Karsales (Harrow) v Wallis [1956] 1 WLR 936
Doctrine of Fundamental Breach
Facts
The Defendant (Mr Wallis) agreed to buy a used car if the vendor was able to find a company with which the Defendant could enter into a hire-purchase agreement. The vendor found such a company (the Claimant). Once the agreement was entered into, the Defendant inspected the vehicle he had agreed to purchase through the hire purchase agreement and found that it had been substantially altered from the version he had previously seen and agreed to buy. Namely, the radio was missing, as were the chrome strips around the body, the new tires had been replaced by old ones, the bumper was not held together with rope and perhaps most importantly, the car could not start. The Defendant therefore refused to pay for the car. The hire purchase agreement contained an exclusion clause which stated that ‘No condition or warranty that the vehicle is roadworthy or as to its age, condition or fitness for any purpose is given by the owner or implied herein.’
Issues
The issue in this case was whether the exclusion clause was valid even in cases where there was a fundamental breach of the contract.
Decision/Outcome
It was held that Karsales was under an obligation to provide a car which is in substantially the same condition as when Mr Wallis inspected it. This is particularly the case for hire purchase agreements where the purchaser had previously inspected the vehicle. More broadly, where there is a fundamental breach of a contract, a party cannot rely on an exemption clause. Not in the least, the Sale of Goods Act 1979 would still imply a term into the contract that the goods will be fit for purpose which cannot be excluded through such a clause.
Updated 19 March 2026
This article accurately summarises the facts and decision in Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936. However, readers should be aware of two important legal developments that significantly affect the wider legal principles discussed.
First, the doctrine of fundamental breach as a rule of law — the proposition that an exclusion clause can never, as a matter of law, apply where there has been a fundamental breach of contract — was authoritatively rejected by the House of Lords in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. The correct approach is now one of contractual construction: whether an exclusion clause covers the breach in question is always a matter of interpreting the contract, not a free-standing rule of law. Karsales itself has therefore been overtaken on this point of principle, though it remains historically significant as an illustration of how courts approached exclusion clauses before Photo Production.
Second, the reference to the Sale of Goods Act 1979 implying terms as to fitness for purpose is broadly correct, but the implied terms regime for consumer contracts has since been moved into the Consumer Rights Act 2015, which now governs business-to-consumer contracts. The Sale of Goods Act 1979 continues to apply to business-to-business contracts. Additionally, the ability to exclude implied terms is now significantly restricted by the Unfair Contract Terms Act 1977 (for business contracts) and the Consumer Rights Act 2015 (for consumer contracts). Students should ensure they apply the correct statutory framework to the type of contract under consideration.
