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The Life Insurance Co of Australia v Phillips

(1925) 36 CLR 60

Overview

Phillips entered into two life insurance agreements. Each agreement provided that the company would make payments on the death of Phillips or on a specified date (whichever occurred first) in exchange for the payment of premiums.

The contracts also provided that Phillips would be entitled to a housing loan after three years. The respondent sought to avoid the contract and recover premiems paid.

Three claims were made:

  • There was no contract because the parties were not ad idem
  • The contract was void for uncertainty as a result of the term relating to the loan
  • There was innocent misrepresentation by the company

All were rejected. In relation to the second (uncertainty) the Court held that the provision relating to the housing loan entitlement was too vague to be enforced. However, this provision could be severed from the remainder of the contract and there was no ambiguity in relation to the insurance cover and premiums.

Life insurance document

 

Facts

Phillips entered into two life insurance agreements. Each agreement provided that the company would make payments on the death of Phillips or on a specified date (whichever occurred first) in exchange for the payment of premiums. The contracts also provided that Phillips would be entitled to a housing loan after three years.

Phillips sought to avoid the contract - in part, by arguing the whole contract was void as a result of uncertainty relating to the housing loan provision.

 

High Court

Chief Justice Knox

On this issue of whether the policies were void for uncertainty:

... The argument for the respondent on [the uncertainty issue] was founded on the clause in each policy which provides for a loan of £500 after three annual premiums shall have been paid. It was said that the words of that clause were so vague that the obligation which it was intended to impose on the Company could not be enforced. But, assuming this to be established, it does not necessarily follow that the whole agreement embodied in the policy is void. When a contract contains a number of stipulations one of which is void for uncertainty, the question whether the whole contract is void depends on the intention of the parties to be gathered from the instrument as a whole. If the contract be divisible, the part which is void may be separated from the rest and does not affect its validity. In this case I think it is clear that the stipulations contained in the contract are divisible. There is no uncertainty or ambiguity in the promise on the part of the Company that in consideration of the payment of the annual premiums it will on 5th February 1939, or on the death of the respondent if occurring before that date, pay to the respondent or his representatives, as the case may be, the sum of £500. The obligation imposed on the Company by this provision came into force immediately on the payment by the respondent of the first premium, and if he had died during the twelve months next succeeding that payment this obligation could undoubtedly have been enforced. The provision for a loan would not then have been operative, and it would have been impossible for the Company, having received the premium and thus treated the contract as valid, to contend successfully that, by reason of the vagueness or uncertainty of the provision for a loan, the whole contract was void and it was under no obligation to pay the amount assured. If the contract were void no obligation could be imposed by it on the Company, and, conversely, if by reason of the contract the Company has come under an obligation the contract cannot be wholly void. For these reasons I am of opinion that the contention of the respondent on this point fails, ...

[emphasis added]

 

Justice Isaacs

On the uncertainty claim:

It is essential to a contract that by its terms express or implied there is created an obligation sufficiently definite to be measurable by the Court. This essential, it is said, is absent from the covenant in the policy to make a loan. It is said the term of the loan, the availability of funds and the discretion given to the directors as to approving of the security, are all so vague and indefinite that a Court cannot properly apply to the clause a legal standard of obligation. The present is not a case where the alleged breach of that clause is directly in question. Such a case may arise and therefore, as in my opinion its determination is not necessary, I pass by its construction, merely saying that for the purposes of this case I shall assume it is so uncertain as to be in itself void. Nevertheless, I do not hold that upon that assumption the life assurance covenant is also void. The two are distinct covenants. They have been treated by the parties, to a great extent at all events, as separate and independent. The life assurance covenant comes into operation immediately; the second is intended not to operate for three years, and even then, if the insured so wishes, it may never operate. ...

[emphasis added]

 

Justice Starke

On the uncertainty claim:

Assuming, however, that the promises in the policies for a loan are too vague to be enforced as a legal obligation, still that cannot, in my opinion, invalidate the other promise on the part of the Company relating to insurance. An attempt was made during the argument to treat these promises as dependent the one upon the other, and the premiums as if they were paid for a single consideration. But I cannot agree. They are divisible promises ... If the Company took premiums, could it be allowed to say that its promise to pay £500 on the stipulated day was unenforceable because its promise to advance money on loan created no legal obligation? Clearly not, in my opinion, because either its promises are divisible or else its conduct estopped it from so contending. And in this connection it may be observed that the obligation to make a loan does not even operate until after the policy has been three years in existence. ...