DAMON COMPANIA NAVIERA S.A.
v
HAPAG-LLOYD INTERNATIONAL S.A.
[1984] 1 W.L.R. 435
By
Muhammad Azrie Johari Bin Jamil
Facult...
Appellant

Respondent

Damon
Compania
Naviera S.A.

Hapag-Lloyd
International
S.A.

Parties

3rd Party
Raftopoulos
Brother...
FACTS
• Respondent (Hapag-Lloyd) wanted to sell 3 if their ships and
the Raftopoulos Brother interested on buying it.
• Th...
12th August
1977

15th August
1977

Arbitration

• No memorandum of agreement was signed, nor was the
deposit paid.

• The...
ISSUES
1) Was there a binding contract?

2) If there was a binding contract, is it binding
upon the Appellant (Damon)?

3)...
Was there any binding contract?
The arbitrator concluded that there was a binding contract based on
ground that all the te...
There was no memorandum signed.
• C.H Rugg & Co. Ltd v Street [1962] 1 Lloyd’s Rep. 364,
McNair J stated:
– “in each case ...
Failure of the buyer to paid the deposit.
• Counsel for the Appellant contended that the failure of
the purchaser to pay t...
• Portaria Shipping Co. v Gulf Pacific Navigation Co. Ltd.
[1981] 2 Lloyd’s Rep. 180, Robert Goff J. stated that:
– “the o...
Was the contract binding upon Damon?
• The Raftopoulos brothers were not buying the ships in
their own name but they would...
Initially, the Raftopoulos brothers have no authority to nominate Damon at
the time of the acceptance.

However, evidence ...
The brothers had nominated Damon with the ultimate object of novating the
contract with Damon as the purchaser.

On 3rd an...
Can Hapag-Lloyd recover the amount of the
unpaid deposit?
Clause 2

There must be a payment by the purchaser of a deposit ...
What rights did Hapag-Lloyd have under the contract in
relation to the deposit?
• Upon the contract being entered into on ...
• Prior to 15th August 1977 (the date when HapagLloyd repudiate the contract), Damon is bound to
sign the memorandum but t...
• The buyer is entitled to be placed in the same position
as if the contractual obligation had been performed.
• If the ob...
What was the effect upon those rights of the
acceptance of the repudiation?
• McDonald v Dennys Lascalled Ltd. (1933) 48
C...
This is not a case where the contract was rescinded because of
something affecting its formation but it was put an end by ...
• Dewar v Mintof [1912] 2 K.B. 373, in allowing the claim for
damages for failure to pay the deposit, Horridge J held that...
OPINION
• I agree with the decision that there was a binding contract and that
the failure of the Appellant (Damon) to sig...
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Damon compania v hapag lloyd international

  1. 1. DAMON COMPANIA NAVIERA S.A. v HAPAG-LLOYD INTERNATIONAL S.A. [1984] 1 W.L.R. 435 By Muhammad Azrie Johari Bin Jamil Faculty of Law, University of Malaya
  2. 2. Appellant Respondent Damon Compania Naviera S.A. Hapag-Lloyd International S.A. Parties 3rd Party Raftopoulos Brothers
  3. 3. FACTS • Respondent (Hapag-Lloyd) wanted to sell 3 if their ships and the Raftopoulos Brother interested on buying it. • They intended to buy the ships in the name of another company. 8th July 1977 • The sale price was agreed at US$ 2,365,000. 1st August 1977 3rd & 5th August 1977 • The brothers communicated to the seller (R) the name of the Panamanian company (Appellant - Damon) as the buyers. • The brothers was later appointed as the Directors of the said company. • The company (A) and the brothers acknowledge the existence of the contract.
  4. 4. 12th August 1977 15th August 1977 Arbitration • No memorandum of agreement was signed, nor was the deposit paid. • The seller (R) notified the buyers (A) that the agreement had been withdrawn. • The dispute was then referred to arbitration. • The arbitrator found that a concluded contract was made between the parties and that the seller (R) were entitled to • US$ 60,000 by way of damages. • US$ 236,00 as the amount of deposit which they were entitled to receive from the buyers (A).
  5. 5. ISSUES 1) Was there a binding contract? 2) If there was a binding contract, is it binding upon the Appellant (Damon)? 3) Can Hapag-Lloyd recover the amount of the unpaid deposit?
  6. 6. Was there any binding contract? The arbitrator concluded that there was a binding contract based on ground that all the terms and conditions of the sale were agreed except for the name of the buyer’s company on 8th July 1977. The counsel for the Appellant (Damon) put forward 2 objections to the proposition that there was a valid contract. No memorandum was signed. Failure of the buyer to pay deposit.
  7. 7. There was no memorandum signed. • C.H Rugg & Co. Ltd v Street [1962] 1 Lloyd’s Rep. 364, McNair J stated: – “in each case the court has got to make up its mind on the construction of the documents and on the general surrounding circumstances whether the negotiations were not to have contractual force until a formal document was signed.” • On 8th July 1977, both parties had agreed upon all the terms of the sale and thus this indicate a valid contract. • All the indications also showed that the parties did not intended to be subject to the execution of the memorandum. • Thus, the counsel objection was rejected.
  8. 8. Failure of the buyer to paid the deposit. • Counsel for the Appellant contended that the failure of the purchaser to pay the deposit prevented any contract from coming into existence. This is because, deposit is the condition precedent to the formation of contract. • Millichamp v Jones [1982] 1 W.L.R. 1422, Warner J. held that: – “in a contract for the sale of land, that a deposit should be paid by the purchaser does not constitute condition precedent, failure to fulfill which prevents the contract from coming into existence, but is in general to be taken as a fundamental term of the contract, breach of which entitles the vendor, to treat the contract as at an end.”
  9. 9. • Portaria Shipping Co. v Gulf Pacific Navigation Co. Ltd. [1981] 2 Lloyd’s Rep. 180, Robert Goff J. stated that: – “the obligation to pay the deposit is an essential term of the contract.” • The provision for payment of deposit was not a condition precedent to the formation of the contract but was a fundamental term of a concluded contract. • Thus, the failure of the purchaser to pay the deposit does not prevented the contract from coming into existence. • Therefore, there was a valid contract.
  10. 10. Was the contract binding upon Damon? • The Raftopoulos brothers were not buying the ships in their own name but they would eventually nominate a company (Damon). • However, a contract cannot be enforced on Damon without its agreement. Was there a novation of the contract in favour of Damon? Nomination of Damon (1st August ) Acceptance of repudiation of the contract by Hapag-Lloyd (9th August)
  11. 11. Initially, the Raftopoulos brothers have no authority to nominate Damon at the time of the acceptance. However, evidence showed that a few after the nomination was made, the brothers acquired Damon and one of them become the Chairman of the company. Therefore, it can be inferred that when the nomination was made, they had “already made all the necessary arrangements to acquire the company and knew that they were to become the directors of the company.”
  12. 12. The brothers had nominated Damon with the ultimate object of novating the contract with Damon as the purchaser. On 3rd and 5th August, the brothers send telex stated that “Damon still expected to perform the contract” Since the brothers later acquired the company, and by authorising the telex, the brothers must be taken as accepting and ratifying the contract on behalf of Damon. The contract is then binding upon Damon.
  13. 13. Can Hapag-Lloyd recover the amount of the unpaid deposit? Clause 2 There must be a payment by the purchaser of a deposit of 10% of the purchase money “on signing this contract”. Clause 13 If the purchase money is not paid, the vendors may cancel the contract and forfeit the deposit. 2 matters must be considered What rights did Hapag-Lloyd have under the contract in relation to the deposit? What was the effect upon those rights if the acceptance of the repudiation?
  14. 14. What rights did Hapag-Lloyd have under the contract in relation to the deposit? • Upon the contract being entered into on 8th July 1977: – The parties become bound to sign the memorandum of agreement, which incorporate the agreed terms, within reasonable time. – The purchaser become bound, upon signing the memorandum, to pay the deposit. • Therefore, Hapag-Lloyd and Damon was bound to sign the memorandum and that Damon was required to pay the deposit upon the signing of the memorandum.
  15. 15. • Prior to 15th August 1977 (the date when HapagLloyd repudiate the contract), Damon is bound to sign the memorandum but they did not do so. • A reasonable time for the signing of memorandum by Damon had expired since there has been 10 days since the nomination if Damon. • Therefore, prior to 15th August, Hapag-Lloyd was entitled to maintain and action for damages against Damon for failure to sign the memorandum and that the damages recoverable must include the value of the right to recover and retain the deposit.
  16. 16. • The buyer is entitled to be placed in the same position as if the contractual obligation had been performed. • If the obligation had been performed, Hapag-Lloyd could have sued Damon in debt for the amount of deposit and therefore, it should be reflected in the damages recoverable for the breach of obligation. • Thus, to allow a claim for damages for failure to sign the memorandum, in an amount equal to the amount of the deposit, is to place the Hapag-Llod in the position which it would be in if Damon had complied with the obligation to sign the memorandum.
  17. 17. What was the effect upon those rights of the acceptance of the repudiation? • McDonald v Dennys Lascalled Ltd. (1933) 48 C.L.R. 157, Dixon J stated that: – “when a party to a simple contract, upon breach by the other party of a condition of the contract, choose to treat the contract as no longer binding upon him, the contract is not rescinded from the beginning. Both parties are discharged from the further performance of the contract. The contract is determined so far as it is executory only and the party in default is liable for damages for its breach.”
  18. 18. This is not a case where the contract was rescinded because of something affecting its formation but it was put an end by Hapag-Lloyd because breach of contract by Damon. Because of Damon failure to sign, Hapag-Lloyd suffered damage due to the deposit was not payable. Clause 13 also provided that if the purchase money is not paid in accordance to Clause 16, the deposit shall be forfeited to the sellers. Therefore, if the buyers were in default and refused to complete the contract, the deposit might be forfeited.
  19. 19. • Dewar v Mintof [1912] 2 K.B. 373, in allowing the claim for damages for failure to pay the deposit, Horridge J held that: – “The defendant could not put himself in a better position by refusing to pay the deposit that if the deposit had in fact been paid, in which case it could be retained by the seller …” • The right of the vendor to forfeit the deposit is not dependent upon the completion of the purchase but the right arises out of the breach. • Thus, when Hapag-Lloyd accepted the repudiation, they were entitled to a vested right to sue Damon for damages for breach of its obligation to sign the memorandum and that the measure of damages is the amount of the deposit. • The appeal was dismissed.
  20. 20. OPINION • I agree with the decision that there was a binding contract and that the failure of the Appellant (Damon) to sign the memorandum had breached the contract which then entitled the Respondent (HapagLloyd) to claim for damages especially the deposit. • The purpose of deposit is to protect Hapag-Lloyd against the event which actually happened, which was the failure by Damon to complete the contract. • The right of the deposit arise the moment the contract is formed. Thus, if it is proven that the contract is bind upon the parties, the buyer is obliged to pay the deposit. • Regardless whether the contract was fully performed or not, deposit must be paid and the right to forfeit will depends on which parties cause the breach of the contract.

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