(Jamaica) A moneylending law required, for the enforceability of a loan bearing interest at more than ten per cent, a written memorandum containing all the terms of the loan with the borrower’s signature. A bank lent money at nine per cent secured by a mortgage which was enforceable. Later it sent a circular letter to borrowers raising the rate of interest to eleven per cent; the letter was unenforceable. The bank wanted to enforce the original mortgage at nine per cent.
Held: the question whether an unenforceable agreement avoided the original mortgage depended upon the intention of the parties and, as there was no intention to rescind the original mortgage, it remained in force unamended.
Lord Devlin said: ‘the difficulty about enforcing the original mortgage in this case is that, although itself untouched by the statute, it is no longer the real contract between the parties. In reality, although the statute prevents reality from being proved, there is no longer a mortgage at 9% but one at 11%. Since, however, the real contract is not evidenced in the way required by the moneylending law, it cannot be enforced. This is the approach made by Douglas J in the Supreme Court and by Lewis J, who gave the leading judgment for the majority in the Court of Appeal.
Another way of arriving at the same result is to treat a variation of contract as something that necessarily requires the rescission of the old contract and the substitution of a new one. On this view the old contract cannot be enforced because it has been rescinded and the new contract cannot be enforced because it is not properly evidenced. This was the conclusion reached by the Divisional Court in Williams v Moss’ Empires [1915] 3 KB 242 and adopted by the Court of Appeal in Morris v Baron [1918] AC 1. As Sankey J put it in the former case: ‘The result of varying the terms of an existing contract is to produce, not the original contract with a variation, but a new and different contract.’ The disadvantage of this view is that a minor variation may destroy the effect of the whole of the transaction between the parties. The alternative view, adopted by the House of Lords in Morris v Baron and again in British and Benningtons Limited v NW Cachar Tea Company Limited [1923] AC 48 (where Lord Sumner referred to the former view as possibly correct ‘as a matter of formal logic’), is based on the intention of the parties. They cannot have that which presumably they wanted, that is, the old agreement as amended; so the court has to make up its mind which comes nearer to their intention – to leave them with an unamended agreement or without any agreement at all. The House answered this question by rejecting the strict view propounded by Sankey J and distinguishing between rescission and variation. If the new agreement reveals an intention to rescind the old, the old goes; and if it does not, the old remains in force and unamended . . If the principle in Morris v Baron applies to this case, the mortgage of April 22 remains in force. The contrary has not been and could not be argued. It would be impossible to contend that a temporary variation in the rate of interest reveals any intention to extinguish the debt and the mortgage . . The choice before the board lies between solving the problem by means of what Lord Sumner called formal logic or solving it by giving effect as far as possible to the intention of the parties as was done in Morris v Baron.’
Judges:
Lord Devlin
Citations:
[1969] 1 AC 340
Citing:
Cited – British and Beningtons Ltd v North Western Cachar Tea Co Ltd HL 1923
The House looked at the effect of rescission of a contract: ‘It was, however, argued before your Lordships that . . the old contracts were discharged because a varied contract is not the old contract, and as you cannot have a new and varied contract . .
Cited – Morris v Baron and Co HL 1918
The House drew a distinction between a variation of a contract required to be evidenced in writing, and the rescission (or discharge) of such a contract. The former was itself required to be evidenced in writing; the latter was not.
Lord . .
Cited by:
Cited – Jagdeo Sookraj v Buddhu Samaroo PC 12-Oct-2004
PC (Trinidad and Tobago) Each party claimed to have entered into a contract to purchase the same land. It was contended that one contract had been rescinded and replaced by another. The issue was whether this . .
Cited – Butters and Others v BBC Worldwide Ltd and Others ChD 20-Aug-2009
In the insolvency of Woolworths plc, a subsidiary sought to have valued its shareholding in a company in which the defendants were co-shareholders. It was argued that an earlier agreement between them had not be fully superceded by a subsequent one. . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 14 May 2022; Ref: scu.237254