Godecke v Kirwan

129 CLR 629
1 ALR 457

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(Judgment by: Walsh J)

Between: Godecke
And: Kirwan

Court:

Judges: Walsh J
Gibbs J
Mason J

Subject References:
Real property
Formal contract not executed
Whether contract concluded Contract
Vagueness and uncertainty

Hearing date: PERTH 2 July 1973
Judgment date: 20 September 1973

SYDNEY

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Judgment by:
Walsh J

The question raised by this appeal is whether or not a binding contract for the sale of certain land was made between the respondent and the appellant Robert Harold Godecke (Godecke). It is an appeal from an order made by the Supreme Court of Western Australia (Virtue J.) upon an application made by the respondent, pursuant to s. 138 of the Transfer of Land Act 1893 (W.A.), as amended, seeking an order for the removal of a caveat which had been lodged by the appellant R. H. Godecke Pty Ltd (the company), claiming an estate in fee simple as purchaser by virtue of a contract of sale. The appellants claim that this contract was made by means of the signing by Godecke and the respondent of the document which will presently be described. The respondent disputes that there was a binding contract.

As the learned primary judge pointed out, an application to remove a caveat is not normally an appropriate proceeding in which to determine a disputed question as to the making of a contract for the sale of land or to determine in effect whether the party alleging the existence of such a contract is entitled to specific performance of it. But his Honour stated that the parties had assured him that the only questions to be determined were questions of law as to the proper construction of the offer and acceptance contained in the document and had agreed, subject to rights of appeal, to accept his decision and to be bound by it. In this Court learned counsel for the appellants stated that the question for decision was whether upon the proper construction of the offer and acceptance the parties intended to reach a concluded agreement or should be taken to have done no more than negotiate the terms and conditions of a proposed arrangement. Learned counsel for the respondent did not dissent from that formulation of the question and informed the Court that if it came to the conclusion that there was an enforceable contract it could be worked out by mutual agreement. I understand this to mean that the respondent agrees that if the document is construed as constituting a concluded agreement he will carry it out, notwithstanding that because of the lapse of time since it was made an exact compliance with some of its terms is no longer possible.

The document consists in part of printed matter and in part of provisions that have been typed or written on the printed form. It has the heading "Offer and Acceptance" and is addressed to "CAMPBELL CONSOLIDATED, R.E.I.W.A. As Agents for the Vendor/s". It begins thus:

"I/We, ROBERT HAROLD GODECKE OR NOMINEE of Duffy Road, Balcatta hereby offer to purchase (through you as Agent for the Vendor/s) the land and all improvements thereon situated and known as ...."

Then there is a description of the land, which includes the statement that it is vacant land and consists of about 156 acres and this is followed by the words:

"for the price or sum of $110,000.00 (One hundred and ten thousand dollars) upon and subject to the conditions of the Twenty-sixth Schedule of the Transfer of Land Act 1893 and also upon and subject to the special conditions, if any, endorsed on the reverse side hereof."

The document proceeds to state "The terms of the purchase shall be as follows" and to set out eleven numbered clauses which include the following:

"1.

By a deposit of $8,000.00 (Eight thousand dollars) receipt of which amount is hereby acknowledged by you as agent for the vendor/s to be paid to the vendor on request.

2.

The balance of purchase price shall be paid by bank cheque made payable to the Vendor or his solicitor or such other person or persons as the Vendor shall in writing nominate. See Special Conditions (or such date as may be agreed) against receipt from the Vendor of a proper registrable Transfer of the land in favour of the Purchaser or in favour of me/us free from encumbrances together with the duplicate Certificate of Title relating thereto. I/We shall at my/our expense tender the said Transfer to the Vendor or his solicitor at a reasonable time prior to the settlement date.

The Purchase price shall be allocated as follows:

Land and fixed improvements $110,000.00 Chattels $---.

3.

Possession shall be given and taken on settlement upon signing and execution of a formal contract of sale within 28 days of acceptance of this offer.

4.

All Rates, Taxes, Rents (if any) and other outgoing shall be adjusted to the date of possession/settlement.

...

6.

If required by the Vendor/s I/we shall execute a further agreement to be prepared at my costs by his appointed Solicitors containing the foregoing and such other covenants and conditions as they may reasonably require.

...

11.

Time shall be the essence of this contract."

It is evident that in cl. 2 the words "See Special Conditions" have been used instead of the filling in of a date for the payment of the balance of the purchase price, in the space provided in the printed form. Below the eleven clauses appear the words:

"I/We, the abovenamed Purchaser/s, having read this offer, acknowledge that I/we have this day purchased the above described property upon the conditions and for the price stated." Then there is the signature of Godecke as purchaser and the date 22nd November 1971. This is followed by an acceptance in these terms:

"I/We, the undersigned Vendor/s, having read this offer hereby accept it.

I/We agree to fulfil in all respects the terms and conditions of sale on my/our part and further agree to pay CAMPBELL CONSOLIDATED their commission on the full sale price as stated above. I/We shall do all things necessary to enable the transfer of the land to be accepted and registered by the Land Titles Office, Perth, and shall at the request of the Purchaser give at settlement an undertaking in favour of the Purchaser's mortgagee (if any) to comply with this clause."

This is signed by the respondent as vendor and is dated 23rd November 1971. Under the heading of "SPECIAL CONDITIONS" the following terms appear:

"The Purchaser accepts the actual occupation of the property sold as being identical with the Title particulars of the property and shall make no requisition nor claim any compensation in respect of any discrepancies.

Balance of purchase price to be paid as follows

1.

A further $32,000 to be paid upon signing and execution of a formal contract of sale within 28 days of acceptance of this offer.

2.

A further $20,000 to be paid on the last day of April 1972.

3.

Balance of monies due namely $50,000 to be paid in equal annual instalments on the last days of April 1973 1974"

The signatures of Godecke and the respondent appear again below the "Special Conditions".

On 25th November 1971 the agent wrote to Godecke "confirming your purchase of the above property", attaching a photocopy of "the relevant Offer and Acceptance" and asking to be informed what solicitor would be preparing the transfer and attending to settlement on his behalf. The $8,000 mentioned in cl. 1 had been paid to the agent. The sum of $1,625 for stamp duty was sent on 9th December 1971 to the agent by the solicitors for the appellants. At about the same time, according to an affidavit sworn by the respondent, the agent was advised that the company was the nominee of Godecke and that the further agreement required by cl. 6 would be between the respondent and the company. There was evidence that the respondent telephoned Godecke to say that he (the respondent) would like to get out of the contract and asked whether Godecke would agree to it being cancelled. This was refused. On 17th December 1971 the respondent's solicitors wrote to the appellants' solicitors returning the cheque for $1,625 and stating that the respondent had decided not to proceed with the proposed sale of the property to Godecke and was withdrawing from his negotiations in that connection. They added that the refunding of the $8,000 paid to the agent had been arranged. The tender of certain moneys in part payment of the purchase price was afterwards made and refused, on 1st January 1972 and again in April 1972. In my opinion, nothing turns on the fact that the first of these tenders was made outside the period of twenty-eight days mentioned in special condition 1. Within that period of twenty-eight days the respondent had declined to proceed with the sale. No argument has been advanced that the appellants are not entitled to succeed for the reason that they did not carry out their obligations under the contract.

The learned primary judge held that there was no binding contract. He said that in cl. 3 the execution of a formal contract appeared to be a condition precedent of the right of the purchaser to possession and that in the Special Conditions the reference to a contract was apparently inserted for the purpose of fixing the time for payment of an instalment of $32,000. He was of opinion that this indicated that it was agreed that the execution of a formal contract was a necessary term of the offer and acceptance. He pointed out that cl. 6 indicated that a contract would be necessary only if the vendor required it, but he considered that the written words in the other clauses, which could only be consistent with a requirement that a further contract had to be prepared, should prevail in the construction of the Offer and Acceptance. His Honour said that whether that was so or not, cl. 6 showed clearly that it was within the contemplation of the parties that a formal contract could include terms other than those included in the offer. He concluded from this that all the terms of the contract had not been settled and he was of opinion that the case came within the third class of cases mentioned in Masters v Cameron. ^[F1] He ordered that the caveat be removed.

It appears, therefore, that his Honour's conclusion in favour of the respondent was based upon a consideration of the provisions of cl. 3 and of special condition 1, which indicated to him that it was regarded by the parties as necessary that there should be a formal contract, and of cl. 6, which indicated that terms other than those to which the parties had already agreed might be incorporated into their bargain. It is to those provisions that the arguments in this Court have been mainly directed. But before considering what construction should be put upon them it is desirable to refer to some of the other provisions of the Offer and Acceptance.

The offer is expressed, as part of the printed form, to be subject to the conditions of the 26th Sch. of the Transfer of Land Act 1893. Condition 1 of the schedule has provisions as to completion of the purchase and the entitlement of the purchaser to possession which are not consistent with the terms of the Offer and Acceptance. Conditions 3 and 4 in the schedule cannot be easily accommodated to those terms. But, in my opinion, these difficulties should not be regarded as rendering the alleged contract void for uncertainty. It has not been argued that they should be so regarded. In my opinion, the document signed by the parties should be construed as making applicable the conditions in the schedule to the extent only that these could operate consistently with the specific provisions contained in the "terms of the purchase" and in the special conditions.

Clause 2 is in language more appropriate to an agreement providing for the balance of the purchase price being paid by one payment than to one providing for several separate payments. But the provision that it is to be paid against receipt from the vendor of a proper registrable transfer, together with the duplicate certificate of title, must be read, in my opinion, as applying only to the final payment.

Clause 4 raises a question whether the outgoings are to be adjusted to the date of giving possession or to the date of settlement, if the latter date is taken to be that on which the final payment of purchase money is paid and the transfer handed over. It could be argued that the inclusion in cl. 3 of the word "settlement" has the effect that the date of settlement is the same as the date for giving and taking possession. But I do not think that it should be so read. Clause 3 provides that possession is to be given and taken upon signing and execution of a formal contract of sale. That cannot have been intended to be also the date for "settlement", in the sense of the completion of the contract. Clause 4 should be read, in my opinion, as providing that the outgoings should be adjusted at the date when possession is given.

Such ambiguities as those to which I have referred ought not to be held, in my opinion, to make the terms of the Offer and Acceptance too uncertain to constitute a binding contract or to provide an indication that the parties did not intend that they should be bound in any way unless and until a formal contract had been executed.

I turn to a consideration of the particular provisions which led the primary judge to the conclusion that there was no binding contract. I think it is clear that it was contemplated by cl. 3 and special condition 1 that a formal contract of sale would be executed and that this would be done within twenty-eight days of the acceptance of the offer. If cl. 6 had not been included, it would have been proper, in my opinion, to hold that the parties intended that the formal contract would not introduce any new terms which would alter the effect of those upon which they had already agreed. Clause 6 contemplates, however, that there may be a further agreement which will contain other covenants not included in the offer. The purchaser agrees to execute such a further agreement, if required to do so by the vendor. I think that two views are open as to how this clause is to be read with cl. 3 and special condition 1. The first view is that if the vendor decides to take advantage of cl. 6, he must ensure that the covenant and the conditions which his solicitors "may reasonably require" are embodied in the formal contract contemplated by cl. 3 and special condition 1. The second view is that, at the option of the vendor, the purchaser may be required to execute a separate agreement in addition to the formal contract which those provisions contemplate. The latter view may be thought to gain some support from the use in cl. 6 of the expression "a further agreement" instead of the expression a "formal contract of sale" and from the fact that cl. 6 imposes no express time limit on the obligation imposed by it. But I prefer the former view, as it seems to me that the intention ought not to be attributed to the parties that there might be two further agreements or that after the purchaser had paid the large sum of $32,000 and had been given possession, the vendor might subsequently require him to enter into additional covenants.

The principles to be applied in deciding the question at issue have been discussed in numerous cases and it is not necessary to refer to many of them here. It has been held repeatedly that the question is one of construction in each case of the document or documents which are put forward as showing that a contract was made. But it is necessary to make some reference to the authorities. In Von Hatzfeldt-Wildenburg v Alexander ^[F2] Parker J. used language which has been cited with approval in many later cases. He said:

"It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored."

The court was there concerned with a case in which an acceptance of an offer had been stated expressly to be "subject to" certain conditions, including a condition that the purchaser's solicitors "approved the title to, and covenants contained in the lease, the title from the freeholder and the form of contract". The quoted passage cannot be accepted, in my opinion, without further explanation or elaboration, as a comprehensive statement of the tests by which in all cases it is to be determined as a matter of construction whether or not a binding contract has been made. It postulates a choice between two alternatives. It assumes that it must always be intended either that the execution of a further contract "is a condition or term of the bargain" or "a mere expression of the desire of the parties" as to the manner in which the transaction will go through. But there are cases in which a provision as to the execution of a further contract is not to be construed as a mere expression of desire or as a "condition" of the bargain, if by that is meant a condition upon which is dependent the coming into existence of a binding agreement. It may be a term of a concluded agreement and may place upon the parties an obligation, capable of being specifically enforced by the court, to sign a further contract in accordance with the agreement which they have already made. The decision of this Court in Niesmann v Collingridge ^[F3] is a direct authority for those propositions, which I have stated in a form based upon the language used in their judgment in that case by Rich and Starke JJ. ^[F4] In the same case Knox C.J. expressed ^[F5] the opinion that it was in the contemplation of the parties that a formal contract should be signed and that they meant that the acceptance of the offer should be followed by the execution of a contract by both parties. Thus the provision referring to a further contract was held not to be a mere expression of desire but to be one of the terms to which the parties had agreed. The exposition of the law on this subject which is contained in the judgment of this Court in Masters v Cameron ^[F6] recognizes the case of Niesmann v Collingridge ^[F7] as a case belonging to the second of the three classes described, ^[F8] in which the execution of a formal contract is not a condition of the existence of a binding agreement, but is a condition of the performance of one or more of the terms of an agreement by which the parties are immediately bound.

I have reached the conclusion that the references in cl. 3 and in special condition 1 to the signing and execution of a formal contract should be held to have a similar effect to that which was attributed to the provision as to payment of the purchase price in Niesmann v Collingridge. ^[F9] I shall refer later to the problems arising out of the inclusion in the offer of cl. 6. But leaving these aside for the moment, I think that there are several indications in the offer and acceptance that the parties did intend to make a bargain to take effect immediately and did not intend that each of them should be at liberty to withdraw at any time until a further contract was signed. The provision for the immediate payment of the considerable sum of $8,000 is, I think, some indication of this. The facts that in the document there was provision for the "acceptance" of the "offer" therein set out and that it was duly accepted point in the same direction: see Niesmann v Collingridge. ^[F10] The acknowledgment by the purchaser that he has "this day purchased" the property is inconsistent with the notion that the parties are still engaged in negotiations. Neither the offer nor the acceptance is expressly stated to be "subject to" the signing of a further contract. Unlike those cases in which the documents under consideration consist of telegrams, letters or memoranda containing no reference to important matters upon which it might be expected that the parties would wish to reach a definite agreement before becoming bound, the document here sets out detailed terms and conditions of the sale and purchase. In this respect it is to be contrasted with the memoranda considered in Sinclair, Scott & Co Ltd v Naughton ^[F11] (see the judgment of Knox C.J., Rich and Dixon JJ. ^[F12] and that of Starke J. ^[F13] ) and with the documents examined in Farmer v Honan ^[F14] (see the judgment of Barton J. ^[F15] and of Isaacs and Rich JJ. ^[F16] ).

I agree with the opinion of the learned primary judge that the parties intended that a further contract should be executed. The language used does not indicate a mere desire that this should be done. But, in my opinion, they did not intend to make the execution of a formal contract a condition of the coming into existence of a binding agreement. They made an agreement of which one term was that possession was to be given and taken upon the signing and execution of a formal contract of sale within twenty-eight days and of which another term was that a further $32,000 should be paid at that time. From these provisions there should be implied a promise by each of the parties that he would sign a formal contract within the twenty-eight days and would do everything necessary to enable this to be done within that time. As in Niesmann v Collingridge ^[F17] this was a term of the bargain that could be specifically enforced.

It is necessary now to consider whether the foregoing view as to the effect of the document can be supported, having regard to the inclusion in it of cl. 6. In many cases there has been an acceptance of the principle which in Rossiter v Miller ^[F18] Lord O'Hagan expressed by saying that "if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed": see also the speech of Lord Blackburn in the same case; ^[F19] the citation of the statements of Lord O'Hagan and Lord Blackburn in Niesmann v Collingridge; ^[F20] and see Masters v Cameron. ^[F21] The question arises whether or not that principle is made applicable here by cl. 6, under which the respondent might have required the signing of a contract containing terms other than those set out in the offer. On this question I have obtained much assistance from the judgment of Bray C.J. in Powell v Jones, ^[F22] a case to which we were not referred in argument. His Honour was there concerned with a clause in an agreement for a lease, but I think that his discussion of that clause is applicable to a similar clause contained in an agreement for sale. The offer to take a lease included a provision that the agreement for lease was "to be in terms and to contain such special clauses as the Landlord may require" to be prepared by the landlord's agent and signed when ready. His Honour construed this as meaning that both the terms and the special clauses were to be such as the landlord might require. His Honour ^[F23] quoted passages from the speech of Viscount Dunedin in May and Butcher Ltd v The King ^[F24] including the statement that "a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties". His Honour referred also to other authorities including Sweet and Maxwell Ltd v Universal News Services Ltd ^[F25] in which an agreement contained a provision for a lease to be taken on certain terms one of which was "the lease shall contain such other covenants and conditions as shall be reasonably required by Sweet and Maxwell". ^[F26] In that case the Court of Appeal held that there was a concluded contract for the taking of a lease which was capable of specific performance. What the lessor could demand was limited by the requirement that it must be reasonable and in the event of a dispute between the parties as to the reasonableness of a requirement the court could decide whether it was reasonable or not: see. ^[F27] Bray C.J. considered that the provision with which he was concerned was not a mere agreement to agree, notwithstanding that it did not refer to the reasonableness of what the landlord might require. His Honour considered that the agreement was enforceable because what the relevant provision left to be determined was not dependent upon any further agreement between the parties. It is clearly established that a binding agreement may be made which leaves some important matter, e.g. the price, to be settled by the decision of a third party. I agree with respect with the view of Bray C.J. that, subject to the qualifications to which he refers, ^[F28] there is no reason in principle for holding that there cannot be any binding contract if some matter is left to be determined by one of the contracting parties.

In the present case the parties set out all the principal terms which were to govern the sale and purchase of the land and these included provisions which imposed by implication an obligation to execute a formal contract. There was also a promise by the purchaser to execute, if required to do so, a further agreement in accordance with cl. 6. In my opinion, that clause should be construed as limited to permitting the insertion of covenants and conditions not inconsistent with those contained in the offer. It was limited also by the reference to the reasonableness of requiring the inclusion of the covenants and conditions. In my opinion, this does not mean that anything may be required which in the opinion of the solicitors is reasonable. It means that what is required must be reasonable in an objective sense, and in case of dispute this is a matter which the court can decide. Clause 6 does not mean that the purchaser is making an agreement to agree later upon additional provisions to govern the bargain. It means that he is agreeing presently to accept as part of the bargain such additional provisions, if any, as are required, provided that they satisfy the requirements of consistency with the other terms and of reasonableness to which I have referred.

If, contrary to my view, cl. 6 authorizes the vendor to require the execution of a further agreement after the contract contemplated by cl. 3 and special condition 1 has been executed, then cl. 6 would still operate subject to the limitations already discussed and, in my opinion, the vendor, if he wished to take advantage of it, would have to invoke it within a reasonable time, this again being a matter for decision if necessary by a court. The fact that more than one view may be open as to the time at which and the manner in which cl. 6 was intended to operate does not itself require a conclusion that the agreement is void for uncertainty: see Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd. ^[F29]

For the foregoing reasons I am unable to agree with the view of the learned primary judge that this was a case in which all the terms of the contract had not been settled and which for that reason fell within the third class of the cases discussed in Masters v Cameron. ^[F30] I am of opinion that a binding agreement was made.

If the matter before the Supreme Court had been a suit for specific performance it would have been proper for the Court to make a decree in which the first step would be the settlement and execution of a proper contract: see Niesmann v Collingridge. ^[F31] But having regard to the agreement of the parties as to procedure which has been described above, I think that in order to give effect to that agreement and to the conclusion which I have reached, it will be sufficient for this Court to make a declaration that a binding contract for the sale and purchase of the land was made, and to make orders for the setting aside of the order of the Supreme Court and for the dismissal of the summons. To meet any future difficulty that may arise as to the manner in which the contract is to be carried out, the parties should be granted liberty to apply to the Supreme Court for any further orders or directions that may appear necessary.

In my opinion the appeal should be allowed.