Lennon v Scarlett & Co [1921] HCA 42; (1921) 29 CLR 499 (19 October 1921)

The questions submitted in the special case stated by the parties are:—(1) Having regard to the matters set forth in pars. 4, 5 and 6 of this case, is the plaintiff entitled to succeed against the defendant for breach of contract as alleged in the statement of claim herein? (2) If yes, what date should be regarded as the date of breach of such contract for the purpose of measuring damages? The decision must rest on the correspondence set out in pars. 4, 5 and 6 of the special case.

The telegram of 1st June from the plaintiff to the defendant was in terms an offer of 500 tons of maize at £16 a ton, free on board at Cairns, to be shipped in July or August at seller's option, and the telegram in reply of the same date was in terms an unconditional acceptance of that offer unless the acceptance is to be treated as qualified by the words "Please forward contract." It is said that the effect of these words read in the light of the subsequent correspondence is that the execution of the formal contract was a condition precedent to the existence of a binding agreement between the parties. In determining this question the rule to be applied is that stated by Jessel M.R. in Winn v. Bull[1] in these words:—"It comes therefore, to this, that where you have a proposal or agreement made in writing expressed to be subject to a formal contract being prepared, it means what it says; it is subject to and is dependent upon a formal contract being prepared. When it is not expressly stated to be subject to a formal contract it becomes a question of construction, whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail." In construing the letters relied on the Court ought to construe them in the light of the rest of the correspondence between the parties. On this question of construction it is to be noticed that all the essential terms of the contract are stated in the two first telegrams—parties, price, subject matter, and mode and date of performance. The words "Please forward contract" are not in themselves apt to express a condition. Their natural meaning is "please forward a form of document embodying the terms on which we have agreed." Turning to the subsequent correspondence, we find it is clear that the plaintiff understood them in this sense from his telegram sent later on the same day—"Your telegram received. Confirm sale five hundred tons. Offer further five hundred tons same price July September." And that the defendant understood them in the same sense is equally clear from his letter of 19th June objecting to the insertion in the formal contract of additional terms, and concluding "The contract we purchased from you was a clean contract f.o.b. Cairns for shipment during July or August at sellers' option." Consequently we feel no doubt that a binding contract was concluded between the parties by the telegrams of 1st June.

It was suggested during argument that subsequent negotiations between the parties show that no contract had been concluded on 1st June; but, adopting the language in Fry on Specific Performance, 6th ed., p. 266, par. 553, "if the letters of proposal and acceptance in fact contain all the terms agreed on at the time, and were written with the intent of binding the writers, this complete contract could not be affected by subsequent negotiations not resulting in a new contract" (see Perry v. Suffields Ltd.[2]). It is not suggested that the subsequent negotiations resulted in a new contract.

Another argument was that the plaintiff had insisted on the insertion of new and essential terms in the contract note which he forwarded, and that this conduct should be regarded as inconsistent with a continued intention to observe the contractual obligations, and so disentitled him to recover damages from the defendant (Morris v. Baron & Co.[3]; Summers v. The Commonwealth[4]). The argument is, in substance, that the plaintiff repudiated the contract and that the defendant by accepting his repudiation put an end to the contract. There are two answers to this argument, either of which is sufficient. The first is that the attempt by the plaintiff to add new terms is not sufficient in the circumstances of this case to establish an intention on his part to repudiate, and the second is that in any case the defendant did not accept the repudiation, insisting at first on the contract of 1st June, and subsequently denying that any contract had ever been entered into between the parties.

The remaining question is as to the measure of damages. As to this the facts stated in the special case enable us to say no more than that the true measure of damages is the difference between the contract price and the market price on the date on which the contract should have been performed.

We answer the questions submitted as follows:—(1) Yes. (2) The true measure of damage is the difference between the contract price and the market price of the goods on the date on which the contract should have been performed.

Judgment for the plaintiff for an amount in damages to be assessed by the Principal Registrar of the Court and costs of action, to be taxed.

Solicitors for the plaintiff, Murray & McLaughlin, Cairns, by A. G. Proudfoot & Turner.

[1] 7 Ch. D., 29, at p. 32.

[2] (1916) 2 Ch., 187.

[3] (1918) A.C., 1.

[4] [1918] HCA 33; 25 C.L.R., 144.

High Court of Australia

Lennon v Scarlett & Co [1921] HCA 42; (1921) 29 CLR 499 (19 October 1921)

HIGH COURT OF AUSTRALIA