Revocation Of Offer Essay Definition

Offers may be terminated in any one of the following ways: Revocation of the offer by the offeror; counteroffer by offeree; rejection of offer by offeree; lapse of time;death or disability of either party; or performance of the contract becomes illegal after the offer is made. 

The general rule is that the revocation is effective only when it is made known to the offeree.  Until it is communicated to the offeree, directly or indirectly, the offeree has reason to believe that there still is an offer that may be accepted.  The offeree may rely on this belief. If the offeror seeks to revoke the offer, but the offeree accepts the offer before notice of the revocation, a valid contract is created. 

A conditional acceptance is a counteroffer.  For example, if Jones accepts the $10,000.00 price, but adds a term by stating that new tires must be put on the car, this is a conditional acceptance and therefore a counteroffer.

A rejection terminates an offer.  A rejection is an offeree’s communication that an offer is unacceptable.

When an offer states that it will be open until a particular date, the offer terminates on that date if it has not yet been accepted.  This is particularly clear when the offeror declares that the offer shall be void after the expiration of a specific time. If the time passes, and the offeree attempts to accept the offer, this is in effect a counteroffer from the offeree and can be accepted or rejected by the offeror.

If the offer does not specify a time, it will terminate after a reasonable period of time has passed.  What constitutes a reasonable time depends on the circumstances of each case.  For example, if the commodity to be sold or purchased is a perishable commodity, such as food, the reasonable time would be shorter than if the matter to be sold is machinery.

If either the offeror or the offeree dies or becomes mentally incompetent before the offer is accepted, the offer is auto­mati­cally deemed to be terminated.

If the performance of the contract becomes illegal after the offer is made, the offer is deemed to be terminated.  For example, if there is an offer made to sell alcoholic beverages to a store, but a city ordinance is passed prohibiting the sale of alcoholic beverages before the offer is accepted, the offer is terminated.

If the offeror does not otherwise specify, a mailed accep­tance takes effect when the acceptance is properly mailed.  This is known as the “Mailbox Rule.”  If the offeror specifies that an acceptance shall not be effective until received, there is no acceptance until acceptance is received.  The Mailbox Rule also would not apply in a situation where the offeror requires receipt of a payment to accompany an acceptance. Improper mailing of an acceptance can cause the acceptance to take effect only when received.

Smith owned land. Jones mailed an offer to Smith to buy his land.  Smith agreed to this offer and mailed back a contract signed by him.  While this letter was in transit, Smith orally notified Jones that his acceptance was revoked.  Was Smith bound by a contract?  Yes, since the acceptance was effective when mailed.  Subsequent revocation had no effect.

Networked Knowledge - Law Lectures

Termination of an offer

Authors: Dr Robert N Moles

and Bibi Sangha

Contract Law Homepage
A state of Injustice - table of contents
Losing Their Grip - The Case of Henry Keogh - table of contents

The Termination of Offers

In order for there to be a valid acceptance there must be an offer to which that acceptance is a response. This principle requires not only that an offer has been made but that it is in existence at the time of the acceptance. An offer may come to an end in a number of ways.
Revocation
Rejection
(explicitly or by counter-offer)
Termination (lapse of time)
Death
Condition bringing an offer to an end
.

By Revocation

The basic requirement is that a revocation requires communication to the offeree of the fact that the offer is no longer open. Under the postal rule, although an acceptance is effective upon posting - a revocation is only effective UPON RECEIPT

Byrne v Van Tienhoven - revocation requires communication

(1880) LR 5 CPD 344 Common Pleas Div

The court took the view that a revocation is not effective prior to its communication, and that the posting of a letter of revocation does not constitute communication of it.

The rationale is that a state of mind not notified cannot be regarded in dealings. The principle is that the writer of an offer impliedly accepts that a posted answer will be sufficient - and that the post office will act as agent for the purpose - therefore delivery to the post office is delivery to the other party.

But this principle is not applicable to the withdrawal of an offer. Any other view would lead to great inconvenience. Nobody could act on an acceptance until a further stage had been gone through of confirming that a revocation had not been sent to them in the meantime.

A counter offer kills the original offer

If you respond to an offer by putting forward an alternative proposal, it will likely be regarded as a counter offer, the effect of which will be to terminate the original offer.

If A offers to sell something for $100 and B says I'll give you $95, if A says NO, B then cannot say OK I'll give you $100 and insist upon the completion of the contract. See Hyde v Wrench

But remember the Butler Machine Tool approach - we could try to get away from the traditional to-ing and fro-ing of the offer counter-offer analysis and say look at the transaction as a whole - what then?

Remember also the United Nations Convention on Contracts for the International Sale of Goods which indicates that an acceptance with only minor modifications will not be construed as a counter-offer. It came into force 1 April 1989 and has altered Australian law - see ACT Sale of Goods (Vienna Convention) Act 1987.

We will also look to see whether we can distinguish between a counter offer and a request for more information Stevenson Jacques - and the effect of death upon an offer - Laybutt.

Communication of the revocation does not have to be by or on behalf of the offeror.

Dickinson v Dodds -communication by 3rd party

(1876) 2 Ch defendant463 Court of Appeal UK

Here we had an agreement to sell which was "to be left over to 12 June 9am" - in effect it was only an offer. Before he accepted the offer, the offeree was told by a third party that the offeror was selling the property to someone else. The plaintiff then did all he could to accept the offer. The offeror then told him that it was too late, and the property had already been sold.

Well, there was no consideration to keep the property unsold until 12 June, despite the fact that one or maybe both of them thought that they were so bound i.e. that the promise imposed some obligation, at least upon D. There is no authority which requires an express retraction - if the plaintiff knew that the defendant no longer wished to sell to him, even if he had only heard it "on the grapevine" then the revocation was effective. Prior to the purported acceptance of the offer, plaintiff knew that defendant had revoked.

This case does not affect the requirement that a revocation of an offer must be communicated - but a revocation does not require specific language or form - there is no requirement that the revocation must be communicated personally by the offeror.

Could it have been said that a revocation must be in similar mode to that of the offer - or better - telephone and telephone, writing and writing. Could there be a feeling of injustice that the offer seemed to have some formality about it, but that the revocation had none? Or was plaintiff just trying to take advantage of "technicalities"?

Stevenson Jaques & Co v McLean - A "mere inquiry" not a counter-offer

(1880) 5 QBD 345 Queen's Bench Division

Traders wanted to sell some iron and indicated the price they were looking for. The plaintiffs, being brokers, would only buy once they had lined up a buyer to take from them. Early one morning, before trading on the market began, they rang the traders to find out what flexibility there might be to negotiate before getting in touch with potential buyers. The market was unstable and the plaintiff wanted to know the negotiating range. "please wire whether you would accept 40 for delivery over 2 months, if not, longest time limit"

Here, the court took the view that because the telegram was not a counter-proposal, but a mere inquiry it should not have been treated as a rejection of the offer.

As no notice of withdrawal was given by the offeror the plaintiff could regard it as a continuing offer, and their acceptance of it made the contract complete.

If at the moment of communication of the revocation there had been no acceptance, the offer comes to an end and no contract can ensue (unless something happens to revive the offer). This proposition is subject to a qualification in the case of a unilateral contract in a situation where, prior to acceptance, the offeree has already embarked upon actions forming part of or moving towards acceptance of the offer.

Veivers v Cordingley - acceptance when consideration commences

[1989] 2 Qd R 278 Full Court Supreme Ct Queensland

C was trying to buy some property which would have been worth a lot more to him if he could get permission to subdivide the plots. After some complicated exchanges, C said that if V could get the necessary permissions, V would pay an extra $200,000.

V set about getting those permissions, and whilst he was doing so, C purported to withdraw his offer. It was held that C's promise was a promise by C in return for an act to be done by V which, when performed, would form the consideration for C's promise and make him indebted for the amount of the promise.

Starke J in R v Clarke said, "any person knowing of the offer, who performs its conditions, establishes prima facie, an acceptance of that offer". All that V did was in the hope that approval would earn him the sum. Unlike Clarke V had no other motive for doing what he did.

C claimed that no valid approval had been given, at least not within the 12 months specified, and that the offer had been withdrawn before the approval was given and the offer accepted. Was it open to C to do so - could he retract the offer? Normally an offer may be withdrawn before acceptance. But it may be different where we have a unilateral contract, and the promisee has already started the act which when completed will constitute the acceptance of the promise.

Abbot v Lance (1860) is authority for the proposition that although as a general rule an offer may be retracted before acceptance, if it is in the form of an offer for an act, then acceptance takes place when the offeree elects to do the relevant acts or act the offer becomes irrevocable once the act or acts have been partly performed.

That decision would lead to judgment for V. C knew that V was making active efforts to obtain council approval. He incurred legal expense with regard to the appeal and for surveyors’ expenses for the new plan. It was only after much effort and expense had been incurred that C purported to withdraw the offer - when he knew that V had partly performed the acts which would constitute the consideration. On the authority of Abbott it was no longer open to him to do so.

Actual communication of revocation is necessary and appropriate where the offeree is identifiable. Where an offer has been made, not to an individual or small and ascertained group of people, but to an indeterminate number (such as the readership of a particular newspaper), actual communication may be impossible. Does this means that such an offer cannot be revoked?

There is no clear Australian or English authority. See Shuey v United States.

Can you revoke an offer after consideration has commenced?

(1875) 92 US 73

Options.

An offer is revocable even within any time limit for which the offer is said to be open, unless there is separate consideration for the promise to keep the offer open. In this case, there is then a separate contract - to keep the promise open for a time, and this type of contract is called an option.

They are most useful where the person who is thinking of entering into a major contract, wishes to have some time to carry out further investigations or evaluations. If those investigations involve the commitment of some resources (time, money) then the person conducting them would like to try to guarantee that if successful, they can reap the benefit of that initial expense. The option is then a way of encouraging this initial involvement prior to making a major commitment - it keeps one's "options open".

So, an offer is revocable, within any specified time limit, for which the offer is said to be open

Dickinson v Dodds - offer withdrawn within "time limit"

(1876) 2 Ch defendant463

One of the parties had "agreed to sell" a property to the other, the offer to be held open for a number of days. The so-called agreement was of course nothing more than an offer. The prospective buyer had heard that the vendor was selling it to someone else, and so attempted to give him notice of the acceptance. It was held that so long as the buyer knew that the other party intended to deal elsewhere, the offer was revoked. It did not matter that the buyer had not heard of it from the vendor himself.

Unless the promise to keep the offer open for a specified period is supported by consideration, i.e. it is a valid option.

An option is really a guaranteed opportunity to do something - the guarantee takes the form of a contract. An option to purchase within a specified time, or at the expiry of a lease would be an example. They are more commonly encountered in connection with land transactions.

An option is, in effect, a useful way to keep an offer open. There are two ways of looking at it -

The two contract view

The option itself constitutes a contract - which requires the offer to remain on the table for a specified period. If the option is exercised, then another contract comes into being at that time.

The one contract view

A contract comes into being when the option is granted, but it is subject to a condition subsequent, such that if the condition is not fulfilled, the contract terminates. Automatic termination unless something further is done, looks a bit like the creature we mentioned earlier - the contract which excludes all liability. If a contract is established which terminates automatically unless something further is done, it looks a bit like a contract without obligations (at least for the grantee) - nevertheless, it is a well established part of our law.

Goldsbrough Mort v Quinn - Conditional contract or irrevocable offer?

(1910) 10 CLR 674 High Court of Australia on appeal Sup Ct NSW

The defendant gave the plaintiff an option with regard to the purchase and lease of land. The option was to last for one week. Before the expiry of that time, defendant repudiated the option, saying it had resulted from a mistake. Plaintiff accepted the offer within the week.

The court re-iterated the standard view that a mere promise to leave an offer open for a period of time makes no difference - it is unenforceable. But if there is consideration for the promise it becomes binding - "an option given for value is not revocable". One of the judges took the view that what we have is a conditional contract. Another took the view that we have 2 contracts - a unilateral contract that the offer would stay open. An injunction could have been used to prevent a sale to another during that time. Otherwise, an acceptance turns the position of optionee to that of vendee. That has been done here. When the judge says that specific performance of the original agreement is not only inappropriate but also impossible, what does he mean?One can of course obtain specific performance of the main agreement.

Contractual obligations after death of party

Laybutt v Amoco - option - death of grantee / grantor

(1974) 132 CLR 57 High Court Australia

The general rule is that upon the death of a party, contractual liabilities pass to that person's personal representatives. This does not apply if the contract is for personal services which require the exercise of personal skill and judgment.

It is important then to figure out if an option creates the type of contractual right which continues in existence after the death of one of the parties, or whether it is something less than that which ceases. To determine how death affects an option we have to see whether the death is that of the
Grantee - the holder of the right to exercise the option or of the
Grantor - the person who has provided the option

Death of grantee ?Where death is that of the grantee, whether seen as a contract or as a proprietorial right, the result is much the same, and the option may be exercised by or on behalf of the grantee's estate.

Death of grantor? If there is a contract subject to a condition, then the contract continues to bind the representatives of the grantor post mortem. If the option is an offer + a contract, then the question arises as to whether the offer lapses upon the death of the offeror [this is the ordinary rule relating to offers] Should it be different where the offer is such that the offeror could not have revoked it inter vivos? There are a number of conflicting cases in Australia and the UK

Claim to equitable interest? On either view of an option, there is a contract - but if the contract is only not to revoke an offer, then clearly it cannot give rise to an equitable interest in the land. However, a conditional contract to sell would clearly create an equitable interest in the land and which could be protected by a caveat although it would be contingent.

Spiro v Glencrown Properties Ltd - is contract creation or exercise of option?

[1991] Ch 536 Chancery Division

Was "the contract" the exchange of documents creating the option or the letter by which the option was exercised? If the latter - then it did not comply with statutory requirements.

The judge in this case took the view that there are "two metaphors" which are sometimes used to explain options - "irrevocable offers" and "conditional contracts". He said that strictly speaking, an option is not either an offer or a conditional contract. It does not have all the incidents of the standard form of either of these concepts - it is a relationship sui generis. 'There are ways in which it resembles each. Both of the analogies are, in the proper context, valid ways of characterising the option situation.

By lapse of time

An offer will not remain open indefinitely. It will come to an end at the lapse of time specified in the offer or at the end of a reasonable time if no time is specified. What is a reasonable time will depend upon the nature of the transaction and the circumstances as a whole.

Manchester Diocesan Council

[1970] - we looked at this case in the lectures on OFFER

This case makes a number of important observations about the nature of acceptances - 1.Offeror may specify that an acceptance be provided in a particular way, without requiring that acceptance be communicated.

2. The offerer may specify that they will not be bound unless the acceptance is provided in a particular way. However, if acceptance is communicated in some other way, the offeror may waive the right to insist on that precise method.

3.Where the offerer does not insist that only that one mode will suffice, any other no less advantageous method of acceptance will conclude the contract.

Condition bringing an offer to an end.

Expressly stated or implicit in the offer may be an understanding upon which the continued existence of the offer depends. If that understanding is no longer met, the offer comes to an end.

Financings Ltd v Stimpson - hire purchase - car damaged - then offer "accepted"

[1962] 3 All ER 386

Many people, when they buy a car from a car dealer, do not realise that they are in fact buying the car from the finance company who will pay the dealer the price of the car, and then recoup the payments from the purchaser. Here, the defendant signed a form, "offering to buy" a car on hire-purchase from the finance company. Before the company had accepted the offer, the car had been stolen and damaged. Not knowing of this the finance company then accepted the written offer which had been sent to them. Defendant refused to pay the charges and the Co sued him for breach of the hire purchase agreement. It was held that D's offer was subject to an implied condition that the car should continue in its undamaged state and that on the failure of that condition, the offer lapsed.

Death

It is said that the death of the offeror will bring the offer to an end. However, the effect of the death of the offeree or offeror on an offer is a matter of the apparent intention of the parties. Hence, if there is a personal element in the proposal, even if a contract could still be performed, it is likely that the inference would be that it is only capable of acceptance if the parties are still alive (or were in some circumstances to remain in good health). On the other hand, an option for the purchase of property in which there is no personal element would be exercisable irrespective of the death of one of the parties. Carter v Hyde (1923) 33 CLR 115

Rejection of the offer

Clearly an outright rejection of an offer brings it to an end. It is usually stated that a counter-offer terminates the offer to which it is a response on the assumption that a counter offer always amounts to a rejection of the original offer. But is this necessarily so? See Butler machine Tool Ltd v Ex-Cell-O Corp.

Contracts that are illusory, incomplete or uncertain

An agreement is not binding as a contract if it lacks certainty either:

(a) because it is too vague (i.e. linguistically uncertain) or
(b) because it is obviously incomplete.

Traditionally the area of certainty in contract was very much a reflection of the classical 19th century view of contract that parties must make their own deals. The courts will not fill in any gaps - they did not think it was for them to perfect an imperfect contract.

If the parties are not clear in what they meant OR
if they have left things to be agreed upon later, then the courts will say

"Sorry you haven't really made a contract." It was up to you to make a contract and the job of the court is simply to enforce the contract which you have made.

In recent times there has been a change of attitude (although the prevailing view is that the parties must have provided some formula in the contract by which the court can determine whether the requisite certainty has been reached). The courts have been more prepared to read into contracts terms which will make the agreements fair and reasonable in all the circumstances. This is particularly so, if the parties have gone some way in carrying out their agreement so that turning back is difficult, i.e. if there has been some element of reliance. If however, the uncertainty cannot be cured, then it may be used as another way of saying that the parties did not intend to create legal relations. Therefore intention to create legal relations and uncertainty are sometimes intertwined.

Illusory consideration

The hypothesis upon which this principle is based is that a promise to do something at the sole discretion of the promisor is not a legal obligation at all. If the promise is part of the consideration for the alleged contract, the contract remains unenforceable as long as it is executory. If performed on the other side, the promise remains devoid of content, although other parts of the consideration may be enforceable.

Biotechnology Australia Pty Ltd v Pace

(1988) 15 NSWLR 130 Court of Appeal Supreme Ct NSW

Here we had a contract of employment with an option to participate in the Company's senior staff equity sharing scheme. There was no such scheme at the time, and none was brought into effect. The judge referred to the tension which exists in the law - the desire to uphold a contract - the unwillingness to uphold terms which are unacceptably ambiguous or uncertain. Much hinges on the fact, and although courts will try to enforce agreements, they will not spell out the agreement where the parties have failed to do this for themselves. Although the provision may have been important to Dr Pace, it is too uncertain, and there is no proper standard to assist with its resolution. Allen J dissented - at least the company should behave honestly and reasonably, and that expert evidence could be of some guidance as to what it would be reasonable to do.

The principle is readily applied to the payment of a bonus over and above the ordinary salary or a commission for a one off service

Kofi-Sunkersetti v Strauss - commission to be paid at discretion of company

[1951] AC 243 Privy Council

The agreement between the parties provided that a "commission is to be paid to me by the company which I have agreed to leave to the discretion of the company". It was held that the court could not determine the basis and rate of the commission. If the court was to do so, it would involve making a new agreement for the parties and varying the existing agreement by transferring to the court the exercise of the discretion vested in the company.

But could the court not have said that the discretion was as to the AMOUNT of the payment, not as to whether a payment was to be made at all, and that in the event of the company failing to make any payment, the court could substitute a reasonable amount as suggested by Allen J in Biotechnology and in Way, which follows. .

But where the discretion applies to remuneration for a job extending over a period, a court is likely to conclude that it was never the intention of the parties that the performer should act gratuitously.

Way v Latillar - commercial agreement not gratuitous, reasonable sum

[1937] 3 All ER 759

In the case of a commercial or employment agreement under which the promisee provides services, the proper conclusion to be drawn is that the services or consideration were not intended to be performed gratuitously. In the absence of express words, it will be proper to conclude that the services were to be paid for by reference to some standard of measurement. The usual standard is that of reasonable remuneration based on some market or industry criteria. Where there is a firm promise to pay, the conclusion that the consideration was illusory, will only be drawn where no standard exists by which the promise can be valued. But even where no objective criteria can be found, it may be possible to infer a promise to act honestly and reasonably.

Powell v Braun - if not discretionary, then reasonable sum

[1954] 1 WLR 401 Court of Appeal UK

A secretary was promised a bonus based on net profits of the company instead of a salary increase. Evershed MR said that the parties did not intend the bonus to be purely discretionary. Once determined that the payment was not discretionary, then inevitably it means a reasonable sum. The principle of a quantum meruit or reasonable remuneration (which comes to the same thing) applies just as much to additional remuneration as where it is the only remuneration.

The Problem

A contract is incomplete if a vital term is not provided for and there is no way of filling the gap that has been left.

Coal Cliff Collieries v Sijehama (1991) 24 NSWLR 1

It is established law in England and Australia that agreements to agree or contracts to make contracts where the terms have not yet been ascertained are not legally enforceable. Until the terms are agreed the person can withdraw from the arrangement. May & Butcher - agreement to agree no contract at all - to be binding there must be a concluded agreement which settles everything which is needed to be settled and those things to be determined should not be subject to agreement between the parties. In Australia this is settled law, see Masters v Cameron - Booker Industries. .

The important question of course is "what are those things which are needed to be settled"? There is much difference of judicial opinion about how particular we should be about these things.

Masters v Cameron - subject to formal contract

(1954) 91 CLR 353 High Court of Australia (Supreme Ct WA)

An agreement was reached to sell a farming property subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions.

There are 2 possibilities - either we have a binding contract, or else we have a record of the terms which have been agreed so far, and which will provide the basis of the contract which is to be finalised.

1. The parties have finalised their agreement and intend to be bound straight away, but intend to put it into more precise form. An assent without power to vary the terms indicates a completed contract.

2. They have agreed all the terms, but have made performance of one or more terms conditional upon the execution of a formal document.

3. The parties do not want to be bound until they have completed the formal document. Here, the parties may wish to retain the right to withdraw, if agreement cannot be reached on outstanding matters. In this case if "subject to contract" means there are terms to be agreed, or conditions to be fulfilled, then there is no contract until those things have been done.

The courts are ready to try to provide the missing element though they may feel prevented from doing so where, for example, the parties specifically express the intention that it is for them alone to agree upon that element

May and Butcher Ltd v The King (1929) [1934] 2KB 17 - discussed in Sijehama.

This makes it difficult to understand what effect can be given to an agreement to negotiate

Walford v Miles [1992] 2 AC 128

Unanimously held that a bare agreement to negotiate has no legal content.

Coal Cliff Collieries v Sijehama

A statement in a "heads of agreement" for a proposed complex joint venture for a coal mine said that the parties "would proceed in good faith to consult together upon the formation of a more comprehensive and detailed Agreement". Held to be too vague or uncertain to be enforceable. Kirby - plaintiff rejected the idea that such contracts were intrinsically unenforceable and that in some circumstances a promise to negotiate in good faith can be enforceable. It will depend on the construction of each particular contract.

Possible solution - a "machinery" clause

By machinery is meant a term which either deals specifically with the means of completing the contract (eg the price shall be fixed by a third party valuer)
or provides a mechanism for resolving disputes (such as an arbitration clause).

Cases in the first category are relatively straightforward for two reasons

1. the common law long accepted that the price may be fixed by the contract, or in a manner agreed by the contract, or determined by a course of dealings by the parties - now enacted in the Goods Act (Vic) and Sale of Goods Act (NSW) s13 (1). This would obviously include a price fixed by the valuation of a third party s14(1)

2. the leaving of the price to the decision of a 3rd party will usually bring with it the implication of a formula requiring a reasonable price to be set between the parties

Problems arise with this 2nd category, because arbitration is a means of settling a dispute about an existing contract, and not as a means for bringing the contract into existence.

May and Butcher v The King - see above

Whitlock v Brew - sale and leaseback, uncertainty, severability

(1968) 118 CLR 445 High Court of Australia

This was one of those sale and lease-back arrangements. A person wants to sell property which they own to raise capital, but they still want to carry on their business on those premises. What they can do is to sell the property to another, subject to the purchaser allowing them to take a lease for a suitable period of time. In this case, the sale was to be subject to a condition that the purchaser would then lease that part of the land at present used for the sale of Shell products to Shell upon such reasonable terms as commonly govern such a lease. The issues dealt with in the case were

Uncertainty The court took the view that even if the land to be subject to the lease could be identified, and the commencement date could be determined, on no other matter does the document indicate what the provisions are to be. "Commonly govern" might have worked, if there were a set of reasonable terms in common use - but this was not the case here.

Arbitration The agreement provided for disputes to be referred to arbitration - but this will not allow the arbitrator to force upon the purchaser such terms as are reasonable and ought to govern the lease - this would be to alter the contract. Even so, we could argue that this is what the parties have consented to - and doesn't the objective view do this in a whole variety of situations?

So if we cannot make enough sense of the lease-back provisions, can the rest of the agreement stand if they are struck out? This is what is referred to as

Severability Clearly the person selling had no intention of granting vacant possession without the provision for lease-back. To allow the sale to stand without the lease would be to change the nature of the agreement which may give an additional and considerable advantage to one of the parties, and a considerable disadvantage to the other. They parties cannot be held to something which they have not agreed to therefore there is no contract of sale

Such machinery will provide a resolution of the difficulty as long as it is possible to infer that there is already a contract, notwithstanding the fact that some term in the contract is potentially uncertain.

Court will state possible meaning

Council of Upper Hunter v Australian Chilling - more than one meaning not uncertain

(1968) 118 CLR 429 High Court of Australia

The Council agreed to supply electricity to the Company with provision for a price variation which would reflect changes in its own costs, with provision for reference to arbitration in the event of a disagreement. That there is more than one meaning does not mean that a contract is void for uncertainty. If it is capable of a meaning, it will bear the meaning which the court thinks is its proper construction. Only where the language is so obscure and incapable of any definite or precise meaning, so that no intention could be attributed to the parties, would it be void for uncertainty. If the words were meaningless, then an arbitration procedure would not save the agreement.

It is also clear that the further the parties have pursued the agreement, the more likely it is that the courts will imply reasonable terms to give effect to it.

Sykes v Fine Fare [1967] Denning MR. They will be more likely to strike down an agreement which is purely executory, than one which is partially completed..

It is doubtful whether the agreement to arbitrate provides more than an incentive to apply a formula that is implicit in the clause giving rise to the uncertainty

Meehan v Jones - subject to finance

(1982) 149 CLR 571 High Court of Australia

This case involved a contract for the purchase of property which was "subject to suitable finance being available". Defendant argued

1. that the condition left vital matters yet to be agreed - so what appeared to be a "contract" was really no more than an agreement to agree.

2. that the language was so imprecise that one could not say what actions would satisfy it

3. that if plaintiff retains discretion as to whether they will perform obligations, then what appears to be a contract is really illusory.

Does the "subject to finance" indicate a subjective or objective test? Is the finance to be satisfactory to the purchaser? Or is the condition fulfilled if finance is available which the purchaser ought to find satisfactory? In Australia and NZ, the courts find "subject to finance" not void for uncertainty. NSW has been an exception, and they have found the clauses void, whether objective or subjective. - Moran v Umback [1966]

Satisfactory means "to the purchaser". An adventurous purchaser should not be prevented from proceeding because a reasonable person might have been more cautious - and a cautious person should not be required to proceed if there is genuine concern over the finance - the clause is to protect the purchaser. Whilst one may expect a purchaser to act honestly, there may be an implication that the purchaser will make reasonable efforts to obtain finance. To say void for uncertainty would be draconian - many cases where agreement depends on finance to complete.

Murphy J took the view that there is NO justification for implying that the purchaser must act reasonably.

As is the case where a contract which might otherwise be uncertain has been performed at least in part

Foley v Classique Coaches Ltd

[1934] 2 KB 1

A problem will arise if the machinery provided for in the contract breaks down for reasons over which the parties have no control. The traditional common law rule was that if the means for ascertaining the price failed, there could be no contract

Sale of Goods Acts s14 NSW

Where there is an agreement to sell goods on terms that the price is to be fixed by the valuation of a third party and where such third party cannot or does not make such valuation the agreement is avoided.

George v Roach - no valuation, no sale price, no agreement

(1942) 67 CLR 253 High Court of Australia

A case concerning the sale of a business in which the High Court followed s14 and said

The value of the newspaper agency is fixed through, and by means of, a valuation and by no other means. Unless a valuation is made the parties have not agreed upon the sale price of the subject matter of the agreement and the agreement does not become effective.

However the law in England has changed

Sudbrook Trading Estate Ltd v Eggleton [1983] AC 1 House of Lords

Where the parties have failed to agree on the appointment of an umpire to resolve a difference of opinion between two valuers, the House of Lords implied an obligation to pay a reasonable price. Lord Fraser "I see the reasoning which leads the court to say that they will not substitute their own machinery for that of the parties, but the result that it leads to is so remote from what the parties intended, and so inconvenient that there must be some defect in it." The valuers’ profession is more established than it was in the 19th C. Often people do not distinguish between a sale at a fair value, and a sale at a value to be ascertained by valuers.

It is doubtful whether the law in Australia will follow the same route

Booker Industries v Wilson Parking (1982) 149 CLR 600 High Court of Australia

In a lease for a service station and car park, a clause provided an option for a further 3 years at rent "to be mutually agreed. If agreement could not be reached, then the matter was to be referred to arbitration". The court took the view that there was clear authority to the effect that the courts will not enforce an incomplete agreement - an agreement to agree - if the lease was simply for renewal at "rental to be agreed" there clearly would be no enforceable agreement. Yet parties can provide a procedure which allows even essential terms to be determined by a 3rd party. Where the lease provides a mechanism to determine the rent - no further agreement is required of the parties. Thus there is a valid agreement to renew - to give business efficacy to the arrangement, it is necessary to imply a term that the parties will do what is necessary to ensure the appointment of an arbitrator.

If there is a mechanism or procedure to deal with the missing term, it is not right to say that there is not a concluded contract and no reason why the court should not order specific performance.

Possible solution - a "formula" clause

A contract will not be incomplete where a formula exists to provide the missing term. The Sale of Goods legislation reproduces the common law rule that, where no price is fixed by or determined in accordance with the contract, "the buyer must pay a reasonable price" (s13(2)). But the scope of this principle is relatively narrow.

It has been held not to apply to assist in rendering certain an option to repurchase land at the original selling price plus and minus amounts to cover various improvements and depreciations to the property including the chattels thereon.

Hall v Busst (1960) 104 CLR 206

The grant of an option for the purchase of land allowed for additions and improvements to the property purchased by the grantor and a reasonable sum to cover depreciation of buildings and property. HELD the option was not enforceable. It is not that the word "value" is meaningless - nor is the expression "a reasonable sum to cover depreciation". Giving meaning to such words is what the courts do every day. For a contract for the sale of land there cannot be a binding contract without 3 essential elements are the subject of a concluded agreement - the parties - the subject matter and the price. If these are fixed with certainty, the courts will supply the rest. If the parties are silent as to price, there can be no implication that a reasonable price is to be paid, even if the agreement is expressed to be "for a reasonable price".

Windeyer J dissenting said that as in Joyce v Swann (1864) the price not being named it must be assumed they meant a reasonable price. When parties agree to sell for a reasonable price the agreement is complete.

In Wenning v Robinson [1964-65] NSWR 614 the Full court of the Supreme Court of NSW after reviewing the authorities including Hall v Busst, took the view that a contract providing for the sale, of "stock at valuation" being the stock of a clothes shop was a valid contract.

Hall v Busst may not conform to the more modern approach of attempting to uphold a contract if at all possible. Where a contract provides a formula instead of a precise rate for goods or services or whatever is being supplied, the courts will attempt to give effect to the formula in order to render the contract effective

Council of the Upper Hunter v Australian Chilling - discussed above

Where a contract appears to give a party a total discretion whether to perform, it is possible to impose a limit on that discretion so that a court may review the circumstances in which it might be validly exercised

Meehan v Jones (1982) 149 CLR 571 High Court of Australia - discussed above

Uncertainty

Types of uncertainty and their possible resolution

The contrast is with ambiguity. A contract is only uncertain and therefore not a valid contract if the ambiguity cannot be resolved.

Raffles v Wichelhaus (1864) 159 ER 375

The contract was for cotton to arrive "ex Peerless" from Bombay . However, there were 2 ships called Peerless, and each happened to be leaving the port on different dates. The purchaser said they intended one of them and the vendor clearly intended another. Because there were 2 ships with that name, the agreement as expressed was incomplete. With such divergence of intention there was no expressed agreement - no consensus.

Normally, however, the fact that there are alternative meanings which can be attributed to a contractual document does not amount to uncertainty because the document will bear the meaning which the court places upon it.

Stewart v Kennedy(No 1) (1890) 15 App Cas 75

The fact that a term may give rise to different meanings, does not mean it will not be given full legal effect according to the meaning put upon it by the court.

Upper Hunter Council v Australian Chilling Co - discussed above

Goldburg v Shell Oil Co of Australia (1990) 95 A.L.R. 711

Here we had an agreement to run a business which was breached by Shell who argued there was no contract.

The trial judge found that a contract existed between the parties notwithstanding that they had failed to reach agreement on items of relatively minor importance. The majority was prepared to put their faith in the finding of the trial judge.

Dissent - for a contract for a lease to be valid, it must be certain. It is uncertain if the commencement date is not defined (Harvey, 1965). That date was not defined because neither party knew when the current occupiers would move out. There was consequently no contract. "In my opinion, once the date of commencement was known by all parties to be uncertain, and this was known in March 1986, there remained between them only an arrangement or understanding in principle which was not contractually binding." NB the uncertainty appears to have arisen after one might have thought that the contract came into being - how could this turn a binding agreement into a non-binding agreement?

Banque Brussels (1989)

The whole thrust of the law today is to attempt to give proper effect to commercial transactions. It is for this reason that uncertainty, a concept so much loved by lawyers, has fallen into disfavour as a tool for striking down commercial bargains. It the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable.

Severance of an inessential and uncertain term

Even if a particular term is so ambiguous that a meaning cannot be attributed to it, the contract will not fail if the term in question can be discarded without affecting the substance of the transaction

Life Insurance Co of Australia v Phillips - extrinsic evidence

(1925) 36 CLR 60 High Court of Australia (from Supreme Ct Victoria)

This case involved some insurance policies which had complicated provisions for making loans. The plaintiff brought an action claiming that the policies were induced by misrepresentation and that they were void.

The case for admitting extrinsic evidence there was that there be more than one meaning, or that there be ambiguity. This allows that wherever there is ambiguity, evidence can be admitted to show the intention of the parties. Unless both parties understood the words in the same sense, there is no consensus and no contract. This proposition is not warranted on principle or by authority. Most documents are capable of more than one meaning.

The general rule however is that extrinsic evidence is not allowed to prove that the intention of the parties was other than as appeared on the face of the document. That the words are capable of more than one meaning is not enough to allow for such evidence. Even if the provisions relating to the loan were uncertain, they could be severed from the rest of the contract which was not uncertain.

When a contract contains a number of stipulations one of which is void for uncertainty, the question of whether the whole contract is void depends on the intention of the parties to be gathered from the instrument as a whole. If divisible, the void part may be separated from the rest and does not effect its validity.

Nicolene Ltd v Simmonds [1953] 1 QB 543

Contract void if severance not possible

Severance is not possible where the term is an integral part of the consideration upon which the contract is based. Whitlock v Brew - discussed above

Absurdity ignored in favour of obvious meaning

A common fault is the inclusion or omission of a negative with the result that a contract or part of it has the opposite meaning of what was intended. A court may give the contract its intended meaning where that is obvious whether or not it involves the insertion or exclusion of a word. In other words it is not based upon grammatical severance (exclusion) of a particular word or clause.

Fitzgerald v Masters (1956) 95 CLR 240 High Court of Australia (Supreme Ct NSW)

Booker Industries v Wilson Parking - (1982) 149 CLR 600

Conditions Precedent and Subsequent - Contingent and Promissory

Perri v Coolangatta Investments - precedent to contract, or performance?

(1982) 149 CLR 537 High Court of Australia (Court Appeal, Sup Ct NSW)

This involved an agreement for the sale of property subject to the purchasers completing a sale of their own property. The vendors became increasingly concerned about the delay in completing, and served a notice to complete and then terminated the contract. Some time later, the purchasers said they were willing to go ahead, and eventually they sold their property. They, in turn asked for SP of the contract of sale.

Mason pointed out that there was a difference between a condition precedent [to the contract] and a condition subsequent [to the contract] - the latter allowing for termination of the contract if it is not fulfilled. The courts tend to favour a construction which sees the condition as being a condition subsequent rather a condition precedent - or to put it another way, which sees the condition as being precedent to performance, rather than as precedent to the contract. The judge, very interestingly, gives the strategic reason underlying this point of view. It is because it gives the courts greater scope in adjusting the rights of the parties. Why is this? Well, if the condition is a condition precedent - and not fulfilled - there is only one outcome - no contract. But if it is a condition subsequent, then (all other things being equal) there will be a contract, but one which has been breached in some way. The courts then can provide a remedy commensurate with their view of the seriousness of the breach. There was a clear statement here that the court will not find a condition to be a condition precedent (to a contract), unless the document plainly compels this conclusion.

 

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