Understanding Conditions Subsequent to Contracts: A Legal Perspective, Exams of Construction

Download Understanding Conditions Subsequent to Contracts: A Legal Perspective and more Exams Construction in PDF only on Docsity! IN PRAISE OF CONDITIONS SUBSEQUENT INTRODUCTION A party to a prospective contract, particularly an important contract such as the sale and purchase of land, is often in a dilemma. He would like to have an arrangement which binds the other party, so as not to lose the bargain, but would also like himself to be able to escape from the bargain if matters (for example the availability of finance) do not turn out as he hopes. The law offers various solutions. The prospective buyer could seek an option to purchase. That would leave him will-free, but the prospective vendor bound. The latter might reject the proposal as being one-sided, notwithstanding the consideration that would have to be given to make the option binding.' An alternative, apparently widely used in England,2 would be to enter an arrangement "subject to contractw3 That however would leave both parties free to withdraw, and the pros- pective buyer might find himself "gazumped". The solution in Australia has been to make use of a provision widely known as a "condition subse- quent". A well-known example is the "subject to finance" clause, but there are others4 1 The consideration may be nominal: Mountford v. Scott, [I9751 Ch. 258. Where there is a commercial venture dependent upon a number of transactions, it may be more suitable to obtain a series of options. 2 Coote, 'Agreements "Subject to Finance"' (1976) 40 Conv. 37. 3 The leading Australian case is Masters v. Cameron (1954). 91 C.L.R. 353. 4 For discussion of "subject to finance" provisions see Nicholson, 'Law and Suburbia; Contracts of Sale Subject to Finance' (1967) 8 U. W.A. L. Rev. 1 ; Coote, supra n. 2; Phillips, '"Subject to Finance Clauses" in Real Estate Contracts' (1976) 3 Qd. Lawyer 113; Owen-Conway, 'The "Subject to Finance Clause" in the Offer and Acceptance Approved by the Law Society and the Real Estate Institute of Western Australia' (1977) 13 U W A L Rev. 196. Other provisions relate to planning, and the obtain- ing of consents or approvals of administrative bodies or officials, or of some other per- son such as a landlord. 334 WESTERN AUSTRALIAN LA W RE VIEW TERMINOLOGY The modest phrase "condition subsequent" conceals a number of features and functions. An expanded version (not recommended for general use) might be "non-promissory resolutive condition subsequent to contract". Nearly every word of this description is provocative to the purist. A contract is concerned with promises-what function has a "non-promis- sory" condition? Then again, the word "condition" is one of the most overworked in the contract l e ~ i c o n . ~ Even more mystery surrounds it when coupled with the word "precedent" or "s~bsequent" ,~ and when "res~lutive"~ is thrown in for good measure, confusion is ~ o m p l e t e . ~ Some justification is required. The provision is described as subsequent to contract in that it assumes that there is a binding contract in existence, but resolutive because it allows the contract to be brought to an end; it is a condition in that it must be fulfilled before certain other obligations (usually but not always those involved in settlement) become due,g but non-promissory in that 5 In a famous article S. J. Stoljar identified twelve separate shades of meaning-Stoljar, 'The Contractual Concept of Condition' (1953) 69 L. Q . R . 485 at 486-8. The Austra- lian editors of Cheshire and Fzfoot Law of Contract 4 Aust. ed. (1981) 104 content themselves with "at least four", and Lord Denning M.R. in the context of the case limited himself to a modest three- Wickman Machine Tool Sales Ltd, v. L. Schuler A.G. , [I9721 2 All E.R. 1173 at 1180-1; affirmed sub n o m . L. Schuler A.G. v. Wick- man Machine Tool Sales Ltd. , [1974] A.C. 235. 5 See generally Stoljar; supra n. 5 at 506ff. Stoljar's questions at 506: "Precedent to what? Subsequent to what?" echo that of Isaacs J. as long ago as 1926: "We must ask the question 'Precedent to what?"- see Maynard v. Goode (1926), 37 C.L.R. 529 at 540. 7 The Oxford Englzsh Dzctzonay gives, as the first legal meaning: "Resolutzue condition, a condition by the happening of which a contract or obligation is ter- minated". See also Zieme v. Gregory, [I9631 V.R. 214 at 222: "a condition subse- quent or resolutive". Lord Denning M.R. has used the word "defeasantn-Felixstowe Dock and Railway Co. and European Ferries Ltd. v. British Transport Docks Board, [I9761 2 LI. R. 656 at 660. 8 This by no means exhausts the possibilities. Canadian literature, for instance, refers to a "true condition precedent" (presumably in contra-distinction to a false or pseudo condition precedent)-see Nathan, 'Conditional Contracts- Waiver of a True Con- dition Precedent-Damages' (1974) 12 Osgoode Hall L J 650; Webb, 'Contract: Waiver of Conditions Precedent' (1976) 8 Ottawa L R e v 82; Davies, 'Some Thoughts on the Drafting of Conditions in Contracts for the Sale of Land' (1977) 15 Alberta L . Rev 422. 9 There would seem to be general agreement that this is the primary meaning of "condition"; sce Corbin, 'Conditions in the Law of Contract' (1918-1919) 28 Yale L J 739 at 743 "In its proper sense the word 'condrtton' means some operattr'efact subse- quent to acceptance and PTZOT to ducharge, a fact upon which the rights and duties of the parties depend"; Pannam, C.L. and Hocker, P . J . , Cases and Materzalr on Con- tract 4 ed. (1979) 771 "the term 'condition precedent' . . . is used in its correct and primary sense of indicating a fact or event which must exist or occur before the IN PRAISE OF CONDITIONS SUBSEQUENT 337 On some phrases "the pressure of litigation has stamped a precise s ignif ican~e".~~ Thus "subject to contract" invariably2' means "no con- tract" until the appropriate documents have been prepared and ex- changed in a manner recognised by law,22 although any departure from those magic words opens the possibility that the parties intended to be immediately bound.Z3 A similar meaning is said to attach to the words "subject to survey"z4 whether in respect of land'= or ships.Z6 In Australia it has become generally recognised,without any landmark decision,27 that "subject to finance" clauses create conditions subsequent;z8 and other phrases have been so categorised by concession or with the minimum of discussion. 29 In the absence of authority, it is possible to suggest some factors which may help to arrive at a decision. Where the subject-matter is land, the value and relative infrequency of contracting (as far as the parties are concerned) suggest an intention to be bound once there is agreement on essential terms.30 The agreement will usually be in writing,31 often on a standard form which contains or incorporates obvi- 2 at 37 and 42-43 . For an Australian approach see now Perri v. Coolangatta In- vestments Pty. Ltd. (1982), 5 6 A.L.J.R. 445 esp. at 450-1 per Mason J . 20 Cheshire and Fifoot Law o f c o n t ~ a c t , supra n. 5 at 34-35 and n. 36. 21 See the dramatic description bv Denning M.R. of the "consternation" caused by Law v. Jones, [1974] Ch. 12 with its suggestion of an inroad into the traditional under- standing of solicitors, in Tiverton Estates Ltd. v. Wearwell Ltd., [I9751 Ch. 146 at 153-4 and 159-160. Both cases relate, not to the nature of the condition, but to the sufficiency of written evidence for satisfying the requirements of the Statute of Frauds. 22 Eccles v. Bryant and Pollock, [1948] Ch. 93. For sanction of "exchange" by telephone see Domb v. Isoz, [I9801 Ch. 548. 23 The tendency in Australia is to find a binding contract-see recently Godeke v. Kirwan (1973), 129 C.L.R. 629. 24 This may be an example of the willingness of English judges to find condition precedent rather than condition subsequent. The attitude may be changing: Varverakis v. Compagia de Navegacion Artico S.A. (The "Merak"), [I9761 2 L1. R. 250 at 254. 2 5 Marks v. Board (1930), 4 6 T.L.R. 424; Graham & SCOTT (SOUTHGATE) LTD. V . OXLADE, [I9501 1 ALL E.R. 91. 26 Astra Trust Ltd. v. Adams and Williams, [1969] 1 LI. R. 81: Goodey and Southwold Trawlers Ltd. v. Garriock, Mason and Millgate, [1972] 2 L1. R. 369. 2 7 Each case turns on construction of the clause, but the tendency is clear: compare Zieme v. Gregory, supra n. 7 and Meehan v. Jones (1982), 5 6 A.L.J.R. 813. 2.9 In earlier New Zealand decisions this was assumed: later cases have categorized the condition as "precedent". See generally Coote, supra n. 2 at 4 2 - 4 3 . 29 G. & S. Koikas v. Green Park Construction Pty. Ltd., [I9701 V.R. 142 (subject to permission to build); Clark v. Refeld and Refeld (1980), 2 5 S.A.S.R. 246 per Wells J. at first instance (subject to finance, subdivisional approval and sale of other land). 30 See for example Godeke v. Kirwan, supra n. 2 3 . 31 In Western Australia, in order to satisfy Statute of Frauds 1677 s. 4 and Property Law Act 1969-1979 s. 34. WESTERN AUSTRALIAN LA W RE VIEW ously contractual provi~ions,~Z and the execution of which is surrounded by some f ~ r m a l i t y . ~ ~ The circumstances and the nature of the condition will usually be such that non-fulfilment will destroy any chance of a con- tract,34 rather than merely signal a renewal of negotiations at a different price or on different terms. Most special conditions in land contracts relate to single perceived obstacles, rather than to the general advisa- bility of making the contract, or the price or terms on which it should be made.35 At least in contracts for the sale of suburban land, it seems appropri- ate therefore to start with an assumption that any non-promissory con- ditions will be subsequent rather than precedent. This assumption will the more easily be displaced as the various factors mentioned above are lacking. One factor which, if present, is likely to be decisive is illegality. If it would be illegal to make the contract before the condition is ful- filled, it will be construed as precedent to contract, but if the illegality lies in performance, the condition can more readily be construed as sub- sequentSs6 One matter requiring special mention is certainty.37 On general principles, and regardless of classification, if the wording of the condition is so obscure as to render it meaningless, there will be no con- tract;38 similarly if it is clear that the parties are still negotiating as to the content of the condition.39 On the other hand, where fulfilment of the condition requires the decision of one of the parties, or a third party, it does not necessarily follow that there is no immediately binding contract. Such a provision might be included to avoid expensive litiga- 32 In Western Australia see the "Agreement for Sale of Freehold Land (1980 Edition)" produced by The Law Society of Western Australia (Inc.) and the "Contract for Sale of Land by Offer and Acceptance (1982 Revision)" approved by The Real Estate In. stitute of Western Australia (Inc.) and The Settlement Agents Association (Inc.). 33 Both forms have provision for witnessing of signature. 34 If for instance the purchaser cannot get finance, he will not wish to proceed. 35 If for example the sale of a ship is made "subject to survey" (supra n. 26) the purchaser may be intending to require that any defects be rectified, or the price reduced. 36 See Ovenden v. Palyaris Construction Pty. Ltd. (1974), 11 S.A.S.R. 42 at 74-75 per Bray C.J. 37 It is not intended here to examine the cases exhaustively. For discussion see Coote, supra n. 2 at 38-40 and Owen-Conway, supra n. 4 at 197-203. Much of the discussion must now be read in the light of Meehan v. Jones, supra n. 27. 35 Brown v. Gould [1972] Ch. 53. Severance is seldom appropriate, as such a clause is of importance to the parties-see Grime v. Bartholomew, [I9721 2 N.S. W.L.R. 827 at 837. 39 It would be rare for the content of a "subject to finance" clause to be negotiated. In Bishop & Baxter Ltd. v. Anglo Eastern Trading and Industrial Co. Ltd., [I9431 2 All E.R. 498 a sale of goods "subject to . . . licences . . . Government restrictions . . . and war clause" was too uncertain as there were many forms of war clause. The war clause however related to the contents of the contract, and was not a condition subsequent in the sense discussed in this article. I N PRAISE OF CONDITIONS SUBSEQUENT 339 ti01-1,~~ or more simply to provide one party with greater flexibility. If the fact of fulfilment is objectively ascertainable, that should suffice. CONDITlONAL AND RESOLUTIVE ASPECTS In dealing with a condition subsequent, it is useful to distinguish the conditional from the resolutive aspects.41 In its conditional aspect the clause is designed to provide one or both parties with an excuse for non- performance when the time for performance (usually settlement) arrives. The effect of one party successfully relying on such an excuse is that the contract will come to an end because of excused non- perf~rmance.~z In such a case no reference need be made to the resolu- tive effect, unless indeed to justify the return of moneys paid, for example the deposit. Often however a date is fixed prior to settlement, by which, it is said, the condition must be fulfilled. It is here that the resolutive aspect comes into play. The clause itself may specify that the contract may then be terminated, the machinery for doing so, and the persons who may use that rna~hinery.4~ If that is not done these matters must be dealt with by implication. There is no point in having a gap of time be- tween a specified date for fulfilment, and performance of promissory obligations, other than to allow someone to terminate the contract in the interim. The point of time after which termination becomes a possibility may be fixed either by the occurrence of an event or by expiry of a period of time. Sometimes, as where the condition requires consent of a third party, this is a difficult matter of construction. In an early case,44 where transfer of a lease was subject to the landlord's approval of the new tenant, it was said that the contract would cease once approval was refused, notwithstanding counsel's argument45 that the landlord might change his mind prior to the date for settlement. More recently46 in the New South Wales Court of Appeal Jacobs P. and Hope J.A. thought, on construction, that non-approval of a plan of sub-division involved a state of affairs continuing over a period, whereas Hutley J.A. construed the condition as referring to an event. 40 Caney v. Leith, supra n. 18 (subject to the purchaser's solicitor approving the lease). 1 41 AS analysed at above. 42 For the concept of excused non-performance see Treitel, G .L . , The Law of Contract 5th ed. (1979) 578-9 and 631-2. 43 See the forms referred to supra n. 32. 44 Davies v. Nisbett (1861), 10 C.B. (N.S.) 752; 142 E.R. 649. 45 Id . at 756-7; 651. 46 J.A.G. Investments Pty. Ltd. v. Strati, [1973] 2 N.S.W.L.R. 540. 342 WESTERN AUSTRALIAN LA W RE VIEW The standard answer to the second question is that any party for whose "benefit" the condition was inserted in the contract may waive it.61 If the condition was designed to benefit one party only, waiver by him alone will render the contract unconditional. It is sometimes said the other cannot waive, but what is meant is that he cannot object to the clause becoming irrelevant before the date for termination arises.62 If the condition was designed to benefit both parties, both must waive if the condition is to become i r r e l e ~ a n t . ~ ~ It is in determining the meaning of "benefit" that the difficulties have arisen. In its conditional aspect the clause provides the benefit of an excuse for non-performance when the time for performance arrives; in its resolutive aspect it provides the benefit of terminating the contract before that time arrives. It is perfectly sensible for the same clause to confer the conditional benefit on one party only, but the resolutive benefit on both. Although, as indi- cated earlier, judgments on the point are properly concerned with the conditional benefit, the intrusion of arguments based on the resolutive benefit have created great difficulty. In most cases the clause is included at the instance of the purchaser or his advisers, and the conditional benefit to him is that he need not per- form obligations which would otherwise be absolute where, the condi- tion being unfulfilled, it would be practically i m p ~ s s i b l e , ~ ~ or inexpe- dient, or financially disadvantage~us~~ for him to do so. Usually the vendor has no such interest in the fulfilment of the condition66 - come settlement his only interest is in getting the price.67 It would seem to be 61 See Gange v. Sullivan, supra n. 51 at 430 per Barwick C.J. , 443 per Windeyer J . It is not clear whether Taylor, Menzies and Owen JJ. in their joint judgment regarded the provision as exclusively for the benefit of one party -see 441. 62 This is a matter relating to the effect of waiver, as to which see below 63 Raysun Pty. Ltd. v. Taylor, [I9711 Qd. R. 172; Heron Garage Properties Ltd. v. Moss, [I9741 1 W.L.R. 148; Gough Bay Holdings Pty. Ltd. v. Tyrwhitt-Drake, supra n. 48. 64 As where he does not have and cannot borrow the money to pay the price. In this case fulfilment of the condition is directly linked to the ability to perform obligations under the contract. In the other instances cited this is not necessarily so. 65 As where he wants to be sure of selling existing property first, or has a particular use in mind for the land, but needs planning permission. 66 It is true that, if the condition is neither waived nor fulfilled, the vendor may be able to terminate the contract. This however is a resolutive benefit. If the basis of the deci- sion of Brightman J. in Heron Garage Properties Ltd. v. Moss, supra n. 63, is that conditions subsequent are always designed for the (conditional) benefit of both, because both are interested in termination, there is, with respect, a confusion of the conditional and resolutive aspects. On the facts, the decision was clearly correct, as the condition (obtaining of planning consent, the vendor retaining adjacent land- see above) benefitted both in the conditional aspect. 67 See however Goodwin v. Temple, [I9571 S.R. Qd. 376 where, in an instalment sale, fulfilment of the condition would make the farm more profitable, and the price was specifically payable out of the proceeds of farming. IN PRAISE OF CONDITIONS SUBSEQUENT 343 now settled that the mere fact that there is a gap of time between the date for fulfilment of the condition and the date for settlement (or per- formance of some other obligation) does not mean that the clause bene- fits both in the relevant sense,6s nor does the fact that one party is expressly obliged to take steps to obtain f ~ l f i l m e n t . ~ ~ The argument based on different dates has met with varied success where the date of settlement is directly linked to and dependent upon the date of fulfil- ment of the condition.?O The one clear instance of vendor benefit is where the sale is subject to the granting of approval for development of the land sold, and the vendor has retained adjacent land.71 In such a case it is said that the benefit, if not actual, is potential.72 Perhaps it would be more accurate to say that the benefit is that the vendor can refuse to convey where he has good reason to do so, namely where it has become clear that the purchaser's efforts at development have (at least temporarily) not succeeded, and there is therefore no present possibility of the value of retained land being enhanced. 73 The cases in the area provide little guidance on how to waive, or on the revocability or otherwise of waiver. The first matter can be resolved in practical fashion-notice by the party having an ability to waive, to the other party, that he dispenses with the protection of the provision, should suffice.74 There is no authority on whether, in this area, waiver is 68 The argument is that the vendor has an interest in being relieved of uncertainty as to whether the contract will proceed. Again there is a confusion of the conditional and resolutive aspects. The argument was presented but not used as a factor in Raysun Pty. Ltd. v. Taylor, supra n. 63, B. H. McPherson arguendo at 174, and expressly re- jected as a factor in Gough Bay Holdings Pty. Ltd. v. Tyrwhitt-Drake: supra n. 48 at 202 relying on Gange v. Sullivan, supra n. 51. 69 Gough Bay Holdings Pty. Ltd. v. Tyrwhitt-Drake, supra n. 48 at 202. 70 Although present, it was not stressed as a factor in Gange v. Sullivan, supra n. 51, nor in Waldron and Waldron v. Tsimiklis, supra n. 49, but in Heron Garage Properties Ltd. v. Moss, supra n. 63 and Carpentaria Investments Pty. Ltd. v. Airs and Arnold, [I9721 Qd. R. 436 (at first instance) it was explicitly relied on. (In the case last cited, it appears the vendor had a certain discretionary control over fulfilment of the condi- tion, and hence over the date for settlement.) Again, this factor does not affect the conditional aspect. Insofar as waiver may interfere with the mechanism for fixing the date of settlement, any difficulty can be overcome by implication-see above. 7 1 See cases cited supra n. 63. 72 See the cases cited supra n. 63. It is recognised that, even with approval, the purchaser may not in fact develop the land, but an argument that there is therefore no benefit has been said to be "unrealn-Heron Garage Properties Ltd. v. Moss, supra n. 63 at 154. 73 In construing the condition it is permissible to have regard to the background against which the parties contracted- Jones v. Walton, [I9661 W.A.R. 139 at 142; Gough Bay Holdings Pty. Ltd. v. Tyrwhitt-Drake, supra n. 48 at 202-203. 74 At least notice of waiver must be unequivocal-id, at 206. A notice stating that the party is satisfied with consents which have in fact been obtained, or that he is ready to settle, or calling on the other party to settle, may be enough. 344 WESTERN AUSTRALIAN LA W RE VIEW an irrevocable act. It is unlikely that in an ordinary land sale one party would be so vacillatory as to seek to re-instate the condition after waiv- ing it. The point creates great difficulties, and in Goodwin v. Temple75 Dixon C.J., McTiernan and Kitto JJ., in their joint judgment, found no need to consider it. They held however that once a party has received all he is entitled to under the contract, it would be too late to revoke a waiver. The effect of waiver, before the date for termination, is twofold. It prevents the party waiving from relying on non-fulfilment, either to ter- minate the contract or as an excuse for non-performance of his own obligations; that is, it denies him both the conditional and the resolutive benefits of the clause. If both have conditional benefits,and both waive, obviously the condition ceases to have any function; but if only one waives, the other can rely on such rights as the clause gives him.76 It is where only one party has conditional benefits that the special doctrine of waiver operates. If that party waives, the prima facie rule is said to be that the condition ceases to have effect, that is, the other party loses such resolutive benefits as he might have.77 This special doctrine can be justified only if the circumstances are such that the other party ought no longer to have an interest in terminating the contract. In some cases this may be so, but it is submitted that the prima facie rule would be better reversed, to read that a non-waiving party should not be deprived of a right to terminate unless he has no further interest, connected with the condition, in being able to do Where waiver renders the condition irrelevant it is tempting, but in- accurate, to regard waiver as equivalent to fulfilment. The difference between these two becomes relevant where the time for performance of subsequent obligations under the contract is directly linked to and dependent upon fulfilment of the condition.7g As waiver is not fulfil- ment, some other method of fixing the relevant point of time must be 75 Supra n. 67. 76 See cases cited supra n. 63. 77 Gange v. Sullivan, supra n. 51 at 430 per Barwick C.J., 443 per Windeyer J . ; Phillips, supra n . 4 at 127-129. No case actually decides the point. In Gough Bay Holdings Pty. Ltd. v. Tyrwhitt-Drake, supra n. 48 Newton J . initially posed the question whether a term should be implied that one party could waive so as to prevent the other from relying on non-fulfilment to terminate the contract, and declined to make the implication. Later in his judgment he posed an 'objective' test: "Was it clear at the time when the contract was made that if special condition 4(b) were not fulfilled and were waived by the plaintiff, then the defendants would not thereby be deprived of any benefit or potential benefit which would have accrued to them if the condition had been fulfilled'" -supra n. 48 at 207. Again the answer was in the negative. 7s For further discussion of rights to terminate, and the possibility of termination despite waiver, see below. 79 For examples, see the cases cited supra n. 70. IN PRAISE OF CONDITIONS SUBSEQUENT 347 patory breach entitling the injured party to repudiate the contract.g5 If termination for breach is possible, it would not be necessary for the in- jured party (usually the vendor) to argue that the condition itself per- mits him to terminate. 96 THE RESOLUTIVE EFFECT As suggested earlier,g7 there is sometimes a point of time before settlement, after which termination becomes possible. Assuming there has been no waiver, does non-fulfilment have an immediate effect? It is said to be a matter of construction whether the contract terminates automatically, but in the present state of the authorities it seems that careful wording is necessary to achieve this result. Merely to provide that the contract is to be "void" is by no means decisive. In the New Zealand caseg8 Lord Atkinson suggests that the test is that if the condition is one the fulfilment of which neither party can influ- ence, then termination is automatic on non-fulfilment. For Australia the test was carried further in Suttor v. Gundowda Pty. Ltd. ,99 where the High Court held that if the condition is one the fulfilment of which one or both of the parties are able to influence, termination is not auto- matic, even though in the particular circumstances non-fulfilment has come about without any influence being exerted by either party. The reason appears to be that, if the provision were to be construed as mak- ing termination automatic, one party would have the ability unilaterally to bring the contract to an end through his own wrong. If termination is not to be automatic in that event, it should not be automatic in any event. loo The High Court in Suttorlol based its decision on the judgments in the New Zealand case.lo2 In that case the issue was not ,automatic ter- mination, but whether non-fulfilment, through no fault of either party, 95 The possibility seems to have been considered in Waldron and Waldron v. Tsimiklis, supra n. 49 and Carpentaria Investments Pty. Ltd. v. Airs and Arnold, supra n. 70. 96 In McDonald v. Castrianni, supra n. 90, Brinsden J. (obiter) declined to construe the clause as permitting the vendor to terminate for non-fulfilment, but did not advert to the possibility of termination for breach, although breach was conceded and estab- lished. The argument may have failed in any case for lack of proper notice of inten- tion to terminate for breach pursuant to the (1974) General Conditions of Sale, Clause 16. 97 See above. 98 Supra n. 86 at 9. 99 (1950), 81 C.L.R. 418. See more recently Havenbar Pty. Ltd. v. Butterfield (1974), 133 C.L.R. 449. 100 See Suttor v. Gundowda Pty. Ltd., supra n. 99 at 441-2. 101 Supra n. 99. 102 Supra n. 86. 348 WESTERN AUSTRALIAN LA W RE VIEW made the contract terminable at the option of one only of the parties. Only Lord Wrenbury holds clearly that termination was not automatic, and even he recognises that in the particular case a decision on the point is unneccessary.lo3 The other judgments are either equivocal, or strongly suggest automatic termination.lo4 It has been suggested that the Suttor test now stands independently of its antecedents.lo5 If an opportunity presents itself for re-examining those antecedents, there is justification for modifying the Suttor test. The New Zealand case can be interpreted as suggesting a two-stage analysis: (a) The first stage is to consider whether, on construction and apart from the question of how in fact non-fulfilment came about, the parties intended automatic or non-automatic ter- mination.lo6 In both Suttor and New Zealand, the language used suggested automatic termination.lo7 (b) The cause of non-fulfilment must then be investigated. If it has not been caused by either party, then the parties' inten- tion, as ascertained above, should govern. If however one party has brought about non-fulfilment, he can neither him- self claim that the contract is automatically terminated or ter- minable by him, nor can he force the other party to do so.lo8 This consequence does not depend on construction of the pro- vision, but on the independent doctrine of non-interfer- ence. log A prima facie rule against automatic termination should be sup- ported if it produces better results than a rule of automatic termination, but it is doubtful whether that is the case. The parties themselves, if not their legal advisers, may well expect that if the condition is not fulfilled, nothing further need be done. Non-automatic termination requires one of the parties to elect before termination is effected, with consequent difficulties of deciding if there has been election,l1° and allows the con- 103 Id, at 14. 104 Id. at 8 per Lord Finlay L .C. ; at 10 per Lord Atkinson. Lord Shaw's judgment is equivoca l id . at 12-13. 105 J.A.G. Investments Pty. Ltd. v. Strati, supra n. 46 at 465 per Hutley J .A. 106 It is suggested at below that the prima facie approach should be in favour of automatic termination. 107 Both the forms referred to at n. 32 above expressly provide for automatic termination. 108 See the New Zealand case, supra n . 86 at 9 per Lord Atkinson. 109 Discussed at above. 110 See the discussion of election at below. IN PRAISE OF CONDITIONS SUBSEQUENT 349 tract to subsist in the meanwhile. If both parties are content that the contract should survive, this could as well be achieved by automatic ter- mination followed by further agreement.ll1 Something new would be achieved by non-automatic termination if, after non-fulfilment but before election to terminate, the contract could become unconditional by satisfaction of the condition out-of-time.llz This has occurred in some cases where the court has construed the condition as permitting termination by one party 0nly.ll3 Where the court considers that either may terminate, there is authority that the condition may be fulfilled out-of-time by one party before the other terminates."' The result is unfortunate, as it could lead to an unseemly race between the party seeking to fulfil and the party seeking to terminate. In sum, a construction against automatic termination introduces no new benefits, and brings complications of its own. Nevertheless, since Suttor such clauses have universally been construed as not permitting automatic termination, as it is always possible to envisage ways in which fulfilment may be prevented.lI5 Hence the cases provide no clear guidance as to what would be sufficient to achieve automatic termina- tion.l16 AFTER NON-FULFULMENT If the provision is so construed that the contract does not terminate automatically on non-fulfilment of the condition, some further step must be taken before the contract ends. Some questions remain: who may take that step? how is it taken? can a party disentitle himself from taking it? There is a tendency in the cases to relate the ability to terminate to the special doctrine of waiver."' In those cases where the provision is inserted for the (conditional) benefit of one party only, this means that, 111 For a factual situation see Hutchinson v. Payne, [I9751 V.R. 175, discussed at below. 112 T o be distinguished from fulfilment within time-as-extended, which is unobjectionable in that it requires of the co-operation both parties. 113 AS to which see below. "4 Suttor v. Gundowda Pty. Ltd., supra n. 99. There was however an alternative basis for the judgment, namely that both parties had extended the time for fulfilment. 115 See the discussion by Hutley J.A. in J.A.G. Investments Pty. Ltd. v. Strati, supra n. 4 6 at 4 6 5 - 6 . 116 In McDonald v. Castrianni, supra n. 90 at 11-12 Brinsden J. (obiter) noted that the clause before him expressly gave effect to the doctrine of non-interference, and con- tinued: "I therefore cannot see why the reasoning applicable to the cases I have cited above requires the interpretation that Condition 3 should be construed as if it pro- vided that upon the purchaser being unable to obtain approval for any reason not attributable to his default and not having given notice of waiver, the agreement becomes voidable rather than 'at an end'". 117 See at above. WESTERN AUSTRALIAN LA W RE VIEW further interest, connected with the condition; in being able to ter- minate.I2* A prima facie rule to this effect could be extended to cover cases where termination is not automatic,l29 and there is " ~ a i v e r " ' ~ ~ or fulfil- ment after the date for termination but before any election to ter- minate. If the condition is fulfilled, the other party can have no further reason connected with the condition for wishing to terminate; if there is waiver, he may or may not have such a reason, depending on the cir- cumstances. Granted that, on non-fulfilment, either party may terminate, this is effected by notice. A party may however disentitle himself from ter- minating by electing not to terminate.132 Election is a deliberate act, done with knowledge,133 and the party electing must know of the facts entitling him to elect. Since the right to terminate arises from a contrac- tual provision, he need not also know of his right to e 1 e ~ t . I ~ ~ t seems that knowledge of an agent may be imputed to a p r i n ~ i p a 1 . I ~ ~ An elec- tion to affirm may be constituted by notice, or by performance of acts justified by the contract and consistent only with its continued exis- tence.136 It may be performed by an agent acting under authority, and a solicitor engaged to act in a sale transaction has authority to take steps necessary for c0mp1etion.l~~ 128 The new prima facie rule suggested here could of course be overcome by clear wording indicating some other intention, but its very existence would serve as a focal point for draftsmen. 129 Either on construction, or because of the doctrine of non-interference. 130 "Waiver" here would in truth be election not to terminate, together with waiver of the conditional right to refuse to complete. 131 A similar attitude seems to lie behind the judgment of Zelling J. in Clark v. Refeld and Refeld, supra n. 29 at 279. The resolutive provision was that if the special condi- tion was not "fully satisfied" within the time appointed, either party could cancel the contract. Zelling J. held that "the words mean that provided the respondent had his finance organised so that the appellant could be sure that at the date of settlement they had somebody able ready and willing to settle, that was sufficient to fully satisfy clause 14(1)". 132 In effect, the party affirms the contract. 133 It is the selection of one of two inconsistent rights, extinguishing one and entitling the elector to the other-see generally Sargent v. A.S.L. Developments Ltd. (1974), 131 C.L.R. 634. Mere inaction, even with knowledge of the choice, does not necessarily amount to election-see per Mason J , in Turner v . Labafox International Pty. Ltd. (1974), 131 C.L.R. 660. Both cases concern clauses which have a resolutive but not a conditional effect. 134 Sargentv. A.S.L. Developments Ltd. . supran . 133. 135 See the judgment of Hutley J .A. in J.A.G. Investments Pty. Ltd. v. Strati, supra n. 46. See also Sargent v. A.S.L. Developments Ltd. and Turner v. Labafox Invest- ments Pty. Ltd., supra n. 133. 136 See cases cited supra n. 135. 137 See Turner v. Labafox Investments Pty. Ltd., supra n. 133. In the particular facts of that case, the client must have been very unhappy at the result. IN PRAISE OF CONDITIONS SUBSEQUENT 353 CONSEQUENCES OF TERMINATION Throughout this article it has been suggested that non-fulfilment of a condition may lead to termination of the contract, either automatically or by election. Sometimes the parties specify this result, and go to some lengths to deal with the consequences of termination, such as return of deposit and instalments. Where nothing at all is specified, it could be argued that the only consequence of non-fulfilment is that, when the time for settlement arrives, one or both parties have an excuse for refus- ing to perform. The intention of the parties, however, clearly demands an ability to terminate immediately after non-fulfilment. This involves at least relief from obligations outstanding, and restoration of money or property already delivered pursuant to the contract. Nevertheless it is termination pursuant to a contractual provision, not rescission by way of equitable relief, and it must remain a moot point whether basically equitable doctrines such as indemnity, or compensation for use, deterioration or improvement of property,I3* will be imported via the presumed intention of the parties. ENVOI This article opened provocatively with the invention of a complex name for something usually described simply as a "condition subse- quent". The justification has been that the concept is a complex one, resting primarily on the intention of the parties, and that each adjective does indeed denote a separate function of the provision. 13s As where work is performed on land in order to get planning approval.