RAPLEY v FERRARI SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, CLARKE and HANDLEY JJA 27 June, 10 August 1990 [1990] NSWCA 153 TESTATORS FAMILY MAINTENANCE — No estate available to satisfy orders under Act — Contract to make Will giving testamentary option confers equitable interest on promisee during lifetime of testator — Promisee consents to promissor making new will — whether variation or rescission of contract Held: Contract varied not rescinded and following death of testator residuary estate held on constructive trust for promisees. No estate available to satisfy orders under the Act. Testators Family Maintenance Act 1916 Schaefer v Schumann [1972] AC 572 O'Neill v O'Connell (1946) 72 CLR 101 Perpetual Executors v Commissioner of Probate Duties (1981) VR 91 Morris v Baron [1918] AC 1 Nathan's Merchandise (Vic) Pty Limited v Tallerman and Co Pty Limited [1956] 57 SR (NSW) 416 Electronic Industries Limited v David Jones Limited (1954) 91 CLR 288 Birmingham v Renfrew (1937) 57 CLR 666 ORDER: Appeal dismissed with costs Mahoney JA The facts and the issues are detailed in the judgment of Handley JA which I have had the advantage of reading. The transaction between Mr and Mrs Ferrari and the deceased in 1959 was intended to create legal rights. The rights created included, inter alia, the right of Mr and Mrs Ferrari to have the deceased execute, and agree not to revoke, a will by which they were given an option to purchase the relevant land for $2500. For that, they gave the consideration set forth in the written agreement then made, namely, a promise to care for the deceased until his death. That right, in my opinion, created in them such an interest in the land as could have been protected by an injunction if the deceased had, without their consent, purported to revoke the will and so deprive them of the option: see Schaefer v Schuhmann (1972) AC 572; Palmer v Bank of New South Wales 133 CLR 150. Therefore, in my opinion, the essential question in the appeal is the effect of the transactions which took place in 1964 and in 1968 (I shall refer to them as the 1964 transaction). His Honour held, in my opinion correctly, that Mr and Mrs Ferrari consented to the deceased revoking the 1959 will. This was the result of the discussions which took place between Mrs Ferrari, the deceased and the solicitor Mr Barnes in April 1964. (It has been assumed that, in what took place, Mrs Ferrari was acting for herself and her husband: no suggestion to the contrary has been made). It was then made clear to Mrs Ferrari that the deceased desired or proposed to revoke the 1959 will and to substitute for the option given by that will a new and, in my opinion, inconsistent provision, viz, that the land in question should be taken by Mr and Mrs Ferrari jointly under and by virtue of the proposed 1964 will. 2 UNREPORTED JUDGMENTS Whatever be the effect of that conversation in this regard, another will was made in May i964 and Mr and Mrs Ferrari signed a formal consent to the revocation of the 1959 will and to the making of a new will at that time. It is, of course, not possible for the 1959 and the 1964 transactions to stand together. That which was granted by the 1964 will, viz, a bequest of the land to Mr and Mrs Ferrari without need to pay any money for it, is inconsistent with that which was given to them by the 1959 will, viz, an option which if exercised would oblige them to pay $2500 for the land. The 1964 transaction was therefore effectively one which changed the rights of the parties under the 1959 agreement. In the main, two views have been propounded as to the effect of the 1964 transaction: that it represented a rescission by consent of the binding agreement made in 1959 and the substitution, for the then present grant of an option to buy the land, of a gift of the land to take effect upon the death of the deceased and, necessarily, if that will was not revoked; or, second, that the 1964 transaction represented a variation of the 1959 agreement. The variation which emerged from the argument was generally to the effect that there be substituted for CL1 of the written agreement of 1959 a provision specifying the 1964 will in place of the 1959 will. In that variation, the agreement not to revoke the will referred to in the agreement would have effect in respect of the 1964 will and, accordingly, the 1968 will. In my opinion, what was intended in 1964 was not that the 1959 agreement be totally terminated. The intention was, I think, that some portions of it should remain operative. Thus, it was intended that the promise made by Mr and Mrs Ferrari to care for the deceased would remain operative; there was no suggestion that they should cease to do that or that they should lose the right which had been given to them in 1959 to continue to reside in the property. If the result or contemplation of the 1964 agreement was therefore that some provisions of the 1959 agreement should continue, it is necessary to determine whether other parts of it were within this contemplation and, in particular, how the 1964 agreement affected the promise by the deceased not to revoke the 1959 will and what effect it was to have on his new will. It is clear of course that the parties did not see all the consequences of what they were doing in 1964 and consciously provide for or against them. The court's task, in construing the 1964 agreement, is to give effect to what the parties subjectively did intend and what must have been the consequence of that intention. I think the consequence of Mr and Mrs Ferrari remaining bound to care for the deceased and remaining obliged and so entitled to live in the property leads inevitably to the conclusion that all of the parties contemplated that Mr and Mrs Ferrari would remain entitled, in the relevant sense, to the land. None of the parties appears to have adverted in terms to whether the new will to which consent was to be given was, like the former will, not to be revoked. But, I think, if that matter had been put to them, they would all have said: "But of course". The deceased was, in 1964, intending to confer upon Mr and Mrs Ferrari a benefit additional to or greater than that which they already had. The contemplation was not that their interest in the land was to be decreased but that it was to be increased, in the sense that their interest was not subject to the obligation to pay for it. URJ RAPLEY v FERRARI (Clarke JA) 3 Iam conscious that what parties contemplate may be defeated by what they do and that the 1964 transaction might be construed as substituting for an irrevocable will containing an option a revocable will containing a gift of the land. Iam conscious also that, as I have said, the parties may not subjectively have adverted in terms to the effect of the consent and the new will in this regard. But this is, in my opinion, a case in which the contemplation of the parties brings into operation what have been described elsewhere as the "It goes without saying" approach to the form taken of the terms of an agreement. If this be the construction of what occurred in 1964, then Mr and Mrs Ferrari were, from the 1964 agreement, entitled beneficially to the land in the sense of having the right to it if the agreement was duly performed. It is not in question but that it was duly performed. On this basis, the land was not part of the deceased's estate for the purposes of the Testator's Family Maintenance and Guardianship of Infants Act: see Schaefer v Schuhmann (1972) AC 572. The decision of the learned judge was therefore correct. It has not been argued that the claims of Mr and Mrs Ferrari should fail for lack of writing or for reasons of that kind. I would dismiss the appeal with costs. Clarke JA I agree with Handley JA. In my opinion the critical question in the case is whether the deceased and the respondents rescinded the agreement of 2 April 1959. There was no express agreement to that effect. The contention is that rescission should be implied from the conduct of the parties. The question whether a contract has been rescinded, rather than varied, by the conduct of the parties is a question of fact depending upon the intention of the parties to be gathered from an examination of their later dealings and the surrounding circumstances. (See Morris v Baron and Company, 1918 AC 1; British and Beningtons, Limited v North Western Cachar Tea Company, Limited and Ors, 1923 AC 48, at 62; Royal Exchange Assurance v Hope, 1929 Ch 179, at 191; United Dominions Corporation (Jamaica Ltd v Shoucair, (1969) 1 AC 340, at 348-9; Tallerman and Company Proprietary Limited v Nathan's Merchandise (Victoria) Proprietary Limited, 98 CLR 93, at 144.) It is important, however, to bear in mind that when the courts speak of rescission they mean total rescission in the sense that the contract is extinguished. Partial rescission is simply a form of variation. In this respect I respectfully agree with the observations of Taylor J in Tallerman at 144: "Variation, of course, may involve partial rescission as is pointed out in Salmond and Williams on Contracts, 2nd ed (1945), at 488, 489, but 'Partial rescission... does not completely destroy the contractual relation between the parties. It merely modifies that relation by cutting out part of the rights and obligations involved therein, with or without the substitution of new rights and obligations in their place. Partial rescission is not the extinction of the contract but the variation of it.' Hence it is said 'A contract may be varied (1) by way of partial rescission without the substitution of new terms in place of those rescinded, or (2) by way of partial rescission with the substitution of new terms for those rescinded, or (3) by the addition of new terms without any partial rescission at all.' These passages, in my view, correctly state the accepted view of the manner in which an agreement by way of variation operates." 4 UNREPORTED JUDGMENTS Here the question is whether the court should infer from the conduct of the parties and, in particular, the deceased's action in changing his will and the respondents' action in consenting to the change that they intended completely to extinguish the 1959 contract. For the reasons given by Handley JA I think that the far more compelling view is that they simply intended to vary it. Handley JA This is an appeal by Mrs Hilda Rapley, a daughter of the late Mr TW Staniland (the deceased) from the judgment of Bryson J who heard applications by three children of the deceased including the appellant, for orders under the Testators Family Maintenance Act (the Act) granting provision for their benefit out of his estate. His Honour dismissed all three applications having held that the deceased had left no estate which was available to satisfy orders under the Act. The deceased died on | December, 1973 aged eighty-five leaving a will dated 16 March, 1968 by which he appointed his daughter Shirley June Ferrari, the first respondent, sole executrix. The only asset of the deceased at the date of his death was his freehold home at 5 Pembroke Street, Eastwood then valued for death duty purposes at $35,000. Debts, funeral and testamentary expenses including death and estate duties amounted to approximately $4,600 leaving an apparent net estate of some $30,400. By his last will the deceased gave legacies of $400 each to a son and another daughter and the residue of his estate to the executrix and her husband (the second respondent) in equal shares. The deceased was survived by six children. He therefore made no provision whatever for three of them, including the appellant, and made only nominal provision for the other two. The bulk of his apparent estate passed to the executrix and her husband under the residuary gift in the will. In CLS of his will the deceased explained that he had made his testamentary dispositions in this way in appreciation of the care and attention which the respondents had given him since they came to live with him after their marriage on 9 May, 1959 and because they had wholly maintained and supported him since that time. His Honour's conclusion that the deceased had left no estate which was available to satisfy any order made under the Act was based on the existence of a contract which he found had been entered into by the deceased with the respondents under which he promised to make and leave a will in their favour. In these circumstances His Honour followed Schaefer v Schuhmann [1972] AC 572 and held that the property of the deceased affected by such contract was not available to satisfy an order under the Act. In April 1959 the deceased a widower was living at his home at Eastwood with the first respondent, who was then unmarried, and with an unmarried son. The respondents were planning to get married and to stay with the deceased for approximately six months while they acquired a block of land and built their own home. The deceased set out to persuade the respondents to remain and look after him with the promise that the house would be theirs after his death. The respondents accepted the deceased's proposal and the parties entered into a written agreement on 2 April 1959 to record their arrangements. The agreement recited that the deceased had requested the respondents to support and maintain him in his home for the rest of his life and that the respondents had agreed to do so. The agreement then provided that in consideration of the premises the deceased would execute a will in the form annexed to the agreement and would not revoke it. For their part the respondents agreed that they would live in the URJ RAPLEY v FERRARI (Handley JA) 5 deceased's home during his lifetime and that they would at their own cost and expense support, maintain and care for him. The parties carried out this arrangement. The deceased executed the will under which he granted a testamentary option to the respondents to purchase his home for two thousand five hundred pounds. After the respondents' marriage they made their home in the deceased's house and supported and maintained him there in accordance with their obligations under the agreement. The unmarried son left the house but married later that year and established a home of his own. Some five years later the deceased decided to alter his will to relieve the respondents of the obligation to pay the purchase price payable on their exercise of the testamentary option. With the knowledge and approval of the respondents he executed a new will on 22 April 1964 and a further will on 13 May which merely corrected some typographical errors. By this will the deceased gave the residue of his estate to the respondents subject to legacies in favour of two of his other children and three of his grandchildren amounting in all to seven hundred pounds. Under this will the deceased's home, if it remained an asset of his estate, would pass to the respondents subject to the burden of debts, expenses and the legacies. In some respects they would be better off under the new will because they would not have pay the purchase price of two thousand five hundred pounds to exercise their testamentary option. At the same time however the respondents lost, during the deceased's lifetime, the specifically enforceable rights over the home which the 1959 agreement conferred upon them. See Schaefer v Schuhmann [1972] AC at 586. The deceased's solicitor, the late Mr Alan Barnes, carefully recorded in his diary entries the instructions from the deceased which led to the making of the 1959 agreement and will, and the new wills of April and May 1964. These diary entries survived in his files and were tendered in evidence on behalf of the respondents. They demonstrate with crystal clarity that the deceased made his new wills in 1964 for the purpose of conferring additional testamentary benefits on the respondents and that the terms of these new wills were fully discussed with the respondents before they were executed. Moreover the diary entries for 22 April 1964 show that after Mr Barnes had read to The first respondent the terms of the will which the deceased had executed a moment before she had said in the presence of her father and his solicitor that she and her husband "would continue to look after him". Shortly afterwards on 1 May 1964 Mr Barnes wrote to the deceased requesting that he call and execute a further will correcting the typographical errors in the will he had executed on 22 April. That letter concluded with a paragraph in the following terms: "In view of the previous agreement of 1959 we would also like Mr and Mrs Ferrari to sign a formal Consent to the revocation of your previous will." The respondents signed such a consent dated 15 April 1964 (which must be an error) addressed to the deceased which is in the following terms: "WE the undersigned LAURENCE JOSEPH FERRARI and SHIRLEY JUNE FERRARI of No 5 Pemboke Street, Eastwood being the same persons as and identical with the Laurence Joseph Ferrari and Shirley June Peet referred to in Agreement dated the 2nd day of April, 1959 in relation to No 5 Pembroke Street, Eastwood hereby jointly and severally agree to you revoking your Will of the 2nd day of April, 1959 and making a fresh will." 6 UNREPORTED JUDGMENTS The deceased made yet one more will in 1968 which was generally in the same terms as the 1964 wills except that he revoked the legacies in favour of the three grandchildren. Under this will the respondents would only be called upon to pay legacies totalling $800. On this occasion Mr Barnes apparently did not bother to obtain the written consent of the respondents. The trial judge found that the agreement of 2 April 1959 was a legally enforceable contract. He further found that the consent by the respondents to the revocation by the deceased of the 1959 will and the making of a new will neither rescinded or varied the original contract. Counsel for the appellant in his careful submissions challenged both these findings. It is well established that a contract to devise specific property by will confers an immediate equitable interest on the beneficiary which can be protected by injunction or caveat in the lifetime of the testator. See Schaefer v Schuhmann (above) at 586. Counsel for the appellant however submitted that the position was otherwise in the case of a contract to grant a testamentary option. principle it is difficult to see why this should be so. The distinctions between contracts to devise property by will, to devise it subject to a charge or condition for the payment of money or to grant a testamentary option to purchase the property are not such that equity should treat a contract to grant a testamentary option as radically different from the other testamentary contracts. However the decision in O'Neill v O'Connell (1946) 72 CLR 101 and in particular the judgment of Dixon J establishes that the grant of a testamentary option: "\.. gives an immediate, though innominate, beneficial interest, one of the many miscellaneous rights and interests which under the wide power of testamentary disposition allowed by English law a testator may create". See also per Williams J at 129 and the full discussion of this question and the relevant authorities by Brooking J in Perpetual Executors v Commissioner of Probate Duties (1981) VR 91 at 98-102 especially at 100. In my opinion if a will which grants a testamentary option has this effect after the death of the testator, a contract to grant such an interest by will which is otherwise legally enforceable will confer on the promisee an equivalent equitable interest during the lifetime of the testator/promissor in accordance with the principles explained in Schaefer v Schuhmann (above). In my opinion therefore the agreement of 2 April, 1959 conferred on the respondents an immediate equitable interest in the house. Counsel for the appellant also submitted that because of what he suggested were drafting deficiencies in the written agreement the deceased had either not made any legally binding contract at all or had only promised not to revoke the will made that day. In my opinion the contractual intention of the parties was quite clear and the alleged deficiencies are inconsequential. There is no substance in this submission. Counsel for the appellant further submitted that the formal consent given by the respondents to the revocation of the 1959 will and the making of a new will under which they were merely residuary beneficiaries operated as a rescission of the 1959 contract so that thereafter the respondents had no enforceable contractual rights against the deceased but a mere expectation of being recipients of his testamentary bounty. URJ RAPLEY v FERRARI (Handley JA) 7 It is clear that the respondents' formal written consent to the making of a new will by the deceased was intended to have some effect on their legal relationships. The document is unilateral in form although of course it was proffered to the respondents by the deceased's solicitor acting on his behalf. It was expressed as a mere consent and no consideration is referred to. The appellant submits that the consent rescinded the earlier agreement while the respondents submit that it had no effect on the parties' contractural rights or else operated as a mere variation. No other possibility was suggested in argument and as at present advised I cannot see any other way in which the consent could affect the legal rights of the parties. The probabilities are very much against construing the document as a rescission. If that had been the real intention of the parties it would have been very easy to have said so. The deceased at this stage was seventy-six and more in need of the support and assistance of the respondents than ever. There is no suggestion that the respondents wished to leave or that the deceased wanted them to do so. The document did not, in terms, release the respondents from their contractual obligations to the deceased. Indeed, as I have already mentioned the first respondent expressly stated that she and her husband would continue to look after him. The existence of the respondents' obligations was of great importance to the deceased and central to his future welfare. In my opinion the Court should not impute to the parties an intention to rescind their contract or infer that their acts had that result in the absence of clear evidence that this was their intention. There is no such evidence and the respondents were not cross examined to establish any oral agreement to that effect. The diary entries of Mr Barnes and his letter to the deceased of 1 May 1964 indicate that the signing of the form of consent by the respondents was treated as a formality. At no stage did the deceased ask his solicitor to terminate his contractual relationship with the respondents and he was never warned that this would or might be the effect of the "formal" consent. Moreover there was nothing in the contemporaneous material which supports the view that the respondents were given to understand that they were being asked, in signing the formal consent, to give up all contractual rights to what was then their home. ever the previous five years the house had been extensively improved as a result of their work and expenditure and in so acting the respondents had clearly relied on the 1959 contract. While the parties were on good terms there is nothing to suggest that either the deceased or the respondents wished to be put in the position where they were dependent solely on the continuing goodwill and loyalty of the other party. The deceased's promise to leave a will in favour of the respondents was the consideration for their promise to support and live with him. If the consent released him from any promise to the respondents their promises to him were no longer supported by any consideration and were also released. The rescission of an existing contract depends on the intention of the parties. In the words of Viscount Haldane in Morris v Baron [1918] AC 1 at 19: "What is, of course, essential is that there should have been made manifest the intention in any event of a complete extinction of the first... contract, and not merely the desire of an alteration, however sweeping, in terms which will still leave it subsisting". Similarily in Nathan's Merchandise (Vic) Pty Limited v Tallerman and Co Pty Limited [1956] 57 SR (NSW) 416 at 417 the Full Court said: "It is always competent for parties to agree for a consideration that some particular promise in 8 UNREPORTED JUDGMENTS a pre-existing contract shall not be enforced or shall be performed in a manner different from that originally provided." This decision of the Full Court was affirmed by the High Court. See 98 CLR 93. In my opinion the present case is within the principles applied by the High Court in Electronic Industries Limited v David Jones Limited (1954) 91 CLR 288. There the parties had entered into a contract for an exhibition of television at the defendant's store to commence on an agreed fixed date. At the defendant's reguest the plaintiff agreed to postpone the exhibition to a date to be fixed. The defendant refused to join in fixing a new date and argued that the removal of the agreed date had rendered the contract void for uncertainty or had effected a rescission. This view had prevailed in the Full Court but its decision was reversed. In a joint judgment the High Court, referring to the conduct of the plaintiff in that case said, at 297: "All it meant to do, and all it did do, was to accede to the defendant's request for a postponement... The truth was that the plaintiff expressed its willingness to vary the contract by substituting a new agreed date...". In the present case in my opinion all that the respondents did was to "accede" to the deceased's "request" to substitute a different method of performance for that originally contracted for. In other words the request by the deceased through his solicitor that the respondent execute a "formal" consent to the deceased making a new will did no more than seek written confirmation of the respondents' willingness to agree to a variation of the contract. While the formal consent simply refers to "a new will" the evidence establishes that the respondents were fully aware of the terms of the new will and that it had already been executed. No consideration is expressed in the consent but in my opinion the consideration may be inferred from the conduct of the parties and involved their agreement to substituting the new will for that which was the subject of their original agreement. In my view the evidence of the surrounding circumstances contained in the deceased's solicitor's diary entries leads to the conclusion that the respondents' consent was not to the deceased making any will which in his discretion he might see fit to make but to his making the will which had been discussed and agreed upon between them prior to the consent being signed. When the deceased later varied the 1964 will, in a manner favourable to the respondents, in 1968 this was again done with their knowledge and approval. Although on this occasion no formal consent was signed the inference should again be drawn that the parties by their conduct agreed to a further variation in their contract so as to substitute the 1968 will for that previously substituted in 1964. In these circumstances I have reached the conclusion that at the time of his death the deceased was under a binding contractual obligation to the respondents to make and leave unrevoked a will in their favour in the terms of the will executed by him in 1968. Counsel for the applicants who sought further provision out of the estate did not seek to rely upon s54A of the Conveyancing Act and the absence of any note or memorandum in writing of the variations of 1964 and 1968 signed by the deceased. However the decision in Birmingham v Renfrew (1937) 57 CLR 666 establishes that a contract to leave a residuary estate by will is not a contract for the disposition of an interest in land even if that residue comprised real estate either at the date of the will or at the date of death. URJ RAPLEY v FERRARI (Handley JA) 9 I therefore conclude that at the date of his death the deceased's residuary estate was bound by a legally enforceable contract with the respondents who were therefore entitled in equity to such residue under a constructive trust. See Schaefer v Schuhmann (1972) AC at 586. Accordingly the deceased left no estate apart from the modest legacies in favour of two of his children which was available to satisfy orders under the Act. The appeal must be dismissed with costs. Appeal dismissed with costs. Counsel for the Appellant: R Davies Solicitors for the Appellant: Lees and Givney Counsel for the Respondent: G Hosking Solicitors for the Respondent: Alan Barnes and Son