High Court of Australia Stephen, Mason and Murphy JJ. Allen v Carbone [1975] HCA 14 ORDER Appeal dismissed with costs. Cur. adv. vult. The Court delivered the following written judgment:— May 21 Stephen, Mason and Murphy JJ. In a suit for specific performance Mahoney J., sitting in the Equity Division of the Supreme Court of New South Wales, held that although the respondent vendor, Mr. Carbone, had agreed to accept an offer by the appellant to buy his shop premises at Burwood, near Sydney, for $24,000, no binding contract came into existence because the parties contemplated that they would not be bound unless and until a formal contract was signed by them and exchanged by their solicitors. On appeal from an order dismissing the suit the appellant submits that the learned judge should have held that the transaction between the parties itself amounted to a concluded contract and that as such it was not dependent on the execution and exchange of a formal contract. The judgment under appeal relates in meticulous detail the evidence and the findings. For present purposes the facts as found may be stated succinctly. On 10th July 1972 the appellant, a widow with some $4,000 to invest, was advised by her brother Mr. Cummings, the manager of a real estate agency, that the respondent's property was for sale and that he wanted a price of $26,000 or $27,000 for it. They then agreed that he should make an offer on her behalf to buy the property for $24,000. That evening Mr. Cummings telephoned the respondent who indicated that he would be willing to sell the property for $24,000 "clear", that is, after payment of commission. It was arranged that the respondent would call at Mr. Cummings' office the next morning. Later the same evening, in a telephone conversation between Mr. Cummings and the appellant it was arranged that he would make on her behalf an offer of $24,000 for the property. On the morning of the following day, 11th July, Mr. Cummings made an offer of $24,000 to the respondent and stated that his firm would be prepared to accept a reduced commission of $500. The respondent said that he would accept that offer. The learned judge accepted a version of the conversation given in evidence by Miss Plant, a secretary in the employ of Chapman Membrey & Co. Pty. Ltd., the real estate agency of which Mr. Cummings was manager. In evidence she said: Mr. Cummings said to Mr. Carbone that he had an offer of the 24,000 and that it was his sister who wanted to buy the property but she could pay no more than the 24,000 and to effect a sale Mr. Cummings said that he would be willing to drop the commission to $500 so that Mr. Carbone would get twenty-three and a half thousand dollars, clear of commission, and Mr. Carbone paused for a while and he said, "You're willing to drop the commission to $500?" and Mr. Cummings said, "Yes, my sister wants to buy the property and I am willing to drop the commission to $500 to sell it. You want to sell the property?" And Mr. Carbone said "Yes" and he paused again and he said "Yes". He said, "I will accept the 24,000 if you are willing to drop your commission to $500." The transcript of evidence then continues: Q. What was the next thing that happened so far as you were concerned? A. Then Mr. Cummings said, "I will get you to sign a form", and Mr. Carbone said "Yes" and Mr. Cummings was silent for a while. I presume he was writing it out. He then read something to Mr. Carbone and Mr. Carbone said, "That's all right", and Mr. Cummings called me into his office and he handed me a piece of paper with writing on it and asked me to type it, which I did. Miss Plant said that after she had typed the document she handed it to Mr. Cummings who read it through and handed it to the respondent who, after reading it, signed it. Miss Plant then witnessed the document, to which we shall refer as Ex. D. It was addressed to Chapman Membrey & Co. Pty. Ltd., and it read as follows: I authorise and direct you to sell my property situated at 183E Burwood Road, Burwood to Lois Lillian Allen or her Nominee for the sum of Twenty four thousand dollars ($24,000.00) And Agree to pay you the sum of Five hundred dollars ($500.00) as commission on the sale. You are authorised to accept a deposit of 10 per cent of the purchase price and I will enter into a Contract for Sale in the form approved by The Real Estate Institute of New South Wales. On the evening of the same day Mr. Cummings reported the events which had occurred to the appellant and asked her to call at his office on 13th July to pay the deposit. He suggested that she should engage Messrs. C. P. White & Sons as her solicitors. On the appointed day the appellant called at his office and paid the deposit of $2,400. In return she was handed a receipt which acknowledged the payment of the deposit by her in the sum of $2,400 in respect of the property. On the same day Mr. Cummings wrote to Mr. Taylor, a solicitor whom the respondent had nominated as his solicitor in respect of the sale of the property, informing Mr. Taylor that the property had been sold to the appellant and giving particulars of the property and the terms of sale. In that letter Mr. Taylor was requested to "forward a Contract for Sale to the Purchaser's solicitors" (who were stated to be Messrs. C. P. White & Sons). Some four days later, on 17th July 1972, Mr. Cummings wrote a letter to the respondent stating that the property had been sold to the appellant for $24,000 and that details of the sale had been sent to Mr. Taylor. Thereafter there was correspondence between the solicitors, to which we shall subsequently refer. The appellant's primary case is that the learned judge fell into error in ascertaining what the parties had in contemplation by drawing inferences as to their intention, including an inference as to the appellant's intention derived from Mr. Cummings' understanding and experience of conveyancing, and that his Honour should have confined himself to construing the language employed by Mr. Cummings and the respondent in the conversation which took place on 11th July. Alternatively, it is argued that if it was proper to have regard to events and circumstances other than the critical conversation, account should be taken of events subsequent to the conversation from which an inference favourable to the appellant might be drawn. No doubt it is right to say that the intention of the parties to a contract wholly in writing is to be gathered from the four corners of the instrument. The same may be said when parties have brought into existence a document intended to comprehensively record the terms of an agreement thus far reached, notwithstanding that it makes provision for the subsequent execution of a more formal contract which may contain terms not yet agreed. But even in these cases it is legitimate in the course of construing the document to have regard, when appropriate, to subject matter and surrounding circumstances. Here, however, we are concerned not with the construction of a written contract or document in the senses already discussed, but with an informal agreement arising out of an oral conversation, supplemented as it was by Ex. D. It is common ground that this informal agreement amounted to a limited consensus, but it is disputed that what then occurred amounted to a concluded contract. In resolving this dispute it is legitimate to ascertain the terms of the agreement then made by the parties, that is to say, what the parties relevantly intended, by drawing inferences from their words and their conduct in the making of that agreement. Where parties reach an agreement which is expressed informally, whether in writing or orally, the terms of their bargain are not ordinarily recorded in meticulous detail in the words which they use. To ascertain their relevant intention it is often necessary to resort to inference, a process for which there is little or no scope when the parties have taken care to comprehensively record the terms of their agreement in written form. The appellant attempted to derive support for a more restricted approach from the decision in Godecke v. Kirwan [1] , and from the observations made by Walsh J., where he said [2] : The principles to be applied in deciding the question at issue have been discussed in numerous cases and it is not necessary to refer to many of them here. It has been held repeatedly that the question is one of construction in each case of the document or documents which are put forward as showing that a contract was made. The Court was there concerned with a formal document, signed by the parties, described "Offer and Acceptance" which recorded a contract for the sale of real estate and which comprehensively recorded the terms and conditions of sale. It contained no less than eleven clauses and additional special conditions. It was common ground that in the circumstances the issue whether the document gave rise to a binding and enforceable contract was to be determined as a question of construction of the document. Likewise, the cases to which Walsh J. referred related to written instruments where the construction of the language used became all-important. 1. (1973) 129 C.L.R. 629. 2. (1973) 129 C.L.R., at p. 638. Once it is accepted that it was appropriate for the primary judge to draw inferences from the words and conduct of the parties it is evident that the conclusion which he reached was correct. There was in our view ample material from which his Honour could legitimately infer, as he did, that the parties mutually contemplated that a contract should come into existence in the normal course, that is, by means of the signing and the exchange of a contract in the form adopted by the Real Estate Institute of New South Wales, without relying on evidence that this was the unilateral intention or understanding of Mr. Cummings, a finding which the appellant submitted was irrelevant. The first consideration is that the usual method of selling real estate in New South Wales is by means of the signing and exchange of contracts in the form approved by the Real Estate Institute of New South Wales (see Eccles v. Bryant [3] ; Smith v. Lush [4] ), a practice which was confirmed by Mr. Cummings' evidence of his understanding. That no departure from this method was intended is suggested by the absence of any discussion on 11th July of the terms (other than price) which one would expect to find in a binding contract for the sale of real estate (Farmer v. Honan [5] ). The words "offer" and "accept" in that conversation do not give the matter a different complexion because in the circumstances of their use they suggest no more than that Mr. Cummings and the respondent have decided the amount of the price. Then there is Ex. D which in our opinion puts the issue beyond all doubt. Prepared by Mr. Cummings and signed by the respondent, it makes provision for the signing of a formal contract, a contract which as we know contains detailed terms and conditions neither agreed upon nor discussed in the conversation. Exhibit D makes it plain that Mr. Cummings (on the appellant's behalf) and the respondent intended that the parties were to become bound by a formal contract containing a number of terms additional to the element of price which was the one matter upon which agreement had then been reached. In conformity with this intention instructions were given by Mr. Cummings to the respondent's solicitor to send a contract to the appellant's solicitors. Viewed in this light the conversation of 11th July amounted to no more than a preliminary agreement which preceded the giving of instructions to solicitors and the signing and exchange of contracts in the usual way. And it was a preliminary agreement which was not in itself a binding contract. 1. [1948] Ch. 93, at p. 99. 2. (1952) 52 S.R. (N.S.W.) 207, at p. 212. 3. (1919) 26 C.L.R. 183, at p. 192. As the appellant advanced an argument to the contrary we would merely add that in our view the events which occurred after 11th July are in no way inconsistent with this conclusion. Although the appellant's solicitors asserted in correspondence that a binding contract was made, it was to the appellant's interest to make such a claim and it was a claim made after it appeared that the respondent would not proceed with the sale. Although in the respondent's solicitor's response to this claim there was a curious reference to the existence of an "open contract", it was accompanied by a denial that there was a binding contract. For these reasons the appeal should be dismissed.