Case Summary

Meehan v Jones (1982) 149 CLR 571

Contract; contents; certainty of terms; universal terms; duty of good faith.

Facts: Meehan agreed to buy land owned by Jones, on which there was an oil refinery. The agreement was subject to Meehan '...receiving approval for finance on satisfactory terms and conditions...' Meehan could not get the finance he needed and the completion of the sale was delayed. Jones, the seller, then decided to avoid the contract and claimed it was void for uncertainty because Meehan had an unfettered right to decide whether or not the terms of any finance offered to him were satisfactory.

Issue: Did the terms regarding the finance give the buyer such complete discretion that the agreement became unenforceable?

Decision: Although the buyer had a discretion to decide whether particular financial terms were acceptable, that discretion had to be exercised honestly and reasonably, that is, in accordance with good faith. A court could decide if the buyer had acted honestly and reasonably and the agreement was therefore enforceable.

Reason: As a matter of general policy, the courts try to give effect to agreements where possible. In this type of case, the buyer does not have a completely unfettered right to decide what is satisfactory. Mason J said (at [22], [23]):

"[T]he vendor can claim that the agreement ... is not an option but a binding contract which relieves the purchaser from performance only in the event that, acting honestly, or honestly and reasonably, he is unable to obtain suitable finance... the courts are quite capable of deciding whether the purchaser is acting honestly and reasonably."