Southern Foundries Case Study
M Waleed Farooqi
01-177142-047
Shirlaw v Southern Foundries [1939] 2 KB 206
Introduction
This is an important case of Company law and English contract law. It is very well known in the field of contracts where the court gave the "officious bystander" rule of formulation for the determining what terms should be implied into agreements by the courts.
Facts
The claimant (Mr. Shirlaw) had been employed as a managing director of Southern Foundries. The contract had been made to make him the director for 10 years. Therefore the office of employment was to last for 10 years. Federated Foundries then purchased a controlling share in the company and altered some Articles of the company’s Association giving them the power to remove directors. They then
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The terms can be of various types. The terms form the content of the contract. The types of terms are stated below.
Express terms: Those terms which are expressly added to the contract. The party incorporating a term expressly adds a term to the contract, and has to let the other party know of the term that he has added. Such terms have to be unambiguous when being incorporated into a contract.
Implied terms: Some terms are added into a contract by virtue of implication. The terms which the parties do not themselves add to the contract but are added indirectly to the contract are implied terms. Terms can be implied into a contract by either common law or statute. For example, in Pakistan when a contract is formed certain provisions of the Contract Act 1872 are automatically incorporated into the contract. Even though the parties do not add the terms expressly certain terms are still parts of the contract by virtue of implication.
Terms may also be incorporated into a contract impliedly at common law. Where there is no statutory authority on a matter, certain terms can be implied through common law as well as in the United Kingdom. The terms may be implied through custom, statute or by common law
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The first test that the court devised was the Business efficacy test. The authenticity of the test emerged from the landmark case of The Moorcock. Another integral test that has been created by the courts is the officious bystander rule. The officious bystander rule is one that allows the courts to supervise a contract and allows the court to insert a certain term into the contract. The rule is that had an officious bystander been present at the time the contract was made and had suggested that such a term should be included, it must be obvious that both parties would have agreed to it. The intention of the parties is taken into account and the court always considers the intention of the parties when implying a term into a
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