Case: Morris v Baron &amp; Co [1918] AC 1
Outcome: cited
A longstanding distinction exists in English law between rescission and variation of contracts by subsequent agreements. It has been applied particularly in cases of contracts required by law to be evidenced in writing. A parol variation of a written agreement would, in such a case, be unenforceable. On the other hand where the subsequent parol agreement discharges the earlier agreement it is not affected by the requirement that the original agreement be in writing. In British and Beningtons, Limited v North Western Cachar Tea Co Ltd [1923] AC 48, which concerned a contract required by the Statute of Frauds to be in writing, Lord Atkinson said (at 62): 'A written contract may be rescinded by parol either expressly or by the parties entering into a parol contract entirely inconsistent with the written one, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.' The earlier decision of the House of Lords in Morris v Baron &amp; Co [1918] AC 1, also a Statute of Frauds case, was relied upon. 154 It has been said, as a general proposition, that the result of varying the terms of an existing contract is to produce not the original contract with a variation but a new and different contract Williams v Moss Empires [1915] 3 KB 242 at 247 (Sankey J). That approach was adopted by the Court of Appeal in Morris v Baron . Lord Sumner referred to it in British and Beningtons, Ltd (at 68) as possibly correct 'as a matter of formal logic'. However in United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340, which was a case involving money lenders' legislation in Jamaica, Lord Devlin, delivering the judgment of the House of Lords, said (at 348): 'The disadvantage of this view is that a minor variation may destroy the effect of the whole of the transaction between the parties. The alternative view, adopted by the House of Lords in Morris v Baron and again in British and Benningtons (sic) Ltd v NW Cachar Tea Company Ltd ... is based on the intention of the parties. They cannot have that which presumably they wanted, that is, the old agreement as amended; so the court has to make up its mind which comes nearer to their intention to leave them with an unamended agreement or without any agreement at all. The House answered this question by rejecting the strict view propounded by Sankey J and distinguishing between rescission and variation. If the new agreement reveals an intention to rescind the old, the old goes; and if it does not, the old remains in force and unamended. It seems that this distinction was developed in order to address the difficulties generated by requirements for contracts to be in writing, imposed by the Statute of Frauds, and in the United Dominions Corporation case by the Money Lending law of Jamaica. 155 In Tallerman &amp; Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10 ; (1957) 98 CLR 93, Dixon CJ and Fullagar J described the distinction made between 'rescission' and 'variation' in the two House of Lords decisions as '... not a satisfactory distinction'. It appeared to be 'a matter of degree' (at 113). Taylor J said (at 144): 'It is firmly established by a long line of cases commencing at least as early as Goss v Lord Nugent [(1833) 5 B &amp; Ad 58] and ending with cases such as Morris v Baron &amp; Co and British &amp; Beningtons Ltd v North Western Cachar Tea Co Ltd and, indeed, including Goss v Lord Nugent itself that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.' 156 Taylor J acknowledged that variation might involve partial rescission and cited Salmond and Williams on Contract , 2 nd ed (1945) at 488 and 489: '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.' And further (at 144): '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.' Taylor J observed that those passages correctly stated the accepted view of the manner in which an agreement by way of variation operates. 157 The distinction between rescission and variation of contracts was indirectly an issue in Dan v Barclays Australia Ltd (1983) 46 ALR 437 (57 ALJR 442). The case concerned the construction of the terms of a guarantee of the payment of up to $500,000 owing under a bill acceptance facility which allowed for a maximum advance of $2 million. The maximum of the bill acceptance facility was increased sometime after its execution. It was held by Mason, Brennan and Deane JJ that the initial bill acceptance facility was significantly different from that subsequently granted and the guarantors were therefore not liable for interest and charges resulting from default under the later facility although, as a matter of construction of the guarantee, they were liable for the principal up to the figure specified in the guarantee. Wilson and Dawson JJ dissented. In their dissent they observed that cases dealing with the circumstances in which variation of a contract would amount to rescission did not necessarily provide the answer to the question of the construction of the guarantee in its application to 'the facility'. However they said (at 448): 'The distinction between rescission and variation is discussed in such cases as Tallerman &amp; Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd [1957] HCA 10 ; (1957) 98 CLR 93; Morris v Baron and Co [1918] AC 1 and British and Beningtons Ltd v NW Cachar Tea Co [1923] AC 48. Variation of an existing contract, whilst it in one sense always gives rise to a new contract, does not always result in a substituted contract which, in order to operate, must necessarily rescind the contract which is varied. Variation may take the form of rescission of some of the terms of an existing contract but if that is to have the effect of rescission of the whole contract, the rescission must be express or by necessary implication and the determining factor must always be the intention of the parties as disclosed by contract when varied: see Tallerman &amp; Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd, supra, per Taylor J at 143-4.' Owen J in Permanent Building Society (In Liquidation) v Wheeler (1993) 10 WAR 109 observed that although the statement in Dan was in a dissenting judgment, the dissent related to the application of the test. There was no reason to doubt the authoritative force of the statement of principle (at 127): 'Many of the cases arise in the area of unenforceability due to non-compliance with a formal requirement such as writing. ... However, the authorities show that the task is to ascertain the intention of the parties as embodied in the contracts.' It was permissible, in searching for the intention of the parties, 'to look at the extent and completeness of the changes involved in the variation' (127). His Honour said further (at 128): 'That there may be "as a matter of formal logic" a new contract ... is true to a limited extent only.' In the Permanent Building Society case the parties had expressly confirmed the original agreement and made minor changes. The varied contract was therefore a 'new' contract only to the extent that it contained terms which were not present in the original agreement.