Laybutt v Amoco Australia Pty Ltd

Laybutt v Amoco Australia Pty Ltd - [1974] HCA 49 - HCA 1974 case summary — Zoe

[63]

However, there is what Dixon C.J. in Braham v. Walker [6] called a "standing controversy" as to the true nature of an option to purchase. One view is that an option to purchase is "a contract for valuable consideration, viz., to sell the property (or whatever the subject matter may be) upon condition that the other party shall within the stipulated time bind himself to perform the terms of the offer embodied in the contract": per Griffith C.J. in Goldsbrough, Mort & Co. Ltd. v. Quinn [7] . The other view is that "an option given for value is an offer, together with a contract that the offer will not be revoked during the time, if any, specified in the option": per Latham C.J. in Commissioner of Taxes (Q.) v. Camphin [8] . This difference of opinion is reflected in the judgments in Carter v. Hyde [9] , where it was held that the personal representatives of the grantee of an option to purchase a lease were, upon giving notice in writing as required by the option, entitled to specific performance of a contract of sale. In that case the option took the form of an offer coupled with a promise not to revoke it [10] . The majority of the Court treated the option as being, in effect, a conditional contract of sale: Knox C.J. said [11] : "In effect it amounts to an agreement by the appellant to sell the lease, &c., for £1,500 to Hyde if within three months the latter signifies his assent to purchase." Higgins J. [12] expressed the same view. Their judgments are consistent with and support the decision in Kennewell v. Dye [13] . The third member of the Court, Isaacs J., took a different view; he said [14] that the words of the document in question placed it "within the category of an offer created by a contract and irrevocable, and not in the category of an instant sale of the property as it then stood, subject to a subsequently performed condition". However, he held that the option created a proprietary right which passed on the death of the grantee to his personal representatives. Higgins J. agreed with this reasoning also; he said [15] : "The position may be regarded in either of two aspects - contract and property; and in either aspect the result is the same, that the executors may sue." However, where it is the grantor, not the grantee, who has died the result may not be the same in either aspect. If there is a conditional contract for sale, the personal representatives of the grantor are bound by it, subject to the qualifications mentioned. If there is no such contract, but the grantee has a proprietary right, it does not necessarily follow that the right is enforceable against the personal representatives of the grantor. If the grant of an option amounts to an offer to sell coupled with a contract not to revoke the offer, the question will arise whether in spite of that contract the offer will lapse on the death of the offeror. In considering this matter, it would be necessary to decide whether an offer lapses upon the death of the offeror, at least if the offeree has notice of the death - a proposition which, as Blackburn J. pointed out in Fong v. Cilli [16] , "has been repeatedly stated in a dogmatic form (for example, by Mellish L.J. in Dickinson v. Dodds [17] ), and is accepted in the textbooks, though it is hard to find a decision on the point" - and if that is true as a general rule whether, as Denning L.J. suggested in Errington v. Errington [18] the position will be different if the offer was one which could not have been revoked during the lifetime of the offeror.

[65]

Dicta abound in favour of both of the contending views as to the nature of an option to purchase, but it has usually proved immaterial which view was adopted. An option to purchase may assume various forms - it may be expressed as an agreement to sell upon condition (as in Kennewell v. Dye [19] ), or as an offer together with an agreement not to revoke it (as in Carter v. Hyde [20] ) or as the grant of an option so called (as in the present case). Although it may be undesirable that these differences in form should lead to different consequences, when the result intended to be effectuated is the same, it is unnecessary, in the present case, to consider whether one form of option is different in nature from another; we are concerned only with an option of the third kind. The Australian cases in which the nature of options to purchase have been discussed were reviewed in Ballas v. Theophilos [21] , by Smith J. who advanced cogent reasons in favour of the view that an option similar in form to that in the present case is a conditional contract of sale. His judgment was affirmed on appeal to this Court, but it was not thought necessary to resolve this question: Ballas v. Theophilos [No. 2] [22] . More recently, in two cases in the Equity Division of the Supreme Court of New South Wales, it has been held that an option of that kind constitutes an irrevocable offer rather than a conditional contract: Johnson v. Bones [23] ; Westminster Estates Pty. Ltd. v. Calleja [24] . In England there is a similar conflict of opinion. In Griffith v. Pelton [25] , Jenkins L.J., delivering the judgment of the Court of Appeal, described an option to purchase land as "a conditional contract for such purchase by the grantee of the option from the grantor, which the grantee is entitled to convert into a concluded contract of purchase, and to have carried to completion by the grantor, upon giving the prescribed notice and otherwise complying with the conditions upon which the option is made exercisable in any particular case". In Beesly v. Hallwood Estates Ltd. [26] , Buckley J. declined to follow those dicta, which he regarded as at variance with what had been said in Helby v. Matthews [27] , and held that an option to renew a lease did not constitute a contract, but constituted an offer to grant a further term which the lessor was contractually precluded from withdrawing so long as the option remained exerciseable. His decision was affirmed in the Court of Appeal but on grounds that did not involve a decision on this point - Beesly v. Hallwood Estates Ltd. [28] - and his view of the nature of an option was accepted as correct by Plowman J. in In re Button's Lease [29] . In Helby v. Matthews [30] it was decided that a hirer who had an option to buy the goods hired was not "a person having agreed to buy goods" within s. 9 of the Factors Act 1889 U.K.. It is easy to see that the hirer, who was free to buy or not as he pleased, could not be said to have agreed to buy the goods within the meaning of the statute. However, Lord Herschell L.C., in rejecting the view expressed in the Court of Appeal that the owner of the goods had agreed to sell them, and that this connoted an agreement by the hirer to buy them, said [31] :

[69]

There are two other cases in which it was held that an option to purchase is a conditional contract, and which may be mentioned because a different result might have been reached if the option had been treated as an irrevocable offer. The earlier of these decisions is Weeding v. Weeding [36] . In that case the testator made a will devising his real estate on certain trusts and bequeathing the residuary personal estate on different trusts. Thereafter he entered into a contract giving an option of purchase over part of the real estate, which option was exercised after his death. It was held that the property was converted from the date of the exercise of the option and went to the residuary legatees. Page Wood V-C. said [37] : "I cannot agree with the argument that there is no contract. It is as much a conditional contract as if it depended on any other contingency than the exercise of an option by a third person, such as, for example, the failure of issue of a particular person." In Re Mulholland's Will Trusts [38] , the testator had demised property to a bank for a term and by the lease had given the bank an option to purchase. By his will the testator appointed the bank to be one of his executors and trustees. After the deceased's death the bank exercised the option. It was objected that the bank, as trustee, could not purchase the property and in support of this argument it was said that "the option here amounted to no more than an offer by the testator which, as consideration had passed, could not be withdrawn; that, if the option should be exercised, the offer would be accepted and a contract to purchase would spring into existence; but that at the date of that contract the fiduciary relationship had come into existence and, therefore, the bank was not entitled effectively to exercise the option", [39] . This argument was rejected by Wynn-Parry J. who held that the notice exercising the option did not lead to the creation of any fresh contractual relationship between the parties; since the only contractual right had been created before the fiduciary duty arose, the bank, notwithstanding its acceptance of the executorship and trusteeship of the testator's will, was entitled to exercise the option.

[77]

From and after the decease of any person dying testate or intestate, and until probate, or administration, or an order to collect is granted in respect of his estate, the real and personal estate of such deceased person shall be deemed to be vested in the Public Trustee in the same manner and to the same extent as aforetime the personal estate and effects vested in the Ordinary in England. Section 44 of the same statute provides: Upon the grant of probate of the will or administration of the estate of any person dying after the passing of this Act, all real and personal estate which any such person dies seised or possessed of or entitled to in New South Wales, shall as from the death of such person pass to and become vested in the executor to whom probate has been granted or administrator for all his estate and interest therein There is no doubt that at the time when the notice was given the estate of the deceased had by virtue of the operation of s. 61 become formally vested in the Public Trustee, although it is not altogether clear what capacity and powers the Public Trustee had as a result: cf. Holloway v. Public Trustee [53] . At the date of the hearing, however, probate had been granted and s. 44 had taken effect; the estate of the deceased was then vested in the appellant whose title had related back to the time of death. Moreover, although s. 61 provides for the vesting of the deceased's property pending probate, it does not alter the rule that an executor derives his title from the will and that the probate merely authenticates his title and is not the source of it. At the time when the notice was given the appellant was therefore the executrix of the deceased's estate and in that capacity was competent to receive the notice exercising the option; the fact that the property of the deceased was not then vested in her provides no reason why she could not do so. In support of the argument that the notice was not properly given to the appellant reliance was placed on Holland v. King [54] . In that case a partnership deed provided that the executor or administrator of a deceased partner should have the option of succeeding to that partner's share upon giving notice to the surviving partners within three months of the death. A partner died intestate and his widow gave notice to the surviving partners within the three months but did not obtain letters of administration until after that period had expired. It was held that there was no effectual notice under the deed. No reasons were given for the decision but it may be explained on the ground that when the notice was given it was of no validity, since the widow was not then the administratrix of the deceased partner, and that it could not be ratified by the administratrix after the time allowed for the exercise of the option had expired: see Dibbins v. Dibbins [55] . In the present case, however, no ratification was necessary. The appellant was the executrix at the time when she received the notice and was therefore the appropriate person to receive it. In any case, she did not perform any act which required ratification; she was merely the recipient of the notice. Reliance was also placed on Andrews v. Hogan [56] , where a notice to quit was held validly served on the Public Trustee as successor in title to the estate of a deceased tenant, but that case is distinguishable, first, because the question there was in whom the premises had vested and secondly, because in that case no probate was ever granted. The conclusion that the notice was properly given to the appellant in the present case is supported by the actual decision in Carter v. Hyde [57] , although this question does not seem to have been discussed; the notice exercising the option was there given by the executors of the deceased grantee although, as the learned trial judge in the present case has pointed out, it appears from the report of the proceedings in the Supreme Court of New South Wales (Hyde v. Carter [58] ) that probate was not granted until after the notice had been given. For these reasons, in my opinion the notice given to the appellant will have been effectual for the purpose of exercising the option if the option was valid and its other requirements were satisfied. 1. [1949] Ch. 517. 2. (1922) 91 L.J. (Ch.) 382, at p. 384. 3. (1957) 98 C.L.R., at p. 204. 4. [1959] S.R. (N.S.W.) 308, at p. 311. 5. (1848) 6 C.B. 727 [136 E.R. 1433]. 6. [1896] 2 Ch. 348. 7. (1952) 86 C.L.R. 223. 8. (1923) 33 C.L.R. 115. 9. (1922) 23 S.R. (N.S.W.) 125, at pp. 128, 140.

[80]

There is no provision of the option, or of the incorporated form of contract, that gives the least hint as to what person was intended by the parties to be the vendor's agent for the purposes of the agreement. The fact that the agent is to be paid as "stakeholder" (cl. 1 of the form) suggests that it was not intended that the deceased himself should be paid the deposit. If this view is incorrect, and if, on the proper construction of the option agreement payment of the deposit to the deceased or his personal representatives was a sufficient compliance, the fact is that no such payment was made. On behalf of the respondent it was submitted that is should be inferred that the intention of the parties was that either party was entitled to nominate an agent for the purpose of receiving the deposit, but in my opinion the words of the documents do not support such an inference. The personal qualities of the agent to whom payment was to be made was a matter of importance to the deceased. As cl. 16 showed, the deposit was intended to be, as a deposit usually is, "a security for the completion of the purchase": Howe v. Smith [62] . It is not likely that the deceased would have agreed that the deposit should be paid to anyone upon whom he could not rely to account to him for the money if he became entitled to it. For example, the deceased might have been expected to have been unwilling to appoint as his agent someone under the influence or domination of the respondent or someone who for other reasons might be inclined to display partiality towards the respondent if a dispute arose. It cannot be said with any confidence that if at the time the option agreement was made it had been suggested to the parties that they should include a provision allowing the respondent to nominate the person to whom the deposit should be paid the deceased would have agreed to the suggestion. It is not possible to imply in the contract a term that the respondent should be entitled to select the person to whom payment should be made.

[82]

In my opinion, it was open to the plaintiff to nominate the stakeholder himself and then it would have been open to the vendor to object to the plaintiff's choice and propose a change of stakeholder which, if the plaintiff refused, would place the plaintiff at risk if the stakeholder defaulted or made off with the money: Christie v. Robinson [63] , per Griffith C.J. citing Fenton v. Browne [64] . In my opinion the authorities to which his Honour referred provide no assistance in determining the present question. In Christie v. Robinson [65] it was held that upon the rescission, by mutual consent, of a contract of sale, the purchaser was entitled to recover from the vendor a deposit which he had paid under the contract to the vendor's agent, although the vendor himself had never received the deposit from the agent. Griffith C.J. said that "the fact that an auctioneer may be sued for a return of the deposit in no way concludes the question so as to show that the vendor cannot be sued" [66] , and it was in the course of discussing that question that he cited from Smith v. Jackson [67] the following passage in which Fenton v. Browne [68] is mentioned: If then the auctioneer cannot pay over the deposit to the vendor, is he to be considered as his agent? The vendor is responsible for the loss, if any, occasioned by the auctioneer; that was determined in Fenton v. Browne [69] , in which case, the Master of the Rolls says: "Upon a sale by auction the vendor determines who is to receive the deposit. The auctioneer is not a stakeholder of the purchaser; at least not of his choice. If he were a stakeholder for both parties, either would have a right to propose to change such stakeholder; and the party refusing takes upon himself the risk." This passage means no more than that if one party proposes that a stakeholder be changed and the other refuses, the latter takes the risk of loss caused by the default of the stakeholder. The matter which was decided in Fenton v. Browne was that a vendor who had resisted an application by the purchaser for payment into court of the deposit which was in the hands of the vendor's agent had to bear the loss caused by the agent's failure. Grant M.R. said [69] that the refusal to concur in the proposition that the money be paid into court threw "the risk of his [the agent's] credit on the party refusing". It does not follow from this that where a contract fails to name the person intended to act as stakeholder it must be implied that either party has a right of nomination. 1. (1907) 4 C.L.R. 1338, at p. 1347. 2. (1807) 14 Ves. Jun., at p. 150 [33 E.R., at p. 478]. 3. (1907) 4 C.L.R. 1338. 4. (1907) 4 C.L.R., at p. 1347. 5. (1816) 1 Madd. 618, at p. 620 [56 E.R. 227, at p. 228]. 6. (1807) 14 Ves. Jun. 144 [33 E.R. 476]. 7. (1807) 14 Ves. Jun., at p. 150 [33 E.R., at p. 478]. 8. (1807) 14 Ves. Jun., at p. 150 [33 E.R., at p. 478].

[85]

It is then necessary to decide whether it is possible to strike out of the option that part of cl. 1 which is meaningless, leaving the remainder valid, or whether the whole option fails. It is clear that an agreement is not nullified by the inclusion of a meaningless clause, provided that the latter is severable: Nicolene Ltd. v. Simmonds [70] ; Fitzgerald v. Masters [71] ; Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [72] . The question whether a meaningless clause is severable depends on the intention of the parties to be gathered from the agreement as a whole: Whitlock v. Brew [73] . The question in the present case is whether the parties intended that the option should be binding notwithstanding the failure of the provision requiring payment of a deposit. The Court will of course attempt to give efficacy to an agreement which the parties no doubt believed would be binding, and will be most reluctant to hold meaningless and void an agreement which the parties apparently intended to have legal effect. However, it seems to me impossible to say that the deceased intended that the option, which was expressed to be exerciseable on payment of the specified deposit, can be exercised without any payment being made. The receipt of a deposit, as I have already indicated, is generally regarded by a vendor as a matter of some importance and the provisions of cl. 16 of the form of contract indicate that this was so in the present case. Moreover, the payment and receipt of a deposit was basic to the relationship that would result from the exercise of the option. Clause 1 of the form of contract requires the payment of the deposit (which is obviously the same deposit as that mentioned in the option) upon the signing of the agreement and requires "the balance of the purchase price" to be paid in cash on completion. Other provisions of the form of contract speak of the deposit and of the balance of the purchase price. The rejection of that part of cl. 1 of the option that deals with the payment of a deposit would affect the balance of the contractual relationship between the parties, since the payment of a deposit is an integral part of the working out of the contract. The provision for the payment of a deposit appears to be essential to the exercise of the option. I conclude, therefore, that the meaningless words of cl. 1 of the option agreement cannot be severed from the rest of that agreement but have the effect of invalidating it.

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Court

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Before

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Judgment (87 paragraphs)

Parties

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