Hoyt's Pty Ltd v Spencer

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Citation: (1919) 27 CLR 133

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 395-8

Contents

Background facts

  • The Defendant (Spencer) leased premises to the Plaintiff (Hoyts)
  • The lease was done through a registered memorandum of lease.
    • Contained a clause that enabled the Defendant to terminate the lease at any time as long as it give the Plaintiff 4 weeks notice in writing.
  • Later on, the Defendant invoked that right and terminated the agreement, giving the due notice. The Plaintiff complied.
  • However, afterwards, the Plaintiff brought an action that, in consideration for him entering the agreement, the Defendant promised him he will not terminate the agreement during the term.

Argument

  • A collateral contract operated alongside the main contract which prohibited the Defendant from terminating the agreement

Legal issues

Judgment

Majority opinion:

  • The Plaintiff claims that "the respondent Spencer was to have the unqualified right as a matter of property to resume possession whenever he chose to exercise his power...but he was under a personal contractatual obligation, by virtue of the collateral promise, not to exercise his property right except in accordance with the collateral promise[1]." - this is a fallacy.
    • As we know, collateral contracts by definition involve the entrance into a contract as consideration for a promise.
    • However, this also means by definition that the "main contract, when utilised to form the consideration for the collateral contract, must be taken exactly as it is...the parties shall have and be subject to all (not some only) of the respective benefits and burdens of the main contract[2]."
    • This means that a collateral contract cannot contradict a contractual right or obligation in the original contract. It cannot be inconsistent to it. It also needs to be made before or at the time of formation.
      • "a collateral contract...may be either antecedent or contemporaneous [to the main contract, and]...cannot impinge on it [main contract], or alter its provisions or the rights created by it[3]."
      • "where the main contract is relied on as the consideration...for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made[4]."
  • In this case, it was obvious that the consideration for the promise was that the plaintiff would "take a lease and become lessee for the term mentioned and 'upon certain terms'[5]". One of those terms was the ability of the Defendant to terminate at will.
  • Accordingly, a collateral warranty cannot exist as to deprive the Defendant of this right, because the consideration for that promise is the Plaintiff's acceptance of all the terms of the contract, including the ability to terminate at will.
  • This is clearly inconsistent, and "the appellant's [Plaintiff, Hoyts] first contention is therefore unsound[6]."

Dissenting opinion:

  • Note: this was in the Full Court, not in the High Court, where the above judgment is taken from
  • The parties have full rights to modify the contract. As they previously negotiated the terms of the contract, they are able to modify those terms through collateral contracts and such.
  • If a person promised he wouldn't do a specific thing if another signed a document then obviously he bound himself to do so if the other has signed the document.
  • It shouldn't be up to the court to look at the document and say - the former person's promise is inconsistent with the document and therefore is worthless. The parties have clearly modified the agreement.

References

  1. (1919) 27 CLR 133, 142
  2. (1919) 27 CLR 133, 146-7
  3. (1919) 27 CLR 133, 147
  4. (1919) 27 CLR 133, 147
  5. (1919) 27 CLR 133, 141
  6. (1919) 27 CLR 133, 147-8
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