Rankin v Scott Fell & Co [1904] HCA 42; (1904) 2 CLR 164 (12 December 1904)

[His Honor, having stated the facts, and referred to the documents as set out above, proceeded]:—The receipt of 9th April does not in any way conclude the question whether the £625 was paid to the plaintiff as in part payment for shares bought from him, or whether it was paid, as the defendants alleged, to Mitchell as trustee for the company which was then in contemplation, as an advance on shares which they intended to take in the company. The defendants applied to the Supreme Court for a nonsuit to be entered, or for a new trial, and the Court were unanimous in thinking that the condition to deliver the property to the company free from encumbrance, except as to the £30,000 payable to the plaintiff, was a condition precedent, and also thought, (in fact it was not in dispute), that there was no evidence of any exoneration of the plaintiff from the performance of that condition, and were therefore of opinion that there should be a new trial. Upon that point we see no reason to differ from their Honors. All parties were agreed that it was a condition, and something might, perhaps, be said in support of the contention that the arrangements detailed in evidence were substantially a compliance with the condition by the plaintiff, and a great deal might be said on the other side. But, in the view which I take of the other part of the case, it is not necessary formally to decide that question. It is enough to say that I see no reason to differ from the learned Judges in that respect.

The ground on which it is contended that there should be a nonsuit is that there was no evidence of any such contract as alleged, and that oral evidence to explain or vary the written contract was inadmissible. That question arises on these words of the contract: "Scott Fell and Company agree to take 5,000 shares and to take the sole agency of the said company, and in consideration of their so doing J. C. Rankin agrees to transfer to them or whom they may direct 10,000 fully paid up shares out of the 30,000 shares to be issued to him, such transfer to W. Scott Fell and Company to be executed at time of allotment." The learned Chief Justice and Mr. Justice Pring were of opinion that oral evidence was admissible to show that the 5,000 shares referred to were shares belonging to the plaintiff, and not shares of the company, to be issued by the company and which the defendants were to subscribe and take up. Mr. Justice Simpson was of the contrary opinion. He thought that there was no ambiguity, that it clearly appeared from the words that the contract was not to take shares from the plaintiff, but to take shares in the company, and therefore that the contract alleged was not proved. Now, there is no doubt that, when the subject-matter of a contract is uncertain, extrinsic evidence is admissible to prove what it was that the parties were bargaining about. That is only a rule of common sense. The first case referred to by the learned Judges was MacDonald v. Longbottom[1], in which the defendant had agreed to buy from the plaintiff what was described as "your wool." What was meant by those words was clearly something which could not be ascertained from the words themselves, and it was therefore necessary to ascertain, by extrinsic evidence, what the parties were talking about. The conditions and limitations under which oral evidence may be admitted to explain a written contract for the purposes of construction are stated by many authorities. They are very clearly set out in the case of Shore v. Wilson[2], decided in the House of Lords. In that case Baron Parke, afterwards Lord Wensleydale, says[3]: "I apprehend that there are two descriptions of evidence ... which are clearly admissible in every case for the purpose of enabling a Court to construe any written instrument, and to apply it practically. In the first place, there is no doubt that not only where the language of the instrument is such as the Court does not understand, it is competent to receive evidence of the proper meaning of that language, as when it is written in a foreign tongue; but it is also competent, where technical words or peculiar terms, or indeed any expressions are used, which at the time the instrument was written had acquired an appropriate meaning, either generally or by local usage, or amongst particular classes." He then refers to certain authorities for that position, and proceeds[4]: "This description of evidence is admissible, in order to enable the Court to understand the meaning of the words contained in the instrument itself, by themselves, and without reference to the extrinsic facts on which the instrument is intended to operate. For the purpose of applying the instrument to the facts, and determining what passes by it, and who take an interest under it, a second description of evidence is admissible, viz., every material fact that will enable the Court to identify the person or thing mentioned in the instrument, and to place the Court, whose province it is to declare the meaning of the words of the instrument, as near as may be in the situation of the parties to it. The authorities for this position are also numerous ... From the context of the instrument, and from these two descriptions of evidence, with such circumstances as by law the Court, without evidence, may itself notice, it is its duty to construe and apply the words of that instrument; and no extrinsic evidence of the intention of the party to the deed, from his declarations, whether at the time of his executing the instrument, or before or after that time, is admissible; the duty of the Court being to declare the meaning of what is written in the instrument, not of what was intended to have been written. The excepted cases in which such evidence is admissible, if indeed there be more than one excepted case (that is, where there are two subjects, or two objects, both described in the instrument, and each equally agreeing with it), having no bearing whatever on the present question." That statement of the law excludes from our consideration all the cases that were referred to before us. We have to examine the instrument itself, and if there is no ambiguity on the face of it as to its meaning or intention, there is no room for the admission of oral evidence to qualify it. Some argument took place concerning latent and patent ambiguities, but nobody denies that there must at least be an ambiguity, either patent or latent, before such evidence is admissible. In the case of a latent ambiguity, it must appear from the surrounding circumstances that the words of the document are capable of meaning two or more things. But the words in the present contract are plain. The subject-matter of the agreement is the formation of the company, of which 60,000 shares were to be issued to the public. The plaintiff is the promoter, and it is his interest to get the company floated. He wishes the defendants to become agents for the company, and as an inducement for them to do so, he agrees to give them the agency of the company, when floated, for ten years, and to transfer to them 10,000 fully paid up shares gratuitously, and they, on their part, are to "take" 5,000 shares and the agency of the company. Contrasting the language used in the different provisions as to shares, in one case the plaintiff agrees to "transfer" to the defendants 10,000 shares, the transfer to be executed at the time of allotment, and, on the other hand, the defendants agree to "take" 5,000 shares, no price being fixed. It is not suggested that they were to accept them gratuitously. It is suggested that they were to pay for them, but the price is not mentioned. What was meant seems to me quite clear on the face of the contract, namely, that what the defendants agreed to do was to take 5,000 shares in the company, to acquire them by subscription in the ordinary way. In that view it was not necessary to mention the price, because by another part of the contract it was provided that the shares were to be issued to the public at not less than 5s. per share. The only question is, what did the defendants agree to do, and, on the construction of the written instrument, it seems to me impossible to come to any other view than that they agreed to subscribe for 5,000 shares in the company about to be formed. That is not the agreement upon which the plaintiff is suing, and therefore as he has failed to prove that agreement, the Supreme Court, instead of granting a new trial on a ground which was fatal to the plaintiff's case, should have disposed of the case at once, and made the rule absolute for a nonsuit.

I have come to the same conclusion, and desire only to add a few words in relation to the construction of this contract. If it did not appear otherwise to able minds, whose opinions command my entire respect, I should have thought there was no difficulty in the construction, for it appears to me that, so far as its subject-matter is concerned, and in every other essential, this agreement is express and definite. It is urged that there are two classes of shares, namely, those to be issued to the plaintiff, and those to be offered to or reserved for subscribers, to which the words "agree to take 5,000 shares" are equally applicable, and that this constitutes an ambiguity which warrants the introduction of extraneous evidence. Well, in one way it is possible to apply the words "take 5,000 shares" to either of these classes of shares. If an unusual and improbable meaning, unsupported by any other words in the contract to aid it, is placed upon the word "take," the contract becomes open to construction, though even then a forced construction, in favour of the class of shares, to which the plaintiff contends that it was intended to apply. But if the word is taken in its natural and ordinary meaning, and in due relation to the context, I do not think that can be the case. This is a contract which has special relation to a company, and it is a leading term of the contract that the plaintiff undertakes to float one, selling to it the mining property and plant, and receiving £30,000, with 30,000 fully paid up shares, and apparently no other price. At a time when the flotation of a company is contemplated, if a person has undertaken to another that he will float the company, and that other person says to the promoter, "I agree to take so many shares," I do not see that one can easily attribute any other intention to the person so expressing himself than this, that he means to take that number of the shares offered to subscribers in the flotation of the company Nor would the fact that the promoter was himself to have, as is usual, a large number of paid up shares for his property and rights, cause one to attribute any different meaning to such a form of words. The expression here is not "buy," but "take," and, seeing that there are these two classes of shares, 30,000 of which are to be issued to the plaintiff, and another 90,000 to subscribers, 60,000 to be the first issue, I think it would be the natural form of expression, if any one of us wished to have some of those 60,000 shares in the company, to say that he would "take shares." It is the every day expression. But if one wishes to purchase promoter's shares, and not to subscribe for shares in a company making up its share list, the ordinary way to express that desire is to say that one will "buy" shares from somebody who will sell them. And it seems to me that this form of expression applies itself naturally when one looks at the context. In the first place this form of words, "Scott Fell & Co. agree to take 5,000 shares," is unaccompanied by any stipulation as to the price of the shares. Which class of shares is it that scarcely requires that an intending "taker" should state a price or explain the kind he wants? I should say, those which are to be offered to subscribers, and at one uniform price. Looking at the portion of the contract, which seems to define the form in which the 60,000 shares are to be issued, namely, "as fully paid up at not less than 5s. per share," it is clear that if one were, in the ordinary acceptation of the term, "taking" shares in the company, there is then a measure of price, a minimum, at any rate, fixed as a condition of entrance into the company by taking shares. If, on the other hand, the intention of the defendants was to buy shares, one would have expected the expression "buy" or "purchase" to have been used in conjunction with a price to be paid, and I do not think that the facts of such an expression not having been so used, and of the omission of all reference to price, can be satisfactorily accounted for on the ground of hurry, as Mr. James suggested. The supposition of hurry is primarily excluded from the acts of parties in reducing their conclusions to the form of written contracts. They are to be taken to have set down all they mean, in reducing their agreement to writing. If we had in that writing terms of trade which required local or mercantile usage to explain them, or any other of the ingredients mentioned in the case of Shore v. Wilson[5] and other cases on the subject, one could understand parol evidence being necessary to say what the contract was, or to what it was applicable. But the thing to which this agreement to take shares is to apply is specified on the face of the writing, that is to say, it must apply to 5,000 of the 30,000 shares issued to the plaintiff, or to 5,000 of the 60,000 to be issued to the public in the first instance. The words used are part of our common parlance, against the plain acceptation of which no sufficient reason has been urged, and in that acceptation they must apply to 5,000 of the 60,000 shares, and not to the plaintiff's shares. Confirmation of the natural construction is afforded by the immediate context, as pointed out by the learned Chief Justice. In consideration of Scott Fell & Co. agreeing to "take" 5,000 shares in the company, the plaintiff agrees to "transfer" to them 10,000 fully paid up shares out of the 30,000 to be issued to him, so that, apparently, a distinction is drawn between 5,000 shares to be "taken" by the defendants, and 10,000 fully paid up shares which the plaintiff is to transfer to them at the time of allotment. Nothing is said as to any transfer of the 5,000 shares, and that of itself accentuates the inference that the contract, in that part of it, refers to two different classes of shares. If it does, there can be no doubt to which class the 5,000 shares belong. I see nothing therefore in the contract from beginning to end which takes away from the term "take" its everyday meaning. On the contrary, the writing is not deficient in expressions which confirm the presumption that the parties employed it aptly to convey that meaning.

I might add that, if the appellant's argument is correct, and there is an ambiguity, that ambiguity is patent, being raised on the face of the contract by the passage relating to the two classes of shares. No authority has been cited to warrant the appellant in contending that the rule has become obsolete that, where an ambiguity is patent, parol evidence is not admissible to solve it.

Believing then that the extraneous evidence was erroneously admitted, and that the meaning of the parties in their document is not that which the plaintiff must show in order to succeed, I think the plaintiff has failed to prove the contract he has set out in his declaration. Consequently his action must fail, and the rule should be made absolute, not for a new trial, as he contends, but for a nonsuit.

Order of the Supreme Court varied accordingly, by making the rule absolute for a nonsuit with costs. Appellant to pay the costs of the appeal.

[1] E. & E., 977.

[2] 9 C. & F., 355.

[3] 9 C. & F., at p 555.

[4] 9 C. & F., at p. 556.

[5] 9 C. & F., 355.

High Court of Australia

Rankin v Scott Fell & Co [1904] HCA 42; (1904) 2 CLR 164 (12 December 1904)

HIGH COURT OF AUSTRALIA