finance company had been repaid. By cll 4 and 5 it was agreed that in the event of any director voluntarily resigning he would immediately forfeit all money due to him from the company by way of his loan account and that if this event occurred the remaining directors might use the money in furtherance of the intention to repay the loan from the finance company but not in such a way as to benefit themselves personally. In June 1968 plaintiff voluntarily resigned as a director and claimed payment from defendant company of the sum in his loan account at the date of his resignation. The company denied that plaintiff was entitled to the relief claimed and joined the co-director brothers as defendants. They adopted the company's defence and further counterclaimed for a declaration that the sum due to plaintiff on the loan account had been forfeited. The issues arose whether the agreement between the brothers was intended to create legal relations and whether defendant company could rely on a term in the agreement when it was not a party to it even though the agreement was for the company's benefit: Held (1) the agreement between plaintiff and second and third defendants was intended to affect the legal rights of all concerned and was therefore legally binding and enforceable; (2) second and third defendants, having proved the contract between plaintiff and themselves and having proved a breach of it by plaintiff, or an undoubted intention on his part to repudiate it, were entitled to a declaration that the provisions of the agreement were binding on plaintiff; (3) the company, on the other hand, was not entitled to rely directly on the terms of the agreement since it was not a party to it; nevertheless, second and third defendants having made out an unambiguous case and succeeded on their counterclaim and all parties, including the promises under the agreement and the party to be benefited, being before the court, it was a proper case for a stay of all further proceedings under Supreme Court of Judicature (Consolidation) Act 1925 (c 49), s 41 in plaintiff's action against the company; furthermore, since the reality of the matter was that plaintiff's claim had failed, the right course was to dismiss the claim rather than merely to grant an order staying further proceedings; (4) accordingly plaintiff's claim would be dismissed and judgment given for second and third defendants on the counterclaim with a declaration that, in the events which had happened, plaintiff was not entitled to call on defendant company to repay to plaintiff the whole or any part of the sum due from the company to plaintiff on his loan account on the date of his resignation.