Marlor Investments Pty Ltd v Symmons [1968] PGLawRp 3; [1967-68] PNGLR 292 (1 March 1968)

Papua New Guinea Law Reports - 1967-68

[1967-68] PNGLR 292 - Marlor Investments Pty. Ltd. v Symmons

[1967-68] PNGLR 292

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

MARLOR INVESTMENTS PTY. LTD.

V.

SYMMONS

Port Moresby

Frost J

20 February 1968

1 March 1968

CONTRACT - Sale of goods - Warranty or representation - Warranty in oral agreement not included in subsequent written contract - Effect of knowledge of purchase acquired between oral agreement and signing written contract^*[ccclxv]1.

The appellant advertised for sale a farm of which it was then the owner. On 5th September, 1966, discussions took place between one Lord, a director of the appellant company, and the respondent which resulted in the respondent’s agreeing to buy from the appellant the farm, a tractor and certain plant and machinery for a sum of $10,000 payable by installments. During the discussions Lord told the respondent that the tractor was on an adjoining property and was then in good working order although needing a few minor repairs which the owner of the adjoining property had agreed to undertake in return for its use. Prior to these discussions the respondent had observed a tractor in working order on the adjoining property which he mistakenly believed was the tractor the subject of the sale. The respondent went into possession of the farm and on inspecting the tractor the subject of the sale discovered it was not in working order. However on 3rd October, 1966, he signed a written contract prepared by a solicitor to whom he had been referred by Lord and this contract was executed by the appellant under seal on 5th October, 1966. The written contract contained no reference to the tractor, plant or machinery and purported to be for the sale of the land constituting the farm at a price of $10,000 payable by installments with provision for interest at bank rates on outstanding installments. The tractor proved incapable of repair and the respondent brought an action in the District Court at Port Moresby for damages for breach of warranty. The District Court awarded the respondent $1,860 damages and the appellant appealed against this award.

Held:

N1>(1)      The parties had reached finality in arranging the terms of their bargain at the discussions of 15th September, 1966, and intended to be bound immediately. The formal written contract contemplated by them was not to be permitted to vary the terms already settled at those discussions.

Sinclair, Scott & Co. Ltd. v. Naughton [1929] HCA 34; (1929), 43 C.L.R. 310, at p. 317 and Masters v. Cameron [1954] HCA 72; (1954), 91 C.L.R. 353, at pp. 360-361, referred to.

N1>(2)      The fact that the date for completion was not fixed at the discussions on 15th September did not preclude a binding agreement at that date.

Perry v. Suffields Ltd., [1916] 2 Ch. 187, at p. 191, applied.

N1>(3)      As the contract was concluded on 15th September the effect of Lord’s statement as to the condition of the tractor was one of the matters which could not be affected by subsequent negotiations or by the respondent’s subsequent knowledge as to the condition of the tractor.

N1>(4)      Lord’s statement as to the condition of the tractor was a warranty and not a mere representation.

N1>(5)      As the respondent acted on Lord’s statement as to the condition of the tractor the fact that he was also influenced by his own observation of another tractor on the adjoining property which he mistakenly believed was the tractor the subject of the sale did not prevent Lord’s statement being construed as a warranty.

Edgington v. Fitzmaurice [1885] UKLawRpCh 83; (1884), 29 Ch.D. 459, compared.

Appeal.

Appeal from an order of the District Court held at Port Moresby. The relevant facts and arguments appear from the headnote and the reasons hereafter.

Counsel:

White, for the appellant.

E. Pratt, for the respondent.

Cur. adv. vult.

1 March 1968

FROST J:  This is an appeal from an order by the District Court of Port Moresby on 22nd September, 1967, that the appellant pay to the respondent $1,860.00 as damages for breach of warranty.

The action arose out of the sale by the appellant to the respondent of a farmlet of nine acres known as Riverview together with plant machinery and a tractor for a total sum of $10,000.

In the District Court the respondent gave evidence that about 15th September, 1966, being interested in buying a property suitable for a market garden, he discussed with one Lord, a director of the appellant company, a property the company had advertised for sale. Either on the same day or the following day Lord and the respondent went out to Riverview to inspect it and negotiations then took place. The respondent asked Lord where the tractor was and Lord said: “It is being used by Mr. Francis.” Mr. Francis worked a farm in the vicinity. Lord then said: “Mr. Francis is using the tractor which I am pretty sure is a Ferguson. The tractor is in good working order. It does need a few minor repairs which Mr. Francis has agreed to undertake in return for its use.” Indeed the respondent had visited Mr. Francis’ property a few days before and had seen Francis using a Ferguson tractor which was obviously in running order. Lord then stated that the price of the property including the machinery was $10,000. The respondent tried to induce Lord to reduce the price without success, but Lord did say that whilst he would not reduce the price he would give very liberal terms. He was prepared to accept a deposit of $6,000 and quarterly payments of $500, the first payment to be made six months after the transaction. The respondent then told Lord he would contact him later.

Later that evening, having discussed the matter with several friends, the respondent telephoned Lord and told him that he would purchase the property. Lord then said: “I will ring Mr. Reitano now and you go and see Mr. Reitano on Tuesday.” Mr. Reitano is a solicitor practising in Port Moresby.

With Mr. Lord’s permission, a few days later, the respondent went into possession of the property and commenced to work it. He went to inspect the tractor on Francis’ farm, but Francis informed him that the Ferguson tractor was his own. The Riverview tractor which was on Francis’ property was found to be a disused tractor of another type, which it was not disputed was not worth repairing. In the meantime, the respondent had called on Mr. Reitano who was aware of the transaction and stated that he would draw up the documents. However, after inspecting the tractor the respondent again called on Mr. Reitano and said he was not at all happy about the deal; the tractor which was represented to him as a Ferguson in working order was not so and he wanted something done about it. Mr. Reitano referred the respondent to Lord, and said he was sure that Lord would arrange something. Apparently at this interview, Mr. Reitano showed him the contract of sale which he had prepared, but at this stage it was not signed by the respondent. However on 3rd October, 1966, he did sign it. It was subsequent to his signing the contract that he saw Lord, telling Lord that he was not happy about the deal and that he wanted something done about the tractor. Lord said: “We’ll soon fix that.” However nothing was done. Unsuccessful efforts were made to have the tractor repaired. Apparently the parties were unable to agree on the amount to be allowed, and so the action was brought.

There is no need for me to refer to the evidence as to the subsequent execution of the assignment of lease, and transfer back by way of mortgage. I desire to go back to the terms of the contract of sale, which was signed by the respondent on 3rd October and executed on behalf of the appellant on 5th October, 1966, which is the date it bears. The contract was in the following terms:

CONTRACT OF SALE

Marlor Investments Pty. Limited, a company incorporated under the laws of the Territory of Papua and New Guinea, hereby acknowledge(s) having this day sold, on the conditions set forth herein and in the schedule hereto, to Michael James Symmons, c/o Post Office Box 1015, Boroko, surveyors; assistant, for the price of Ten thousand dollars ($10,000) all that piece of land for an estate in leasehold described as Portion 134 Milinch of Granville Fourmil of Port Moresby containing an area of nine acres more or less together with all improvements thereon and being the whole of the land in the records of the Department of Lands, Surveys and Mines described as Granted Application for a Crown Lease L.A. 1127 (P), free of encumbrances.

The undersigned purchaser hereby acknowledge(s) having this day purchased the said property for the price and upon the conditions set forth herein and in the schedule hereto. The said price shall be paid by the purchaser as follows:

(a)      A deposit of $1000 already paid;

(b)      the balance of $5000 payable within twenty-one days after the Administrator approves of this Contract and the balance by mortgage by eight equal quarterly installments of $500 with reducing interest at bank charge rates (Bank of N.S.W. rates on overdrafts).

Dated this 5th day of October 1966.

The Common Seal of Marlor Investments Pty. Limited was hereto affixed by authority of the directors in the presence of us and we certify that we are the proper officers of the said company by whom or in whose presence such seal is to be affixed to documents sealed by the company.

M. J. Symmons, purchaser

F. V. Reitano, witness

Marlor Investments Pty. Limited

(Common Seal)

There was a schedule containing conditions, one of which provided that the purchaser should be entitled to vacant possession of the land sold on acceptance of title and on payment of the deposit.

It will be seen that the contract makes no reference whatever to the tractor, plant or machinery, the sole subject matter being the land containing an area of nine acres together with improvements thereon for which the price of $10,000 was payable.

In a reserved judgment, the learned magistrate accepted the appellant’s evidence and found that the contract was signed on 15th September, 1966. This was an obvious slip; what he meant to find was that the contract was made on that date. He decided that Lord’s statement that the tractor was in good running order was a term of the contract and amounted to a warranty. He expressly said that there was no fraud on the part of Lord. He arrived at the amount of damages, viz. $1,860 by fixing the value of the tractor as warranted at $2,000 which was the value of the tractor as sworn by Lord in a statutory declaration dated 21st October, 1966, in which he had declared the value of the plant and machinery included in the transaction. From the sum of $2,000, $140 the value of the tractor as scrap, was deducted.

Mr. White relied on three grounds of appeal. First he submitted that the statement accepted by the learned magistrate was not a warranty but at the most a representation. Secondly prior to the signing of the contract on 3rd October, 1966, the respondent was aware of the condition of the tractor and so he had not been influenced by Lord’s statement to enter into a contract. The submission underlying both these grounds was that the contract was not made until 3rd October, 1966, when the respondent signed the contract of sale and that in view of the respondent’s state of knowledge at that time there was no room for the warranty found by the magistrate. The third ground of the appeal related to the assessment of damages.

The main issue is thus on what date was the contract concluded. This depends on the proper construction of the terms used by the parties and all the circumstances. At the inspection of the property the subject matter was defined as was the price to be paid including both deposit and payment of installments. On the same day, the respondent telephoned Lord stating that he would purchase the property, and either then or shortly after the respondent went into possession with Lord’s approval. Thus at the time that the respondent said he would purchase it, all the main terms of the contract had been defined except possibly the rate of interest to be paid on the balance of purchase money. At the hearing as to whether there was any reference to the rate of interest seems not to have been adverted to. However I do not consider that any such omission is material in this case. Indeed Mr. White expressly stated that he made no point of it. The parties may well have contemplated, as it transpired, that interest at bank rate would be payable as of course.

I have a firm impression that at this stage the contract was concluded. The fact that the date for completion was not fixed does not preclude agreement: Perry v. Suffields Ltd.[ccclxvi]². Lord had made a firm offer in which the essential terms were stated and when it was accepted by the respondent, neither party stated that it should be subject to contract. The contract in my opinion falls into that class,

“in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”: Sinclair, Scott & Co. Ltd. v. Naughton[ccclxvii]³.

One additional term which they expected to agree upon was, for example, as to the rate of interest.

I consider that it is a fair inference from the circumstances that the parties did contemplate that a solicitor should draw up a formal contract. This follows from the respondent’s evidence that Lord stated that the first quarterly payment was to be made six months “after the transaction”, which I take to be the date of a formal contract, and also from Lord’s reference to Mr. Reitano, when the respondent telephoned to say he would purchase the property.

On the basis that the parties did contemplate that a formal contract should be drawn up the law has been stated by the High Court in Masters v. Cameron[ccclxviii]⁴ to be as follows:

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

“In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions of this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v. Miller[ccclxix]⁵ when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: ‘. . . as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed’[ccclxx]⁶: see also Sinclair, Scott & Co. Ltd. v. Naughton[ccclxxi]⁷. A case of the second class came before this Court in Niesmann v. Collingridge[ccclxxii]⁸ where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made ‘on the signing of the contract’. Rich and Starke JJ. observed[ccclxxiii]⁹ that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, ‘and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion’[ccclxxiv]¹⁰: see also O’Brien v. Dawson[ccclxxv]¹¹.”

I consider that this case falls within the first class of contracts referred to by the High Court. The parties had reached finality in arranging the terms of their bargain and did intend to be bound immediately. Such a stage had been reached in the negotiations between the parties that the matters stated at the date of the inspection were to remain unchanged and not varied by any subsequent negotiation. The formal contract which they had in mind was not to be permitted to vary the terms already settled. Having reached agreement on the main terms of the bargain it was not fatal, for example, that the rate of interest was left to be settled later as an additional term. The fact that the respondent was permitted to go into possession immediately is consistent with an intention of the parties that the contract had been concluded.

When the formal contract was presented to the respondent, as it contained no reference to the tractor or machinery it could reasonably have been regarded by him that it was a formal document relating to the land only and the total purchase price. It is true that at that stage he was aware of the condition of the tractor, but he had Lord’s statement as to its condition and Mr. Reitano’s assurance that it would be attended to. The contract having been concluded on 15th September, 1966, the effect of Lord’s statement as to the condition of the tractor was one of the matters which could not be affected by subsequent negotiation or the respondent’s subsequent knowledge as to the condition of the tractor.

Whether Lord’s statement concerning the condition of the tractor was a mere representation or a warranty is a question of fact. Having regard to the importance to the purchaser of the condition of the tractor, which was a used one, to be used in running a market garden and to the fact that the condition of the tractor was then within the knowledge of the vendor only, the learned magistrate was plainly right in construing it as a warranty. So long as the respondent acted upon Lord’s statement, the fact that he was also influenced by his own observation of the Ferguson tractor on Mr. Francis’ property which he mistakenly supposed was the Riverview tractor would not prevent that statement from being construed as a warranty (cf. Edgington v. Fitzmaurice[ccclxxvi]¹²).

The final ground of appeal related to the issue of damages. The measure of damages is the difference between the value of goods at the time of delivery and the value which they would have had if they had answered to the warranty: Goods Ordinance 1951, s. 57(3); Hardman v. McLeod[ccclxxvii]¹³.

Now, at the time of the statutory declaration Lord had a belief that the Riverview tractor required minor repairs but that it was in going order, to use his own words, and his statutory declaration that it was valued at $2,000 was sufficient evidence of its value had it answered the warranty. Consequently the learned magistrate was right in acting on this evidence. I accordingly dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Norman White & Reitano.

Solicitors for the respondent: Richard Major & Co.

[ccclxv]* Section 57(3) of the Goods Ordinance 1951 provides:

N1>“57(3)   In the case of breach of warranty of quality that loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value which they would have had if they had answered to the warranty.”

[ccclxvi] [1916] 2 Ch. 187, per Lord Cozens-Hardy M.R., at p. 191.

[ccclxvii][1929] HCA 34; (1929) 43 C.L.R. 310, at p. 317.

[ccclxviii][1954] HCA 72; (1954) 91 C.L.R. 353, at pp. 360-361.

[ccclxix](1878) 3 App. Cas. 1124.

[ccclxx](1878) 3 App. Cas., at p. 1151.

[ccclxxi](1929) 43 C.L.R. 310.

[ccclxxii](1921) 29 C.L.R. 177.

[ccclxxiii](1921) 29 C.L.R., at pp. 184-185.

[ccclxxiv](1921) 29 C.L.R., at p. 185.

[ccclxxv][1942] HCA 8; (1942) 66 C.L.R. 18, at p. 31.

[ccclxxvi][1885] UKLawRpCh 83; (1884) 29 Ch.D. 459, at pp. 471-472.

[ccclxxvii][1926] NSWStRp 77; (1926) 26 S.R. (N.S.W.) 578; 43 W.N. 194.