DISTRICT COURT OF QUEENSLAND
CITATION:
Littee & Another v Day [2022] QDC 110
PARTIES:
KIM NARELLE LITTEE AND SONYA HASLEWOOD LITTEE AS EXECUTORS OF THE ESTATE OF THE LATE ERIC VINCENT LITTEE (DECEASED)
(Plaintiffs)v
CYNTHIA ELIZABETH DAY
(Defendant)FILE NO:
3314/21
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
Brisbane District Court
DELIVERED ON:
19 May 2022
DELIVERED AT:
Brisbane
HEARING DATE:
12 May 2022
JUDGE:
Porter QC DCJ
ORDER:
1. Judgment be entered for the plaintiffs in the sum of $228,465.55.
CATCHWORDS:
CONTRACTS – LOAN AGREEMENTS – TERMS FOR REPAYMENT – Where a loan agreement was entered into on the term that it would be repaid when the property was sold and the mortgage had been repaid in full – Whether the promise to repay renders the contract void for uncertainty – Whether the promise to repay was illusory – In the alternative, whether the term was subject to an implied obligation to sell the house and repay the mortgagee within a reasonable time – Where the contact is illusory and the executors are entitled to restitution of the loan advance.
COUNSEL:
A. Fraser for the Plaintiffs
D. Jones for the Defendant
SOLICITORS:
Queensland Legal Practise for the Plaintiffs
Gibbs Wright Lawyers for the Defendant
SUMMARY
The plaintiffs are the executors of the Eric Littee (the executors). Kim Littee is his wife. They have three children. Sonya Haslewood Littee is their daughter. Mr Littee and Mrs Littee separated in July 2018 but did not divorce. Around that time, Mr Littee started a relationship with the defendant, Ms Day. In September 2019, Mr Littee lent $230,000 to Ms Day. The terms of repayment are contentious. The loan has not been repaid. The executors obtained probate and demanded repayment.
In mid-2019, Ms Day was involved in property settlement proceedings with a previous partner. Ms Day contends that the loan was made to assist her to complete that settlement by buying her ex-partner out of his share of their matrimonial home (the house). She contends that she is not required to repay the loan to the executors because it was made on terms that she was required to repay it only when the house was sold or Ms Day passed away, whichever occurred first.
The plaintiffs deny that there was any agreement relating to Ms Day holding the property until her death but accept that the loan was made on terms that it be repaid when the house was sold. They contend that that promise to repay renders the loan agreement ineffective, either because it was uncertain, or the promise was illusory as consideration for the loan. The consequence is an entitlement to restitution of the loan sum.
Alternatively, they contend the loan was subject to an implied obligation to take steps to sell within a reasonable time, and that a reasonable time has passed or alternatively that Ms Day has repudiated the contract by refusing to take any such steps. They claim entitlement to the loan sum for breach.
For the reasons which follow, I find that:
(a)It was not a term of the loan that Ms Day was required to repay it only when the house was sold or Ms Day passed away, whichever occurred first;
(b)Rather the loan was repayable when the house was sold and the mortgage over it had been repaid; and
(c)That promise to repay was illusory and the loan agreement failed, with the consequence that the executors are entitled to restitution of the loan amount.
Accordingly, I order judgment be entered for the plaintiffs in the sum of $228,465.55.
THE WITNESSES
The evidence in this case was short, thanks to the sensible concessions made by both parties. Ultimately, only two factual issues were in dispute:
(a)The nature of Ms Day and Mr Littee’s relationship from time to time; and
(b)Whether any discussions occurred in relation to the loan which could sustain the allegation by Ms Day as to the terms of repayment.
The former is of only marginal relevance. The second point goes to the main dispute issue in the trial.
The executors called two witnesses: Mrs Littee and Mr Littee’s friend, Mr Ison. Mr Ison gave evidence of his friend moving into his house at some stage after his separation from Mrs Littee and keeping a room there until he became suddenly ill in March 2021. He said his friend came and went regularly over that period. Mrs Littee was precise in her evidence and confined herself to matters upon which she properly could give evidence. There was no suggestion of exaggeration or self serving reconstruction in her account, nor even that hostility to Ms Day coloured her recollection. I found both Mr Ison and Mrs Littee to be credible and reliable witnesses and accept their evidence. However, Mrs Littee and Mr Ison had limited knowledge of the relationship from time to time and no knowledge of any specifics of any repayment discussions.
Ms Day gave evidence about both matters. As I explain below, I reject her evidence on the discussions about the repayment of the loan which she alleges. The reasons given for doing so also underpin my view that she was not a reliable historian.
THE FACTS
Mr and Mrs Littee married in 1985. In July 2018, Mr Littee left a letter at the martial home indicating an intention to commence a relationship with Ms Day. After a period of informal separation, he moved out of the home in November 2018 to live with Ms Day. Ms Day was a work colleague of Mr Littee.
In or about early 2019, Ms Day was involved in property settlement proceedings with her husband in which she was hopeful of buying out his interest in the house, though seemingly had difficulties in funding that. As will be seen, there is no doubt that the loan was advanced in that general context. According to Ms Day, the idea of the loan was prompted by tarot cards. She told Mr Littee the cards had said Ms Day was going to receive the money “from known and unknown sources”. Mr Littee said “Unknown sources. What about I lend you the money?”. Thus was the power of tarot to influence the future demonstrated.
In about May 2019, Mr Littee and Ms Day had a meeting with a solicitor, Mr Stitt. His letter of advice of 22 May 2019 shows that he was told of the intention of Mr Littee to lend the money to assist the acquisition of the house through the property settlement process and he offered advice as to how to document the loan including advice that if the loan was to be repaid when the house sold, there should be a mechanism for forcing the sale if the parties separated and also advice that a mortgage and deed of priority to secure the loan should be prepared. There was no evidence from Ms Day as to what discussions, if any, the parties had about that advice, except that she recognised that Mr Stitt thought those steps would be a good idea to protect Mr Littee financially if anything went wrong between him and Ms Day. She also said that Mr Littee did not want to take those steps, though the basis for asserting his state of mind was not stated. One might reasonably infer, however, that he did choose at some point not to follow that advice, though why not and what ideas he had on the matter are unknown.
Ms Day did give evidence that there were at least two other discussions about repayment in the period between that 22 May letter and the advance of the loan. When asked if she had any discussion about the statutory declaration discussed below, she said that prior to making of the statutory declaration, “Mr Littee said that he did not want to see me forced out of my home in my old age”.[1]
[1] TS1-47.18 to .46
Either at the same time or on some other occasion, she gave evidence of this further discussion[2]:
In your discussions, were there any further terms to the loan discussed?‑‑‑Yes. The loan was – if Eric passed away, I was not going to – we made a little [p]act together that what Eric had built with his family went back to his family. [W]hat I had built with my family went back to my family. So if I was to pass away first, Eric was not going to try to take any of the house. He just wanted the loan money back. That was it. If he was to pass away before me, the money would go back on my passing. It was supposed to go in a will for me. I was supposed to write a will. I hadn’t got around to doing it yet. We weren’t expecting Eric to pass away quite so suddenly.
[2] TS1-48.14 to .22
Ms Day did not specifically say when this discussion occurred but the inference from her evidence overall is that it was one of many discussions between May and September 2019. There is no evidence of any such Will by Ms Day.
Mr Littee told each of Mrs Littee and Mr Ison that he intended lending the money to Ms Day. Each of them warned him to be careful about doing so. He told each of them not to worry about it because he had paperwork that was going to protect him. That paperwork appears to have comprised a statutory declaration and a Will made just before the advance of the loan, each prepared by Mr Stitt, his solicitor. The statutory declaration was signed 24 September 2019 and provided:
1.I am providing a loan in the sum of $230,000 to Cynthia Elizabeth Day to assist her complete a property settlement/Consent Order issued by the Family Court and to refinance the property at 206 Victoria Drive, Jimboomba;
2.These funds are a loan, which will not have to be repaid until the property at 206 Victoria Drive, Jimboomba has been sold and the Bank of Queensland has been repaid in full the money lent by the bank to Cynthia Elizabeth Day to refinance the property.
Ms Day was not at Mr Stitt’s office when this was sworn. However, Ms Day said that she saw and read the statutory declaration at the time that it was taken to the bank for the purposes of refinancing the house to give effect to the property settlement. She did not say anything to Mr Littee about the terms it recited. The contrast between the terms in the statutory demand and the alleged conversations in paragraphs [14] and [15] is plain. Despite that, until filing of the amended defence on 9 May 2022, Ms Day pleaded that the statutory declaration recorded the terms of the loan.
At about the same time as he prepared the statutory declaration, Mr Littee prepared a new Will with Mr Stitt. It was executed on 30 September 2019 and relevantly provided:
(a)For Mrs Littee and Sonya as executors;
(b)For a legacy of $30,000 to Mrs Littee and each of her children;
(c)For a legacy of $50,000 for Ms Day on terms that “she may deduct from the money that she owes to the estate (at the time of making this will I had lent Cynthia $230,000, which she will repay when she sells the [house]”;
(d)Gave the rest of his estate to his grandson Lucas.
Ms Day says she did not see the Will until after Mr Littee’s death. However, her defence alleges that the Will also records the terms of the loan (despite the different in language between it and the statutory declaration).
Mrs Littee did give evidence of discussions about the Will. Some context is necessary. Despite their separation, Mrs Littee and Mr Littee continued to see each other regularly. In about April 2019, Mr Littee joined the family for some days on a family holiday and Mrs Littee thought from his conduct that a reconciliation might occur.[3] Further, Mr Littee also visited their family home regularly to see Lucas, (who appeared to live with Mrs Littee). Mrs Littee said that on one occasion in around September 2019, Mr Littee told her she was going to redo his Will to take care of Lucas, because of his concern that his grandson might not get as good a start in life as their children.
[3] TS1-21
It is not in dispute that the loan was advanced by way of three instalments in early October 2019, totalling $230,000. It appears $10,534.45 was not required for the settlement and was repaid to Mr Littee on or around 16 November 2019. He thereafter advanced $9,000 on 23 December 2019. It is common ground that the net amount of the loan is $228,465.55.
The nature of the relationship between November 2018, when Mr Littee moved out of the marital home and April 2021, when he sadly died, is disputed. Ms Day’s defence alleged that she and Mr Littee lived together as a couple in a genuine domestic relationship[4] at all material times. Ms Day did not give evidence in those terms and that allegation is doubtful on the evidence before the Court on the subject. The evidence of each of Mrs Littee, Mr Ison and the letter from Ms Day at exhibit 6, shows that while there was a relationship between Mr Littee and Ms Day from at least mid-July 2018 until, most probably, about early 2021, that relationship was unstable and inconsistent, with Mr Littee moving between various places of abode.
[4] See the definition from s. 32DA Acts Interpretation Act 1954 which was clearly being invoked.
Mr Littee died rather suddenly after a short illness. In about June 2021, the executors contacted Ms Day inquiring about repayment of the loan. It can be inferred from Ms Day’s text of 17 June 2020, that the executors had sought repayment and/or a mortgage to secure repayment and were suggesting that the $50,000 legacy be set off against the loan. Ms Day rejected both suggestions. Ultimately, she demanded payment of the $50,000 so she could complete renovations and then sell the house. The inference in context is that then she would repay the loan.
On 11 August 2021, Ms Day invited the executors to a discussion about what they wanted from her in relation to the loan. That occurred on 13 August 2021. The content of the discussion at this meeting became contentious.
Mrs Littee said that the discussion concerned when and how Ms Day would repay the loan. The executors said they did not require the house to be sold and would accept another way of repaying the loan. There was agreement that Ms Day would go to the bank and see if the bank would extend the loan with her brother as guarantor. The executors said they would halt recovery action while Ms Day got back to them on a repayment proposal. No notes were taken at Ms Day’s request. However, Ms Littee’s recollection is consistent with her contemporaneous email. There was no suggestion from Ms Day that the loan would not be repaid recorded in that email.
Ms Day’s evidence in chief was generally consistent with Mrs Littee evidence about the meeting. She recalled Mrs Littee seeking repayment within 12 months and challenging her about “changing” the terms of the loan. Her evidence was unclear as to whether she meant the terms of facility with the bank or the terms of the loan from Mr Littee as reflected in the Will. In any event, when asked if she discussed the terms of the loan with Mrs Littee, she said she did not recall but did not think so. She made no mention of the repayment when the house was sold or Ms Day died, whatever came first.
In cross examination the situation changed. When it was put to her by Mr Fraser for the executors that she never mentioned those terms of repayment to the executors before the proceedings commenced, she said she did not recall but she thought it was discussed in the 13 August 2021 meeting. When it was suggested that did not occur, Ms Day became certain it had.[5] I deal with Ms Day’ credit further below but I reject that she said anything in the 13 August meeting about repayment being delayed until sale or her death. If it had been said, it would have been a startling change in the situation from that understood to exist by the executors based on the Will. There is no doubt that Mrs Littee would have taken note of it and referred to it in her later email. Further, there was nothing put to Mrs Littee in cross examination about the discussion of the terms now alleged by Ms Day. Ms Day’s changing account during her evidence on this key issue reflects poorly on her reliability.
[5] TS1-59.4 to .15
On 29 August 2021, Ms Day sent a text proposing repayment of the loan be repaid by appropriating the legacy immediately and then Ms Day paying the balance from her superannuation upon turning 60. The executors sought further information.
On 1 September 2021, Ms Day sent a further proposal, taking into account her responses to the further information sought by the executors. It explained that personal and financial limitations meant that she could not take her superannuation at 60 and would take it at 65, with the balance loan being repaid at that time. Ms Day was 54 at the time so her proposal involved full payment in 11 years’ time.
That proposal was not accepted. These proceedings were commenced in December 2021.
TERMS FOR REPAYMENT
Relevant principles
The parties agree that there was a contract of loan by which Mr Littee advanced the loan in return for a promise to repay it. The dispute is about what the parties agreed as to how the loan was to be repaid and the consequences in law of that form of promise to repay.
That dispute must be resolved by reference to the objective theory of contract. That means that the legal rights and obligations of the parties in relation to the loan contract “turn upon what their words and conduct would reasonably be understood to convey, not upon actual beliefs or intentions”.[6] In Ermogenous v Greek Orthodox Community of SA Inc,[7] dealing specifically with the requisite intention to create contractual relations, Gaudron, McHugh, Hayne and Callinan JJ said:
Although the word ‘intention’ is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.
[6] Equuscorp Pty Ltd v Gelngallan Investments Pty Ltd (2004) 218 CLR 471 at [34]
[7] (2002) 209 CLR 965 at [25]
In Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [35], the Court warned of the reception into evidence of largely irrelevant information about the subjective understanding of the individual participants in the dealings between the parties. Some such evidence was received in this case, though I have kept firmly in mind that such evidence is irrelevant to the identification of the terms of the loan contract.
The loan contract is not alleged as being one objectively intended to be entirely in writing. The parole evidence rule does not apply. Further, the circumstances of this contract do not lend themselves to the orthodox offer and acceptance analysis. The dealings between the parties were informal and must be analysed by reference to the approach applicable to the identification of terms of such contracts.
Those principles have been explained as follows (footnotes omitted)[8]:
Even if no conventional offer or acceptance can be isolated, a contract can be found if it is possible to infer “from the relevant facts that conclusion that the parties have agreed to incur reciprocal promissory obligations”.
It may also be hard to apply offer and acceptance analysis when the actual negotiations took places years before any dispute broke out between the parties and the parties have behaved as though there was a contract. It may be impossible to identify any precise offer or any precise acceptance or any precise time or place of acceptance. Yet the court can draw a circumstantial inference from the behaviour of the parties that a reasonable person in the position of the offeree at some point would have understood that the offeror had expressed willingness to contract on specific terms with the intention that those terms would become binding on acceptance by the offeree, and that thereafter the offeree did something which a reasonable person in the position of the offeror would have seen to be a final and unqualified expression of assent to the terms offered. It is necessary to avoid the fallacy of inferring from conduct which is not inconsistence with a contract the conclusion that the conduct actually took place because of the contract. Thus, “[c]are must … be taken not to infer anterior promises from conduct which represents no more than an adjustment of [the parties’] relationship in the light of changing circumstances”. “[C]ontracts are not to be lightly implied”. The court “must … in most cases, be able to answer the question … ‘what was the mechanism for offer and acceptance?’”
Where this inferential reasoning is employed, the law is relying more than it usually does in the offer and acceptance field on the actual intentions of the parties. Usually what the parties actually think and what the respective reasonable persons in the position of the parties would think coincide. It is only in exceptional cases that the triumph of the objective theory means that the parties are held to a contract which one, or the other, or both, did not intent or believe to have been made. Where the existence of a contract is inferred from the conduct of the parties, the court is assessing what would flow from the perceptions of reasonable persons in the respective positions of the offeree and the offeror. But that assessment is confirmed by the behaviour of the parties. Consider a party who engages in contractual negotiation, later finds it convenient as a matter of self-interest to deny that a contract was made and behaves in various ways suggestive of performance of that apparent contract before it was convenient to make that denial. That party is in effect, by behaving in those ways, making repeated admissions against interest by conduct that there was a contract. The party’s “actions and conduct before the inception of a controversy [are] of much greater weight than that they said or did after a dispute arose”. But an express admission by a party that conduct had been sufficient to constitute a contract “is not something from which the court is likely to derive assistance”.
Just as contracts can be created by inferred agreement, so they can be discharged by inferred agreement. A prime example if abandonment.
In short, on occasion, conclusions drawn from analysis of the reactions of reasonable persons pursuant to the objective theory of contract can be checked and corroborated by the actual mental states of the parties as evidenced by their conduct.
[8] J D Heydon, Heydon on Contract (Thomson Reuters (Professional) Australia Limited, 2019) [2-110]
Both parties accept that the facts disclose an agreement to incur “reciprocal promissory obligations”. Mr Littee’s obligation was to lend the funds, and Ms Day’s obligation was to repay. But what were the terms agreed as to repayment?
Analysis
Ms Day’s case, first advanced in her amended defence filed just before the trial, is that the loan was made on terms that she was required to repay it only when the house was sold or Ms Day passed away, whichever occurred first. She alleged therein that insofar as the terms were written, they were recorded in the statutory declaration and identically stated in the Will. The amended defence also added the following for the first time[9]:
Insofar as the conditions for the repayment were oral, they were agreed in several conversations between the plaintiff and the deceased in around late September 2019 which were to the effect, the monies, which were the subject of the loan, needed to be repaid either when the Property was sold, or the Defendant passed away, in order for the deceased to be able to request those monies to his grandson named ‘Lucas’.
[9] Amended defence [2 (e1)]
In my view, the terms of the repayment obligation were as stated in the statutory declaration. I hold that view for the following reasons.
Each of Ms Day, Mr Ison and Ms Littee gave evidence that Mr Littee intended to record the loan terms in writing. The production of the statutory declaration was consistent with that stated intention. A fortiori where the statutory declaration was prepared with legal assistance, indicating a level of care and formality in the preparation of the document. Those circumstances would not be sufficient to make the statutory declaration a record of the terms if it was produced unilaterally by Mr Littee and never adopted by Ms Day. A reasonable person in Ms Day’s position could not be taken to have agreed in the terms contained in a written document if she did not see that document in circumstances which, looked at objectively, indicated adoption of it as recording the terms of repayment.
However, she did see the document in such circumstances. Ms Day gave evidence that she saw and read the statutory declaration soon after it was prepared. Further, knowing what it said, it was provided to the bank by Ms Day and Mr Littee for the purposes of refinancing discussions with the bank. Mr Littee knew that had occurred because he accompanied Ms Day to the bank and gave her the statutory declaration for that purpose. Providing the document to the bank with the intention of having the bank rely on it in making commercial decisions, looked at objectively, communicates an intention to agree in its terms. That is all the more so as the document was known to her to have been prepared by Mr Littee intending to record his understanding of the terms and Mr Littee plainly knew (to Ms Day’s knowledge) that it was being used for that purpose with the bank. The inference is strengthened by the fact that Ms Day did not say anything to Mr Littee about the words in the statutory declaration at that time.[10]
[10] TS1-46
In my view, these events are very significant in the objective identification of the terms of repayment. This is a case where parties in an intimate relationship entered a contract of loan. It is common, and entirely human, that such arrangements often remain informal and inchoate, even when large sums are involved. However, in this case, Mr Littee took steps to record the agreement and Ms Day adopted that record.
Indeed, not only would she objectively have been taken to do so by her conduct at the time, but she adopted it as, effectively, the exclusive record of the terms of the loan in her defence until filing of the amended defence just days before the trial. I added “effectively” because the statement of claim also alleged that the terms of the loan were “identically stated in the Will”. As can be seen in paragraphs [17]and [19] above, the terms of the loan are stated differently in the statutory declaration and the Will. Further, the Will is not relevant to the identification of the terms of the Will because they reflect only Mr Littee’s view as to those terms. Ms Day said she did not see the Will at the time, and this was not challenged.
But what of Ms Day’s contention advanced in this trial the terms of the loan were that the loan was required to be paid when the house was sold or when Ms Day “passed away, whichever occurred first in time”? The only facts pleaded which could sustain those further variations on the statutory declaration terms were those set out in paragraph [38] above.
In her evidence in chief, Ms Day described two occasions where discussions of the kind referred to in that paragraph occurred: see paragraphs [14] to [16] above. I do not accept that Mr Littee said words to the effect of those alleged by Ms Day for the following reasons.
First, it is very difficult to reconcile the terms in the statutory declaration with discussions she says occurred about repayment being deferred until sale of the house or her death. I do not accept that Ms Day could have had the discussions she swears to without raising them with Mr Littee when she saw the quite different terms of the statutory declaration.
Second, at no time prior to the filing of the amended statement of claim has Ms Day ever asserted that discussions occurred as alleged by her. Those discussions are fundamentally important given the centrality which such discussions would have had in her responses to the various demands from the executors for repayment. If she had any recollection of such discussions during her dealings with the executors in 2021, she would have said something about it. But she did not. Further, her recent affidavit sworn in support of her application for summary judgment made no mention of these discussions.
Third, her version is inherently unlikely. It can be accepted that Mr Littee wished to benefit Lucas (as Ms Day pleads, Mrs Littee explained, and the Will demonstrates). However, if Mr Littee had agreed to lending the money to Ms Day in terms which permitted her to hold the capital until she died, that would be apt to defeat any meaningful assistance to Lucas because his legacy might not come to him for another 30 or more years (bearing in mind that Ms Day was in her early 50s at the time), even if Mr Day died much sooner than that.
Fourth, I am not persuaded that the relationship between Ms Day and Mr Littee was one in which Mr Littee would be likely to wish to benefit Ms Day potentially for life. Mr Ison and Mrs Littee both stated that Mr Littee told them that the relationship was up and down. These statements are hearsay. However, there is evidence which is consistent with that position. While Mr Littee appears to have moved into the house with Ms Day in about November 2018, Mr Ison explained that Mr Littee kept an establishment at his place and was living there from time to time from at least May 2019. Further, there is a letter in evidence indicating a serious rift in the relationship, if not its end, sent by Ms Day to Mr Littee. While the date of that letter is unclear, its terms do indicate problems of a fundamental kind.
For these reasons, I do not accept that discussions of the kind described by Ms Day consistent with the parties agreeing that the loan was not repayable until sale of the house or Ms Day’s death ever occurred.
I should add that even if there was discussion along the lines of Ms Day’s evidence, I would, in any event, not be persuaded that looked at objectively, they were binding terms of the loan contract. If they occurred before the statutory declaration (as Ms Day seems to suggest), they were overtaken by the consensus reflected in that document which I have already described. If they occurred after the loan agreement, they were unsupported by consideration (though this possibility was not pleaded in any event).
Conclusion
I find that the terms for repayment were as recorded in the statutory declaration being that the loan did not have to be repaid until:
(a)The house was sold; and
(b)The bank had been repaid in full the money lent to refinance the property.
THE PARTIES’ CONTENTIONS
The executors contend that they are entitled to a remedy in the amount of the loan for one of three reasons.
Their first contention is that the term for repayment is void for uncertainty. They contend:
(a)A term that a loan be repaid upon a contingency that might not occur is arguably void for uncertainty; see Lane v L3 Enterprises Pty Ltd [2007] QSC 288 at [72]; and
(b)As such, the loan becomes one with no date fixed for repayment, in which case it is repayable on demand; see Seldon v Davidson (1968) 1 WLR 1083 at 1088 or, alternatively, within a reasonable time after request for repayment has been made; see Seldon at 1090.
That contention applies equally to repayment when the house is sold or to repayment when the house is sold, and the money lent to refinance the mortgage is paid.
The executors’ second contention is that there is no valid agreement because the repayment term conferred a discretion on Ms Day as to whether she will sell the house (and as to whether she will pay out the mortgage). On that construction, they contend:
(a)A promissory expression reserving an option as to performance does not create a contract as the consideration passing from the party is illusory; see Carter on Contract a [06-320] citing Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 356 per Kitto J; and
(b)In that event, money advanced pursuant to a void contract would give rise to a claim in restitution against the Ms Day: Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Baltic Shipping Co v Dillon (1993) 176 CLR 344.
They contend alternatively that if the loan repayment term is not uncertain nor illusory, the loan contract was not discretionary as to repayment but rather was subject to an implied obligation to sell the house and payout the refinance sum within a reasonable time. That obligation was implied to give business efficacy to the loan contract. The executors rely on Carter on Contract at [04-090]. Assuming such a term is implied, they contend either that:
(a)Ms Day has breached the obligation to act reasonably to cause those acts to occur since demand was made; or
(b)She has repudiated the obligation to sell and refinance by failing to do so since demand was made and instead asserting the alternative repayment mechanisms related to her superannuation or by defending these proceedings.
The executors’ submissions have at their core the proposition that one cannot have a valid a loan contract which does not provide for repayment of the loan.
The primary arguments of Ms Day assume the existence of the terms she alleges. It can be accepted that if those terms provided for repayment, they would probably provide an answer to the executors’ various contentions. However, it is unnecessary to determine that matter given the findings I have made as to the terms of repayment. However, the written submissions seem to include a further argument in answer to the core proposition of the executor’s contentions. As I read the submissions, they advance the proposition that the promise to repay is neither uncertain nor illusory because Ms Day:
Retains no discretion to sell the Property. The Loan requires the sale of the property in order to repay the Principal and the Defendant has agreed to that term. Instead the only discretion retained by the Defendant is when to effect the sale of the Property. In this way it can be distinguished [from the principle relied upon by the executors]
And further, responding to the uncertainty argument:
… the choice afforded to [Ms Day] by the terms of the Loan allow for a wide scope of how to complete the sale of the Property through electing when to sell and as a result effect repayment of the Principal.
…
The Defendant submits that properly construed the term is one that requires compliance but allows a discretion of when to complete the term. In this way the term is not uncertain because the sale of the Property will definitely occur, which will ultimately result in repayment…”
ANALYSIS
Relevant principles
An agreement which leaves it to a debtor to decide, when, if ever, it will repay, is illusory. The proposition is stated and explained by Scholl J in Bailes v Modern Amusements Pty Ltd [1964] VR 436. In that case, certain companies had agreed with their shareholders that the companies would declare dividends to the extent necessary to avoid undistributed profits tax and those sums would be lent back to the companies. The obligation to repay those loans arose when the company to which they were lent considered that it was in a position to pay them. The executors of one of the shareholders sued on the shareholder loan arising from this dividend policy. His Honour first analysed the three ambiguities in the obligation to repay: in what manner the company was to reach the necessary conclusion; the meaning of “in a position to pay”; and how long the stipulation was to operate.
His Honour then held:
I am well aware that, as Lord Tomlin and Lord Wright said in Hillas v Arcos Ltd (1932) 147 LT 503, at pp. 512-3; [1932] All ER Rep 494, if the court comes to the conclusion that the parties intended to make a contract, it will, if possible, give effect to their intention no matter what difficulties of construction arise. In Ledingham v Bermejo Estancia Co, [1947] 1 All ER 749, Atkinson, J, held valid an agreement to postpone payment of interest on a loan to a company "until such time as it is in the position to pay the interest", and in Head v Kelk, (1961) 80 WN (NSW) 290, at p. 293; [1962] NSWR 1363 (FC), Herron, J, (as he then was), referred to a number of cases in which it had been held that objective but very generally worded conditions qualifying the obligation to pay a debt were valid and effective-- for example, to pay "when I can", "when I am able", "by instalments", and "as soon as we can get our affairs arranged". In Head v Kelk itself the Full Court of New South Wales held valid a promise by a debtor to repay "when he was financially able to do so and not before"…
I do not think that the present case falls within the line of authority which has held a contract wholly void because the only promise of one party is illusory, and performance rests only upon his arbitrary discretion: see Halsbury, 3rd ed., vol. 8. p. 83; Taylor v Brewer (1813) 1 M and S 290; Leake on Contracts, 8th ed. (1931), p. 477; Rosher v Williams (1875) LR 20 Eq 210, and Pollock on Contracts, 13th ed., p. 38. This is not, I think, a case where there is no promise of repayment at all, save when and to the extent that the company shall in its own arbitrary discretion consider it should pay. The agreement as set out in paragraph 9 of the affidavit is an agreement to receive the dividend moneys back from the shareholders (albeit only by book entry) as a loan, which without more would import an obligation to repay, at least on demand. Superadded to that, however, is a condition purporting to limit the right to repayment.
Notwithstanding Head v Kelk and the other authorities referred to, I have come to the conclusion, after careful consideration of the wording of this alleged term, that I ought not to hold it to be valid. Either it is illusory, or it is not sufficiently certain to be enforceable. If it confers on "the company" (whatever that means) an arbitrary discretion to determine whether and to what extent (if at all) the moneys are to be repaid, it is an attempt to cut down to an illusory obligation what would otherwise, as I have held, be an obligation to repay on demand. If, however, it is to be understood as imposing an obligation to repay whenever, acting bona fide, the company (whatever that means) is bound properly to consider itself in a position to repay, nevertheless in my opinion it is still too uncertain to be valid. It appears to me to admit of a number of alternative meanings. And not only am I unable to say which of them (even if I have myself thought of them all) the parties intended to adopt, if they had a common intention about any, but I am unable to feel any reasonable certainty that they were ad idem as to any particular meaning, and that it was not a case of one intending one thing and one another. No doubt, if they used certain words, upon which a certain construction could be placed, they would be bound by the words used whatever their secret intentions may have been. But that is not this case. The words can reasonably have a number of alternative meanings, and it is impossible judicially to determine that the parties had a common intention to adopt any of them.
The principles articulated in this case have been applied a number of times. In each case, the Court has recognised that a promise to repay a loan which on its proper construction is discretionary, is illusory consideration for the loan or alternatively void for uncertainty (depending on the precise terms of the alleged promise to repay).[11]
[11] Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (1993) 11 ACSR 1 at 3-4; Universal Greening Pty Ltd v Sabine [1999] FCA 529 at [20] to [22]; Bell Group Ltd (In Liq) v Westpac Banking Corp. (No. 9) (2008) 39 WAR 1
And outside the context of illusory or uncertain promises to repay a debt, the High Court has recognised that a promise which reserves to the promisor a discretion whether to perform the promise or not is illusory consideration. The leading case is Placer Development Ltd v Commonwealth (1969) 121 CLR 353. That case is conveniently summarised as follows (footnotes omitted):[12]
[12] J D Heydon, Heydon on Contract (Thomson Reuters (Professional) Australia Limited, 2019) [5-220]
A further example of consideration which is not of value in the eye of the law is a discretionary promise. Pollock called this an “illusory” promise. Many types of promise can be called “illusory”. It is important to be clear how the expression is used in any particular context. For present purposes, the relevant principle was described thus by Kitto J:
[W]herever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise the result if that there is no contract on which an action can be brought at all.
The description of this category as containing “illusory contracts” is well-established:
It is illusory, not because it is not a promise, but because it deceptively creates the illusion of a contract where there is none. By an illusory contract … what is meant is a bilateral transaction having some semblance to a contract but [which is] not in truth a contract because [it is] not capable of creating legally enforceable rights and obligations.
In similar fashion to Kitto J, Taylor and Owen JJ said that a promise to pay what the promisor in its discretion thinks fit is “wholly unenforceable”. Hence a promise by the Commonwealth that it would pay a subsidy “of at amount or at a rate determined by the Commonwealth from time to time” was illusory consideration.
The illusory contract principle applies where parties have reached a present agreement but where their present agreement has “left to the option of one party not only the mode of the performance but whether there shall be any performance at all”. Thus Menzies J said: “it is an objection to a contract if one party is left to choose whether he will perform it but it is an entirely different matter if there is an obligation to do a specified thing of a general description, but it is left to the party who is to perform it to choose the particular thing that he will do in performance of it”. Menzies J then gave the following example: “An arrangement with an article that he should for a specified fee paint a portrait of a particular person if the artist, upon seeing the proposed sitter, should decide to do so would be no contract to paint a portrait whereas an arrangement that the artist would for a specified fee paint a portrait of such person as he, the artist, should choose would be a contract”.
The above authorities establish that promises to repay which do not give rise to an obligation to repay might be analysed from the perspective of illusory consideration or uncertainty. Where the promise to repay is construed as being certain but discretionary, the consideration for the loan is illusory. Where the promise to repay introduces conditions which might or might not give rise to a discretion whether to repay, but cannot be construed one way or the other, the promise will be characterised as uncertain.
Reasonable minds could differ as to which doctrine properly responds to a particular ineffective promise to repay. What is clear, however, is that where it is not possible to construe a promise to repay in a manner which gives rise to a certain obligation to repay, the contract of loan will be ineffective. The underlying premise for this conclusion is obvious. If the Court concludes that the objective intention of the parties is that money has been advanced not as a gift, but as a loan, the gravamen of the contract must be that the loan will be repaid. If there is no obligation to repay, the advance is a gift or perhaps a sum advanced on some form of trust. But it is not a loan.
Another potential response to ineffective promises to repay by the law of contract would be to imply terms which make the promise to repay effective. This is the third approach of the executors. Whether a term could be implied to give business efficacy and thereby save a loan contract will depend on the circumstances in each case. No fixed rule can be applied. However, the underlying premise of implication of a term to give business efficacy is that the Court is identifying a term which the parties would have agreed upon if they had turned their minds to the eventuality dealt with by the implication. Mason J explained the position in Codelfa[13] as follows:
When we say that the implication of a term raises an issue as to the meaning and effect of the contract, we do not intend by that statement to convey that the court is embarking upon an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision. Nonetheless, the implication of a term is an exercise in interpretation, though not an orthodox instance.
…
The implication of a term is to be compared, and at the same time contracted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to do – it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties’ actual intention; the implication of a term is designed to give effect to the parties’ presumed intention.
[13] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 345 – 346 and 353.
Promise to repay is illusory
In my view, this is a case where the proper characterisation of the promise to repay is as one which is illusory. So much is established by the first limb of the promise in the statutory declaration. The obligation to repay arises when the house is sold. There is no obligation ever to sell the house. Thus, Ms Day has the power to trigger that condition or not at her discretion. It is not a case like that considered in Bailes and the other cases considered there, in which the obligation to repay involved a complicated and ambiguous process which was better characterised as uncertain then illusory. The condition triggering repayment is certain, and discretionary. The defendant’s contention that Ms Day was under an obligation to repay and only had a discretion as to when to repay does not assist. If a party has an untrammelled choice when to do an act, it effectively has a choice whether to do it or not.
That conclusion probably applies as well to the second limb of the promise to repay. Although the matter was not the subject of evidence, it nonetheless seems more probable than not that the condition is sufficiently certain to be given a meaning. The evidence showed that there was a refinance at around the time the loan was advanced and further, that the loan was paid out to effect the property settlement with Ms Day’s ex-partner. I think it is likely that there would be contemporaneous evidence which permitted the identification of the amount to be repaid. However, again there is no obligation on Ms Day actually to repay that amount. There are many ways that the sale of the house could settle without the refinance amount actually being repaid, including using an offset account or some such device. It seems to me that the better view is that that limb of the repayment promise is also properly characterised as illusory. If it were not possible to identify with certainty what the content of the obligation comprised, however, that limb would be uncertain. Either way the result is the same for the executors.
I do not consider that it would be correct to imply a term to give business efficacy to the contract of the kind contended for by the executors. It is impossible in my view to conclude that if the parties had turned their minds to the problem of certainty of the repayment obligation, it can be concluded objectively that they would have agreed that Ms Day had to repay the loan within a reasonable time. It would have depended on the state of their relationship at the time, Mr Day’s expectations of it in the near term, Mr Day’s intentions for his grandson and discussions which would have followed a direct consideration of the repayment issue. In the language of BP Refinery (Westernport) Pty Ltd v Shire of Hastings[14], such an implication is not so obvious that it goes without saying and is probably inconsistent with the express terms, which clearly confers a discretion on Ms Day.
[14] (1977) 180 CLR 266 at 282-283
CONCLUSION
I have concluded that the consideration for the loan by Mr Littee to Ms Day was illusory. The consequence is that the loan contract was ineffective, and the executors are entitled to restitution of the loan advance.[15] If it were thought that the promise to repay was ineffective because of uncertainty rather than because the promise was illusory, the same consequence would flow. It is impossible to see how the express promise to repay could be severed to leave a loan repayable on demand, as that promise is the gravamen of the obligations of Ms Day under the loan contract.[16] Indeed it comprises the entirety of those obligations.
[15] Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Baltic Shipping Co v Dillon (1993) 176 CLR 344
[16] Cf. the conclusion reached in Bailes where there was a clear obligation to repay accompanied by an uncertain suspensory condition modifying the obligation to repay: see 441-442.
It is not in dispute that the net amount advanced by Mr Littee was $228,465.55. I therefore order judgment in favour of the executors in that amount. I will hear the parties as to interest and costs.