Summergreene v Parker [1950] HCA 13: Contract Not Concluded

The case Summergreene v Parker [1950] HCA 13; (1950) 80 CLR 304 is a landmark decision by the High Court of Australia that explores critical principles of contract law, particularly in the context of agency, the formation of contracts, and the issue of incomplete agreements. Given below is a summary of the case.

Court: High Court of Australia

Date of Decision: 1 June 1950

Judges: Latham C.J., Williams, Webb, and Fullagar JJ.

Legal Principles Discussed: Principal and Agent, Formation of Contracts, Certainty in Agreements, and Trustees for Non-Existent Companies.

Key Facts (Summergreene v Parker)

Mrs. Summergreene (defendant) owned a business, “The Dyeing King.” Parker (plaintiff) was employed as an agent to sell the business and was promised £500 commission if he successfully “effected a sale.” Messrs. Anderson and Jones, acting as trustees for a proposed company to be formed, offered to purchase the business. A letter detailing the terms of the sale was sent on 20 December 1946, and Mrs. Summergreene accepted this offer on 21 December 1946. Clause 6 of the offer required a “usual agreement” to be entered into between Mrs. Summergreene and the proposed company, with terms satisfactory to both parties. The company was never formed, and Mrs. Summergreene refused to proceed with the sale, citing family objections.

Legal Issues that arose

Did the letters exchanged constitute a binding contract for the sale of the business?

Was Parker entitled to the commission, or was the transaction incomplete?

What is the effect of agreements involving non-existent companies on contractual liability?

Decision (Summergreene v Parker)

The High Court unanimously allowed the appeal and ruled in favor of Mrs. Summergreene, restoring the original judgment by Maxwell J.

Reasoning

1. No Binding Contract Formed

The Court held that the letters did not constitute a concluded contract due to the uncertainty in Clause 6, which left critical terms to future negotiation. A binding contract requires that all essential terms be settled, leaving nothing uncertain or dependent on further agreement (citing Sinclair, Scott & Co. Ltd. v. Naughton and May & Butcher v. The King). Clause 6 explicitly referred to a “usual agreement” and left terms “to be in a form satisfactory” to both Mrs. Summergreene and the proposed company, indicating that the contract was incomplete.

2. Non-Existence of the Company

“The only ‘purchasing party’ was a non-existent company: in other words, there was no true purchasing party. The only parties to the contract other than the defendant were not purchasing parties. They did not promise to purchase. They promised only to form a company which would purchase. No ‘sale’ was ‘effected’ by the contract.” (By Fullagar J. at p325)

Anderson and Jones acted as trustees for a company that was yet to be formed. Under Kelner v. Baxter (1866), agents contracting for a non-existent principal may incur personal liability if there is a clear intention to bind themselves. However, the Court found that the intention here was for the company, once formed, to be the purchaser. Anderson and Jones were not intended to be personally liable for the purchase.

3. Commission for “Effecting a Sale”

For Parker to earn his commission, he needed to effect a binding sale of the business. Since no binding contract was formed, no sale was effected, and Parker did not fulfill the condition for earning his commission.

Outcome

The High Court allowed the appeal, setting aside the decision of the Full Court of the Supreme Court of New South Wales.

The judgment for the plaintiff (Parker) was set aside, and the original decision in favor of the defendant (Mrs. Summergreene) was restored.

Significance

This case illustrates the importance of a “concluded bargain” in contract law and underscores the principle that a sale is not “effected” unless a binding and enforceable agreement is secured. It also highlights the challenges in dealing with agreements involving non-existent principals.

References:

https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1950/13.html

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WJ Alan v El Nasr [1972] EWCA Civ 12

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WJ Alan v El Nasr [1972] EWCA Civ 12

Case Name: WJ Alan & Company Ltd v El Nasr Export & Import Co

Citations: [1972] EWCA Civ 12, [1972] 2 QB 189, [1972] 2 WLR 800, [1972] 2 All ER 127, [1972] 1 Lloyd’s Rep 313
Court: England and Wales Court of Appeal (Civil Division)
Judges: Lord Denning MR, Lord Justice Megaw, Lord Justice Stephenson
Date of Judgment: 3rd February 1972
Areas of Law: Contract Law, Waiver and Variation, Payment and Discharge of Obligation

Background of the case (WJ Alan v El Nasr)

The case involved two contracts of sale made in July 1967 between WJ Alan & Co Ltd (sellers) and El Nasr Export & Import Co (buyers) for 500 tons of coffee, to be shipped in two batches of 250 tons each from Mombasa. The agreed price was 262 Kenyan shillings per cwt, with payment to be made through a confirmed, irrevocable letter of credit.

The buyers arranged for a letter of credit in sterling (£) instead of Kenyan shillings, issued by a Spanish bank and confirmed by a Tanzanian bank.

The sellers accepted and utilized the sterling credit without objection.

After sterling was devalued in November 1967, the sellers claimed that the contract required payment in Kenyan shillings and sought additional money to compensate for the exchange rate difference.

The buyers refused to pay, leading to the dispute.

Legal Issues that arose

Was the original contract denominated in Kenyan shillings or sterling?

Did the sellers’ acceptance of the sterling credit mean that they waived their right to insist on payment in Kenyan shillings?

Did the contract terms change due to the sellers’ conduct?

Judgment in WJ Alan v El Nasr

The Court of Appeal ruled in favour of the buyers (El Nasr).

The contract expressly stated “Shs. 262/- per cwt,” which strongly indicated that Kenyan shillings were the intended currency of account.

But by accepting payment in sterling through the letter of credit without protest, the sellers demonstrated that they had accepted the sterling credit as fulfilling the payment obligation.

Once they acted on the sterling credit, they could not later demand additional payment in Kenyan shillings.

The sellers’ acceptance of the sterling credit amounted to a variation of the contract terms.

The court reaffirmed that a letter of credit is a conditional payment: If honoured, it discharges the buyer’s payment obligation. If dishonoured, the seller could seek payment from the buyer. In this case, the letter of credit was honoured, meaning the buyers fulfilled their obligation.

Here are some important excerpts from the judgment:

“The principle of waiver is simply this: If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so.”

“If the letter of credit is honoured by the bank when the documents are presented to it, the debt is discharged. If it is not honoured, the debt is not discharged: and the seller has a remedy in damages against both banker and buyer.” (Lord Denning MR)

Conclusion

The sellers had no right to claim additional payment in Kenyan shillings, as they had waived their right to insist on payment in that currency by accepting sterling. The appeal was allowed, and judgment was entered for the buyers.

References:

https://www.bailii.org/ew/cases/EWCA/Civ/1972/12.html

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Weeks v Tybald (1605) Noy 11: A Case Law Summary

Weeks v Tybald (1605) Noy 11:

What is the case about?

In contract law, the presumption that parties to a commercial agreement intend to create legal relations can be rebutted when it is evident that no legal relations were intended. This is often seen in cases where the language used is overly vague, exaggerated, or presented as a “mere puff,” meaning an offer not intended to be taken literally or seriously. The law will not give its acceptance contractual effect.

What happened in Weeks v Tybald?

In Weeks v Tybald (1604), the defendant publicly declared he would give £100 to any suitable man who would marry his daughter with his consent. The plaintiff claimed that he married the defendant’s daughter and sued for the money.

However, the court held that his words were not meant to be taken seriously and did not constitute a legally binding promise. The court noted that it would not be reasonable to hold the defendant to “general words spoken to excite suitors.” This case illustrates how exaggerated or vague promises, especially when made in a non-serious context, do not create enforceable obligations.

A similar case

This principle also applies to advertising and promotional statements. In Carlill v Carbolic Smoke Ball Co (1893), the defendants argued that their advertisement, which promised £100 to anyone who used their product and contracted influenza, was just an advertising “puff” and not intended to be legally binding. However, the court found otherwise, emphasizing that the company had deposited £1,000 with their bankers as a show of sincerity, indicating that they intended the offer to be taken seriously. The deposit served as evidence of contractual intent, which distinguished the statement from a mere puff.

Summing up

In sum, while advertising statements are often viewed as non-binding puffs, they may become legally enforceable if there is clear evidence of intent to create legal obligations, as demonstrated in Carlill v Carbolic Smoke Ball Co.

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Godecke v Kirwan (1973) 129 CLR 629: A Case Summary

Case name & citation: Godecke v Kirwan [1973] HCA 38; 129 CLR 629; 1 ALR 457

The bench of judges: Walsh, Gibbs and Mason JJ.
Decided on: 20 September 1973
The concerned Court: High Court of Australia
Area of law: Agreement contemplating execution of formal contract; Certainty of contract

What happened in Godecke v Kirwan?

The case of Godecke v Kirwan (1973) revolved around the central issue of whether a binding contract for the sale of land was established between two parties or were they still negotiating.

Godecke (the buyer) and Kirwan (the vendor) agreed in writing through a document titled “Offer and Acceptance” for the sale of a piece of land for a price of $110,000.

The document outlined the terms and conditions for the sale of the property.

The crux of the matter hinged on the interpretation of several clauses within the document. Clause 3 and special condition 1 suggested that the execution of a formal contract was necessary for the purchaser to gain possession of the property. Additionally, clause 6 indicated that further agreements might be required by the vendor.

Clause 3 & 6 read as follows:

“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.”

“If required by the Vendor/s I/we (the buyer) 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………”

Kirwan (the vendor) decided not to proceed with the sale. He argued that there was no binding contract. The case was heard at the Supreme Court of Western Australia.

Hearing and Court’s Judgment

The primary judge initially ruled that there was no binding contract, primarily because the execution of a formal contract appeared to be a condition precedent. However, on appeal to the High Court of Australia, the Court disagreed and decided that while the parties intended to execute a formal contract, it was not a condition for the formation of a binding agreement.

The judges supported the notion that the requirement for a formal contract did not negate the existence of a binding agreement. The execution of a formal contract was seen as a condition of certain obligations (such as giving and taking possession and paying part of the purchase price) rather than a condition of agreement itself.

Additionally, the judges considered the inclusion of clause 6, which allowed for the possibility of further agreements. Clause 6 of the document allowed the vendor to require the execution of a further agreement containing additional covenants and conditions, if deemed reasonable by their solicitors.

The Court discussed the legal principle that parties to a contract can leave certain terms to be determined by a third party without rendering the contract void for uncertainty. Specifically, Clause 6 allowed the solicitors for the vendor to unilaterally include additional terms, provided these terms are reasonable.

The clause allowed the solicitors for the vendor to determine additional terms, which is a common practice and doesn’t invalidate the contract. It allowed to add more conditions to the agreement, but only if these new conditions don’t contradict the existing ones or the original agreement and are reasonable.

Thus, the existing agreement was binding.

Quote from the case

“Clause 6 does not require that the additional terms should be the subject of agreement between the parties. The inclusion of additional terms depends on the unilateral requirement of the solicitors for the vendor, subject to the qualification that the requirement must be reasonable. It is well established that the parties to a contract may leave terms – even essential terms – to be determined by a third person: Foster v. Wheeler (1888) 38 Ch D 130; May and Butcher Ltd. v. The King (1934) 2 KB 17, at p 21.”

(GIBBS J at p 646)

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Guthing v Lynn (1831): A Quick Summary

Case name & citation: Guthing v Lynn (1831) 2 B & Ad 232

Court and jurisdiction: Court of the King’s Bench; England & Wales
Decided on: 25 April 1831
Area of law: Offer and acceptance; Terms of offer; Contractual certainty

Guthing v Lynn (1831) is a contract law case on issues of certainty and validity of terms in a contract.

Given below is a summary of the case in points.

1. Sale of horse

The plaintiff purchased a horse from the seller. There was a promise to buy another horse or to pay an additional sum of £5 to the seller if the one purchased proved lucky.

A dispute arose between the parties because the horse did not meet the plaintiff’s expectations. They disagreed on whether the conditional payment mentioned was owed to the seller.

2. Issue that arose

The central issue before the court was whether the buyer’s offer to pay extra for the horse if it was lucky constituted a valid offer.

The court needed to determine if the terms “lucky” and “buy another horse” could be legally binding and enforceable.

3. Decision of the Court

The Court decided that the terms of a contract need to be definite and clear.

4. Vagueness of the offer

The promise to pay an additional £5 “if the horse is lucky” was deemed too vague and uncertain so as to form a valid offer. Hence, it could not be legally enforceable.

5. Agreed price

Therefore, the only legally enforceable part of the transaction was the purchase of the horse for the agreed price of £63. This was the majority of the legally recognized agreement between the parties.

6. Reasoning behind the decision

The legal principle outlined in this case is that the terms of an offer must be certain. If the words used in the offer are too vague or ambiguous, then the parties might not be clear about what they are contracting for and hence, should not be legally bound by the offer. It can lead to uncertainty.

7. Key takeaway (Guthing v Lynn)

In essence, this case underscores the importance of clarity and certainty in the terms of a contract offer to ensure that both parties have a clear understanding of their obligations and that the contract is legally enforceable.

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Taylor v Laird (1856): A Quick Summary

Case name & citation: Taylor v Laird (1856) 25 LJ Ex 329; (1856) 1 H & N 266

Year of the case: 1856
Jurisdiction: England & Wales
Decided on: 10 June 1856
Area of law: Communication of offer; acceptance

What is the case about?

Taylor v Laird is an English contract law case that discusses the importance of communication of an offer before it can be accepted.

Facts of the case (Taylor v Laird)

The plaintiff (Taylor) was a captain of a ship owned by the defendant (Laird). During a voyage, he decided to step down from his position as a captain and worked as a normal member of the crew. The owner was not informed of this change in position. On returning from the trip, Taylor claimed wages in the capacity of a regular crew member from the owner of the ship. But the owner refused to pay.

The owner’s contention was that he had not received any offer from the captain to work in an alternate capacity. On the other hand, the captain’s contention was that the communication of his offer to work as such could be implied by his conduct.

Issue that arose

Was the defendant bound to pay wages to the plaintiff for his work as an ordinary crew member?

Was there an offer of work by the plaintiff and if there was one, had the defendant accepted the offer?

Court’s judgment in Taylor v Laird

Based on the facts of the case, the Court decided that the ship owner was unaware of Taylor’s decision to give up his position as captain and he had not received any offer from Taylor to work in an alternate capacity. Therefore, Taylor’s claim was rejected.

It was held that there was no binding contract as regards the performance of work as a regular crew member because Laird did not have an offer from the captain to do a different job. Hence, the captain could not succeed in getting paid (for wages).

The Court concluded that it would be unreasonable to bind a party to an offer that he had not been made aware of and hence had no option to accept or reject it; as a result, accepting an offer ‘in ignorance’ is not recognized in English contract law.

Governing rule behind the case

The offeror must make the offer known to the offeree in order for it to be established as a legitimate one; an offeree cannot accept an offer they are unaware of. Since the claimant (i.e., Taylor) failed to make the offer known to the offeree, there was no contract in this instance. How can there be acceptance if the proposal is not even made known to the offeree?

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A Case Summary of Spencer v Harding (1870)

Case name & citation: Spencer v Harding (1870) LR 5 CP 561

Year of the case: 1870
Jurisdiction: The Court of Common Pleas
The bench of judges: Willes, Keating and Montague Smith, JJ.
Area of law: Offer and an invitation to treat

What is the case about?

Spencer v Harding is a legal case in which the Court addressed the issue of whether a request for tender is an offer to sell goods or an invitation to make an offer to purchase.

Facts of the case (Spencer v Harding)

In the given case, the defendants (Harding) put out a circular advertising the sale of stock in a particular company and inviting tenders for the purchase of the stock. The claimant, Mr. Spencer, submitted a tender in accordance with the requirements set out in the circular. His tender was the highest one received. However, the defendants refused to accept Mr. Spencer’s tender and sell him the stock. Mr. Spencer sued the defendants, alleging that they had breached their contract by refusing to sell him the stock.

Issue that arose

Was the circular an offer or an invitation to treat?

Court’s decision in “Spencer v Harding”

The decision was taken in favor of the defendants. The defendants were not bound to sell the stock to Mr. Spencer.

The Court held that a request for tender is not an offer to sell, but rather an invitation to make an offer to purchase. As such, the seller is not under any obligation to sell to the person making the highest tender and may choose to accept or reject any or all of the offers made in response to the request for tender at their discretion. This principle has been widely adopted in common law jurisdictions and is often cited as a key principle in the law of contract.

Legal principles behind the case

In general, auctions are considered to be a type of contract known as a “sale by auction.” In a sale by auction, the auctioneer invites potential buyers to make bids/tenders on the item being auctioned. The auctioneer is acting on behalf of the seller and has the authority to accept or reject any bids that are made.

The highest bid at an auction is not necessarily the winning bid and is merely an offer to buy. The auctioneer has the discretion to accept or reject any bids and may choose to reject the highest bid if it is not acceptable for some reason. For example, the auctioneer may reject the highest bid if it is below the reserve price (if there is one), if the bidder does not meet certain qualifications, or if there is some other issue with the bid.

It’s important to note that in a sale by auction, the bid itself is not considered to be an acceptance of the offer to sell. Instead, it is the acceptance of the bid by the auctioneer that constitutes acceptance of the offer.

Key Note:

If a request for tender includes language stating or implying that the seller will accept the highest tender, or if the seller’s conduct suggests that they are willing to be bound by the terms of the highest tender, then the request for tender may be considered an offer to sell. In such a case, the seller would be required to sell the goods or services to the person making the highest tender if that person accepts the offer.

Here in this case, since it wasn’t stated or implied that the defendants will undertake to sell to the highest bidder, the circular inviting tenders was merely an invitation to treat.

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A Quick Summary of Barry v Davies [2000] Case

Case name & citation: Barry v Davies (t/a Heathcote Ball & Co) [2000] 1 WLR 1962 (CA)

Court and jurisdiction: Court of Appeal, England & Wales

Decided on: 27 July 2000

The learned judge: Sir Murray Stuart Smith LJ

Area of law: Auctions (and individual items) advertised without reserve

What is the case about?

Barry v Davies is an English contract law case that throws light on the obligation of an auctioneer to sell the goods to the highest bidder (regardless of the bid amount) in an auction without reserve.

Case facts (Barry v Davies)

The plaintiff had placed the only bid for two engine analysers at an auction without reserve, of £200 each. The auctioneer decided not to sell the engine analysers after receiving this bid because it was deemed too low (on the basis that each machine was worth approximately $14,000). As a result, the engine analysers were removed from the auction. A couple of days later, they were sold in a private transaction for the price of £750 each.

Since he was the highest bidder at an auction without reserve, the plaintiff filed a claim for damages, alleging that the auctioneer had breached a contract. The plaintiff sought damages in the amount of £27,600, which was calculated as the difference between the value of both machines, which was £28,000, and the total amount of his bid, which was £400.

Issue

The issue was whether holding an auction without a reserve price constituted a legally binding offer to sell the goods to the highest bidder.

Judgment of the Court in Barry v Davies

The auctioneer was held liable. The highest bid could not be turned down solely on the grounds that it was not high enough.

Sir Murray Stuart Smith LJ conformed his viewpoint to that held by the majority of the Court of Exchequer Chamber in the case of Warlow v Harrison (1859) 1 E & E 309.

The judge decided that people who attend an auction sale without reserve would generally and reasonably expect that the person who places the highest bid would and should be entitled to the lot for which he or she bids. According to his point of view, such an outcome was fair and logical. As a matter of law, he came to the conclusion that there was a collateral contract between the auctioneer and the person who placed the highest bid, on the auctioneer’s undertaking to sell to the highest bidder. This contract was created when the auctioneer made an offer to sell to the highest bidder, and that offer was accepted when the bid was placed.

As a result of the auctioneer’s decision to withdraw the machines from the auction, this contract was breached, and he was obligated to pay the highest bidder the difference between the amount of the bid and the market price that the goods were selling for on the day of the auction. The only evidence of market price was the manufacturer’s list price for new machines, which was £14,000 for each machine.

Takeaway from the case

The following points may be drawn from this case:

The request for bids that is made by an auctioneer is an invitation to treat. A bid represents an offer, and when the auctioneer brings the hammer down, it indicates that he has accepted the offer. In the case of auctions without a reserve price, the auctioneer will enter into a collateral or separate contract. The nature of the collateral contract is that the auctioneer will accept the highest bid.

Section 57 of the Sale of Goods Act 1979 talks about auction sales.

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A Summary of Warlow v Harrison (1859) Case

Warlow v Harrison (1859) is an English contract law case that talks about the liability of an auctioneer when he fails to sell the auctioned property to the highest bona fide bidder in an auction without reserve.

Case name:	Warlow v Harrison
Case citation:	(1859) 1 E & E 309, 120 ER 925
Court:	The Court of Exchequer Chamber
Jurisdiction:	England & Wales
Date/year:	26 November 1859
The learned judge:	Martin B
Area of law:	Auctions (and individual items) advertised without reserve

Facts of the case (Warlow v Harrison)

The defendant, an auctioneer, offered a horse for sale at a public auction with no reserve. The plaintiff attended the auction and placed a bid of 60 guineas. The horse’s owner placed a bid of 61 guineas. The plaintiff declined to make any further bids, and the defendant (who appears to have been unaware that the bidder was the owner) put down the hammer to sell the horse to the owner for 61 guineas.

The plaintiff asserted that the horse belonged to him because he was the highest bona fide (true) bidder at an unreserved auction. The plaintiff claimed in his pleadings that the defendant served as his agent to carry out this contract.

Issue that arose

Whether there was a contract between the auctioneer and the plaintiff?

Could the plaintiff sue the auctioneer for letting the owner buy the horse?

Judgement of the Court in Warlow v Harrison

The plaintiff had no claim based on the pleadings because there was no agency relationship between the plaintiff and the defendant.

But according to the Court, it was held that a collateral contract between the auctioneer and the highest bona fide bidder exists when items are offered for sale without a reserve.

Since the auctioneer breached this contract, the plaintiff was entitled to sue him.

(Please refer to the reasoning given below to understand the judgement better.)

The reasoning behind the decision

There were two contracts in this case. First, there was the bilateral sale agreement, which determined who would buy the items. The plaintiff’s bid was an offer in this context, but because it was not accepted, he was not entitled to the horse. That is to say, the hammer was knocked down in favor of the owner.

The advertisement of an auction sale without reserve, however, is a unilateral promise by the auctioneer that no reserve will be applied, therefore there was a second agreement. Only the highest genuine bidder, according to Martin B (the learned judge), may accept this unilateral offer. In other words, the auctioneer is bound to sell only to the highest bona fide bidder. In the instant case, this offer was undoubtedly accepted by the plaintiff, and the auctioneer would be held accountable for damages for violating his promise that there would be no reserve.

It is common practice for the owner and anyone acting on his behalf to refrain from bidding throughout the bidding process. Even if the property’s value is not equal to the market value, it must be sold to the highest bona fide bidder.

The horse couldn’t be sold to the owner, given that it was an auction without reserve. Therefore, for breaking his promise that there would be no reserve, the auctioneer would be held liable for damages.

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