Week 2 contingent contracts PDF

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Week 2 contingent contracts        

Required cases: Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Gange v Sullivan (1966) 116 CLR 418 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 M K & J A Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 at 48-75 Further reading: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57 Anaconda Nickel Ltd v Edensor Nominees Pty Ltd[2004] VSCA 167 Seddon & Ellinghaus:[20.1]–[20.10], [20.13]–[20.20]

A contingent condition is a condition which is outside the responsibility of the parties. If the condition is then not fulfilled, (or in some cases, is fulfilled), one or both parties may be entitled to terminate the contract. Examples of contingent conditions include the approval of finance or licenses, or weather conditions. When parties specify that an agreement is subject to the fulfillment of a contingent condition, the following rules are to be kept in mind: 

The existence of an implied or express duty to co-operate - the parties must still do everything reasonable within their power to ensure the condition is fulfilled. [1]

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A failure of the duty to co-operate entails that the party could not rely on the non-fulfillment of the contingent condition in order to terminate the contract. [2]

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Non fulfillment: Non fulfillment occurs when: Events occur which are opposite to the condition. The time period for the event to occur lapses (this may be express, implied, or determined by a standard of reasonableness)

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The courts are currently undecided on the issue of subjective contingent conditions (ie 'subject to satisfactory finance). Some show support for standard of reasonableness being imposed. [3]

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Restriction: a party may not rely on non-fulfilment if that party has already repudiated the agreement.

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The condition may be waived if:

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Both parties agree to it.

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The condition is completely to the benefit of one party and it decides to waive it.

The consequences of non-fulfillment of a contingent condition are: 

Performance is excused.

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If the contingent condition relates to entire contract, the contract is voidable by either party.

 Contracts are sometimes conditional upon a certain event, outside of the responsibility of either parties (for example, one party receiving finance). This is called a contingent condition: 

Contingent because it is outside the responsibility of the parties;

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Condition because performance is conditional upon the event occurring.

Note that a contingent condition can also mean that a contract is conditional upon an event not occurring (for example, the contract is in place unless one of the parties lose their licence). In either case, a contract may be terminated by either parties upon the failure of a contingent condition. Firstly, it should be noted that a contingent condition should not be confused with normal 'conditions' of the contract (promissory conditions), which are a major contractual promise made by a party. A breach of promissory condition will breach the contract and entitle the other party to damages.

A contingent condition may qualify either the performance or the formation of the contract. 

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Performance - the parties are not obliged to perform the contract until the the condition is fulfilled. 

However, the agreement still exists, and the parties are still bound by it. They may not do anything inconsistent with the relevant contractual obligations.

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This means that if a contract is made with performance subject to finance, the contract is in effect before the finance is obtained - the other party can't meanwhile sell the house or whatever he was offering).

Formation - the contract is only formed and the parties are only bound by it once the condition is fulfilled.

Precedent/subsequent conditions [7]

In addition, the contingent condition may be either precedent or subsequent to performance: 

A condition precedent means that the contract/performance will only start once the condition has been fulfilled.

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A condition subsequent means that the contract/performance starts, and will then be terminated if the condition has been violated.

However, it should be noted that the court considers this an artificial distinction and is of no real significance.

Duty to co-operate [8]

Whilst a contingent condition is not the responsibility of the parties, in some contracts, the parties may be

under some obligation to attempt or make an effort to ensure the condition is fulfilled. This obligation can be provided through: 

An express term (to use 'best efforts' or so)

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An implied duty to co-operate.

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A duty to co-operate requires the parties to do everything reasonably within their power to see that the condition is fulfilled.[9]

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For example, where the contingent condition was obtaining a consent from a minister, the parties had to do all things reasonable to obtain that consent.

If a duty to co-operate is breached, the party in breach will not be entitled to terminate the contract based on the failure of the contingent condition. Furthermore, in some cases, the doctrine of estoppel may operate to the effect that the condition is treated as fulfilled by the courts. This was considered in Mackay v Dick[10]: 

Buyer tried to terminate a contract because a machine did not satisfy the contingent conditions.

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Actually, the buyer never even tested it, thus breaching his duty to co-operate.

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Not entitled to rely on the failure for termination.

If a party breaches the duty to co-operate, the other party will be entitled to damages. However, the damages might be discounted if this is case where even if the party in breach had co-operated the condition might not have been fulfilled.

Non-fulfilment When will a contingent condition not be fulfilled? [11]

A condition can be considered as not fulfilled if: 

The events that occur are opposite to the event specified in the condition (for example, the denial of finance)

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The event does not occur by the time limit. The time limit for when the contingent condition must be fulfilled by can be determined through:

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An express term If a date is provided for the completion of the contract, the same is used for the fulfillment of the contingent condition.[12] A construction of the contract by the courts as requiring the condition to be filled within a reasonable time frame.[13] Reasonableness is determined according to the circumstances.

Objective / subjective fulfilment of condition [14]

The fulfilment of a contingent condition may also rest on a subjective opinion of one of the parties (for

example, where the contingent condition is the purchaser obtaining 'satisfactory finance'). In these cases, the party making the judgment must act honestly when deciding whether the condition has been satisfied. [15]

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Another question arises whether a standard of reasonableness should be imposed. 

Suppose that a purchaser obtains an amount of finance which is very reasonable, but is honestly dissatisfied with it.

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Should the condition still be deemed unfulfilled?

The High Court has been inconclusive on this issue. The Supreme Court of NSW, in Renard Constructions (ME) Pty Ltd v Minister of Public Works [16], showed a strong support for imposing a standard of reasonableness.

The consequences of non-fulfilment [17]

If the contingent condition is not fulfilled, performance will be excused. 

It does not matter if the contingent condition seems unimportant or minor. It is essential.

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The court will only determine that a contingent condition has been fulfilled if there was exact compliance with the provisions.[18]

[19]

Whether the entire contract is voidable or merely parts of it is determined by construction. However, as a general rule: 

If the contingent condition applies to the performance of a specific obligation, the contract will usually remain intact and simply that obligation will be removed.

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If the contingent condition applies to the performance of the whole contract, the contract will be rendered voidable.

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This means that the contract is not void yet, but one or both parties is entitled to terminate it (without need to notify the other[20]). Neither party will be liable.

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Some contracts expressly provide that the non-fulfilment will automatically terminate the contract (rendering it void rather than voidable). The courts have been reluctant to approve of these conditions. They are more inclined to declare contracts voidable than void.

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However, they have allowed them in cases in which neither party has any control over the contingent condition.[21]

Who can terminate upon non-fulfiment? [22]

Whether just one or both of the parties can elect to terminate after a non-fulfilment is a matter of construction. Usually, both parties have that ability. However, if the condition was no fulfilled because of a failure to co-operate (see above) by one of the parties, that party will not be entitled to terminate on this basis.[

Waiver of a contingent condition [24]

A contingent condition may be waived by the parties, in which case they are no longer entitled to terminate the contract upon non-fulfilment. A contingent condition may be waived by the agreement of both parties. One party can waive a contingent condition (by itself) only where the condition is for the benefit of that party.[25] 

This can be somewhat vague. Over a few decisions[26], the courts have demonstrated that the contingent condition needs to be only beneficial for the one party and where the other party has absolutely no interest in it.

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Note that just because a contingent condition is only for the benefit of one party, that doesn't mean that the other party cannot rely on it to terminate the contract. As long as the condition hasn't been waived yet, the other party may still terminate the contract upon non-fulfilment.

Restrictions on termination rights in cases of non-fulfilment Prevention [27]

A party will not be allowed to rely on non-fulfilment for termination if it prevented performance or intimated that it does not intend to perform the contract.

Cases on point

Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Contract; formation; agreement; conditional agreement; universal terms; duty to co-operate; reasonable time for fulfilment of condition. Facts: In April 1978, Perri agreed to buy a property in Cronulla from Coolangatta Investments (CI). The performance of this contract was made subject to the condition that Perri should first find a buyer for a property in Lilli Pilli that he owned. Finding a purchaser for the Lilli Pilli property proved difficult, especially since Perri initially wanted a high price. In July 1978, CI asked Perri to complete the purchase of the Cronulla property before August 8. When Perri failed to do so, CI told him that they were terminating performance of the contract. CI then sought a declaration from the court that they had validly terminated performance. Perri said he still wanted to complete the purchase of the Cronulla property, even though his Lilli Pilli property was not yet sold.

Issue: Had CI validly terminated further performance of their contract with Perri? Decision: In the circumstances, performance had been validly terminated by CI, because Perri had failed to sell his Lilli Pilli property within a reasonable time, thereby unduly delaying the completion of the Cronulla sale. The purchaser was unable to sell the beach house – the vendor was upset by this and sought to terminate the agreement on the basis that the purchaser had had more than a reasonable time to sell the beach house

Reason: Perri had not promised to sell his house in Lilli Pilli within any specified time, but the court held that it was an implied condition of the agreement that Perri would do all that was reasonable to bring about the sale of the Lilli Pilli property, and would do so within a reasonable time, thereby allowing the Cronulla contract to be completed. What is a reasonable time is treated as a question of fact and depends on what is fair to both parties in the circumstances. In this case, in which the seller could not deal with the Cronulla property while it remained subject to the sale of the Lilli Pilli property, the court held that a reasonable time had passed and that CI had therefore been entitled to terminate the contract Principles- if condition is not fulfilled because you have not reasonably tried to fulfil it you cannot waive that condition and make the contract go forward.

o One has an obligation to do all reasonable to satisfy a condition o The innocent party can terminate when, in relation to the subject event, the noninnocent party commits a default such that the event does not occur o Where no time limit is stated, a reasonable one is implied (by the court) o The party for whose benefit the condition is can waive it

o when there is non-fulfilment, no [extra] notice-to-complete is necessary

o

Gange v Sullivan Facts – gange sued Sullivan for specific performance of a contract dated 12 march 1965 for sale of land by the respondent to the appellant. The contract stated that the contract will be deemed to be at an end if council approval is not given by the 31st of may or if approved the contract will be completed within 20 days of council concent. An the 2nd of April a letter as received from the counsil seemingly approving the proposal.

Issue- was Sullivan entitled to terminate the contract a no approval had been granted before the 31 st of may.

Decision-(BARWICK CJ) there was in truth no approval by the council at all the council did not consider te application. The planning officer ha no authority in the counsels name to give any such approval. Thus the appeal and was in a position to be relieved of his obligation to purchase after the 31 st of mat. The tentative and qualified terms asserted that the no approval had been given before the 31 st of may and therefore the vendor was entitled to treat the contract as coming to an end Principles - Vendor has to wait til due date. After the due date if condition not fulfilled then either party can terminate the contract “ the contract will be at an end and all moneys paid by the purchaser will be refunded” contract does not actually end only ends if the parties actually act to terminate it. Eg contract is voidable not void.

o If possible, the non-fulfilment of a condition is to be read as causing the contract to become voidable rather than void o Where no default, either party can terminate after non-fulfilment (always check contract language!) o The party for whose benefit the contract is can waive it. o The contract language is key! 4 judges: the condition must be met in exact terms

Sandra investments v Booth Facts: Contract involved purchase of unsub divided land for $410250 and was date 2 January 1981. The contract as subject to and conditional upon approval from the council within 6 month for subdivision. The contract stated that the purchase shall use all reasonable endeavors to secure the said approval within said six calendar months period. The purchase was unable to secure council approval for the plan of subdivision however he decided to waive this condition of the contract therefore making the contract unconditional. The vendor however decided not to proceed with the purchase and the case was brought to the supreme court. Lower courts decided that purchaser was unable to solely waive condition.

Issue: does the purchaser have the right to waive the condition and enforce the contract.

Decision- high court found in favour of purchaser. The court quoted gange v Sullivan where it was said that condition may be for the benefit of a purchaser and they may insist on the performance of a contract regardless of the performance of that condition. Gibbs CJ found that the CL. 24 shows that intention was that if the purchaser was unable to obtain council approval then they had the option to either cancel the contract or carry it into effect.

Even after the due date the party whose benefit the condition is, can waive the benefit of the condition and then the contract becomes fully enforceable. Where the condition is solely for the benefit of one party that party can waive it Wilson- the right to waiver is not to be taken lightly Principles –

o The key is the contract language itself o Where the condition is “solely” for the benefit of one party, that party can waive it o Wilson: right to waiver is not to be taken lightly

Immer pty ltd v uniting church in australia property trust(NSW) Background facts 

Appellant [Immer] was buying land off Respondent [Uniting Church]. Transfer was subject to Respondent getting a council approval. If approval was not granted by

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a certain date, Appellant is entitled to terminate. 

The approval was not obtained by the due date.

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Without knowing that approval had not been obtained, the solicitor for the Appellant made arrangements (deed etc) for the transfer.

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When the Appellant found out the approval has not been obtained, they notified the Respondent that the contract is terminated.

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Respondent claimed wrongful termination.

Argument 

Respondent claimed that the letter and arrangements constituted an affirmation of the contract and thus the Appellant forfeited its right to termination.

Legal issues 

Election

Judgement 

Election is a process where the Aggrieved party is confronted with two choices. This case is a bit different because the choice whether to terminate was ongoing (was available from a certain date indefinitely as long as no affirmation was made)

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Conduct cannot constitute affirmation if the Aggrieved party was unaware of the factual situation (i.e., that the situation calling it to make an election came about).

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This roughly means that election cannot be made unconsciously on the facts. In this context, the letter & arrangements simply meant that the Appellant is willing to continue the contract if the Respondent has now obtained approval, despite that it breached the time clause. If approval has still not been obtained, the Appellant was entitled to terminate, and it did. Brennan J:

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"A basic requirement of an election between alternative rights arising under a contract is that a party electing should know the facts which give rise to those rights [1]."

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"An act amounting to an election must be equivocal[2]"

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The Appellant acquired the right to terminate once the approval was not obtained by the specified date. They were then allowed to retain that right (as in, defer election) for as long as they want (as long as they don't do anything whic...