Updates and background for this project (Digest)
3.1 There have been many suggestions that the rule is no longer justified. For example, Beehag has suggested that “the grounds to justify the rule are outdated and the problems associated with material alterations can be remedied appropriately by alternative remedies”.1 One submission has stated that “the rule is out of step with the current approach of the legislature and the Court to questions of contract”.2 In recent times the judicial response to such views has been to state that the rule should be interpreted “as liberally and reasonably as possible”.3
3.2 Particular criticisms of the reasons said to support the rule are provided in more detail in the following paragraphs.
THE DOCUMENT IS THE OBLIGATION
3.3 Salmond and Williams suggest that the reason for the rule lay in its original application to deeds only:
and as thus applied was a consequence of the primitive notion whereby the contract created by the deed was inseparably identified with the parchment, ink and wax expressing it. On this view the continued existence of the contractual obligation was necessarily dependent on the continued existence of the deed in the form in which it declared the obligation. If the deed should cease to exist in that form, therefore, the obligor ceased to be bound.4
Glanville Williams also considers that the rule is due to a confusion between the obligation and its physical evidence.5
3.4 This criticism was developed by Oliver Wendell Holmes who compared modern written contracts with bonds:
The existence of a written contract depends on the fact that the offeror and offeree have interchanged their written expressions, not on the continued existence of those expressions. But in the case of a bond the primitive notion was different. The contract was inseparable from the parchment. If a stranger destroyed it, or tore off the seal, or altered it, the obligee could not recover, however free from fault, because the defendant’s contract, that is, the actual tangible bond which he had sealed, could not be produced in the form in which it bound him.6
EVIDENTIAL VALUE
3.5 Another reason offered for the rule is the need to preserve the evidential value or authenticity of the document. Salmond and Williams have observed:
The presumed purpose of the party or parties in reducing the contract to writing is to provide an authentic record of it beyond the reach of future controversy, bad faith or treacherous memory, and plainly this purpose would tend to be defeated if the instrument were not to be preserved in an unaltered state.7
Throughout the 19th century the courts became progressively stringent in their view of the need to preserve the evidential value of instruments.
3.6 Justice Ashhurst in Master v Miller said that it was the business of the person in possession of the document to preserve it without any alteration because “all written contracts whether by deed or not, are intended to be standing evidence against the parties entering into them”.8 In the same case Lord Kenyon said with respect to deeds:
It is of greatest importance that these instruments, which are circulated throughout Europe, should be kept with the utmost purity, and that the sanctions to preserve them from fraud should not be lessened.9
3.7 Baron Martin in Crookewit v Fletcher10 makes the policy grounds clear:
it must be borne in mind that to permit any tampering with written documents would strike at the root of all property; and that it is of the most essential importance to the public interest that no alteration whatever should be made in written contracts, but that they should continue to be and remain in exactly the same state and condition as when signed and executed, without addition, alteration, erasure, or obliteration. But upon this point, the case of Davidson v Cooper is conclusive. No case can possibly be entitled to more weight than this.
3.8 A particular aspect of the point that the evidential value of the instrument must be preserved is that the party with custody of the document is bound to preserve it. Lord Denman in Davidson v Cooper said:
The strictness of the rule on this subject, as laid down in Pigot’s case can only be explained on the principle that a party who has the custody of an instrument made for his benefit, is bound to preserve it in its original state. It is highly important for preserving the purity of legal instruments that this principle should be borne in mind, and the rule adhered to. The party who may suffer has no right to complain, since there cannot be any alteration except through fraud, or laches on his part.11
Criticisms
3.9 However, in some cases the preservation of the authenticity of the document against alterations is not so important. Since Pigot’s Case immaterial alterations by strangers have not triggered the operation of the rule and immaterial alterations by all parties have been excepted since Aldous v Cornwell in 1869.12
3.10 And even in the case of material alterations it can’t be said that a party would have difficulty proving that a document has been altered because to take advantage of the rule one must be able to prove that there was an alteration in any case.13
3.11 Maintaining the integrity of a document from forms of harm other than alteration has also, apparently, not been considered so important. The rule was never applied in the case of destruction by agents such as weather and mice.14 The rule also does not operate in cases of accident15 or mistake.16 In Davidson v Cooper counsel argued, albeit unsuccessfully, that:
It would be unreasonable to hold, that if a stranger tears off the seals from a deed without the privity or consent of the person to whom it belongs, the owner should lose all remedy upon it; whereas, if the stranger proceeded further and utterly destroyed it, his remedies would not be in any degree prejudiced, as he might give secondary evidence of its contents, and recover upon it.17
In such cases extrinsic evidence is available to determine the true words of the agreement.18 And even materially altered deeds can be admitted in evidence if only to show that an estate has passed.19
3.12 The protection of an original document is not so important today because of the ready availability of copying and data storage technology, which was obviously not available in the seventeenth century when only one copy of a deed would be likely to be held by the promisee.20 It is also now much easier to get documents that are not originals into evidence than it was in the seventeenth century.21 While there are conceivably increased opportunities for fraud provided by modern technology, the availability of more copies of documents should, in practice, make it easier to detect fraud. Not only has the availability of copies increased, but it has also become more common for parties to execute multiple copies of contracts.22 Indeed, in Victoria it may be the case that when an instrument is altered after execution an unaltered duplicate original may be relied on in evidence.23
3.13 However, some commentators consider that the preservation of evidence is still an important function of the rule in Pigot’s Case and that some recent developments have gone too far in generating uncertainty about the authenticity of contractual documents:
Courts must not lose sight of the need to maintain the integrity of written contracts, a principle which continues to and will always be a critical aspect of contract law.24
3.14 It has been said that the rule is justified on the grounds that alteration of documents in the custody of the promisee gives rise to doubt about the document’s identity.25 It has been suggested that this is illogical since any such doubt would exist irrespective of who had the document.26
A part of the law of evidence?
3.15 By itself, this reason would only justify the rule acting as an exception to general admissibility of original documents. However, the view that the rule should operate merely to void the instrument rather than the underlying agreement is far from widely accepted.
3.16 Even if the rule is treated merely as an exception to general admissibility the consequences of the instrument not being admissible in evidence has been said to go against the “general tendency of the law”. Oliver Wendell Holmes has noted in this regard:
We do not tell a jury that if a man ever has lied in one particular he is to be presumed to lie in all. Even if a man has tried to defraud, it seems no sufficient reason for preventing him from proving the truth. Objections of like nature in general go to the weight not to the admissibility of evidence.27
PUNISHMENT OF FRAUD
3.17 It has also been suggested that the rule was put in place to punish the party who alters a document. This point of view was put by Lord Kenyon in 1791:
Because no man shall be permitted to take the chance of committing a fraud, without running any risk of losing by the event, when it is detected. At the time when the cases cited, of deeds, were determined, forgery was only a misdemeanor: now the punishment of the law might well have been considered as too little, unless the deed also were avoided; and therefore the penalty for committing such an offence was compounded of those two circumstances, the punishment for the misdemeanor, and the avoidance of the deed. And though the punishment has been since increased, the principle still remains the same.28
However, Salmond and Williams suggest that this view is not historically sound and does not accord with the “modern policy of the law, for remedies in contract are not punitive but compensatory or reparative”.29
3.18 In Warburton v National Westminster Finance Australia Ltd, Justice Hope suggested that punishment is possibly still a valid reason for the rule, at least in cases involving fraud.30 He also noted that:
If, as I believe, this Court should adopt as the correct principle the inapplicability of the law in Pigot’s Case to non-fraudulent alterations, this would not only achieve a just result but would also accord with the views of Kenyon CJ and Denman CJ that the foundation of the harsh rule lies in crime and fraud.31
This appears to be the position in the United States. The American Law Institute’s Restatement requires that there must be a specific finding of fraud in relation to a material alteration. This position also has some support in Canada.32
3.19 Fraud certainly appears to be a relevant concern. First, and most obviously, some commentators connect fraud with the question of materiality.33 Fraud is also a relevant concern in other closely related areas. For example, under the Torrens system fraud is an exception to indefeasibility34 which would otherwise cure a document rendered void because of alteration.35 Fraud may also be a defence to a claim for restitution which may otherwise be made to overcome the effects of the rule.36
3.20 However, it can also be argued that punishment of fraud is a flimsy ground for retention of the rule. First, it does not justify the rule as it relates to material alterations by strangers and secondly, and more importantly, fraud may be more appropriately dealt with through criminal sanctions. In any case it can only be effective as a punishment if the underlying agreement is avoided. If only the instrument itself is rendered inadmissible (which may well be the case, at least with respect to documents which are not deeds) then it is not so much a punishment as merely a hurdle to be overcome.
3.21 Justice Kiefel of the Queensland Supreme Court has suggested that the rule was not necessary even in relation to fraudulent alterations because of the “Courts’ powers in cases of fraud”.37 Certainly the courts have a wide jurisdiction so that equity can intervene in cases of fraud if the fraud results in unfavourable consequences for the innocent party.38
Comparison with the law of wills
3.22 The law has taken a different course with respect to the alteration of testamentary documents, even though testamentary documents are considered very susceptible to fraud. It seems that, at common law, an alteration to a will after execution and without the knowledge of the testator simply had no effect.39 This position has been confirmed by legislation. For example s 18 of the Wills Probate and Administration Act 1898 (NSW) now provides:
No obliteration, interlineation, or other alteration made in any will after the execution thereof shall be valid or have any effect, except so far as the words or effect of the will before such alteration are not apparent...
The will as originally executed therefore must continue to have effect even for those beneficiaries who may have fraudulently altered it with a view to personal gain. Presumably it is thought to be enough that s 135 of the Crimes Act 1900 (NSW) is available to punish those making such fraudulent alterations. Why should the fraudulent alterations of deeds be any different?
Availability of criminal sanctions
3.23 In Master v Miller Lord Kenyon suggested that the avoidance of deeds was perhaps introduced to make up for the inadequacy of the common law with respect to forgery. Forgery was originally a misdemeanour at common law, but was made a felony (that is, punishable by death) by statute in 1728.40 So by 1791 the punishment for forgery had been increased, but this change in circumstances did not sway Lord Kenyon:
the penalty for committing such an offence was compounded of those two circumstances, the punishment for the misdemeanour, and the avoidance of the deed. And though the punishment has since been increased, the principle still remains the same.41
3.24 Part 5 of Crimes Act 1900 (NSW) now deals with forgery and the making of false instruments. A false instrument includes one that has been altered in certain prescribed ways:
(e) to have been altered in any respect by a person who did not in fact alter it in that respect; or
(f) to have been altered in any respect on the authority of a person who did not in fact authorise the alteration in that respect; or
(g) to have been made or altered on a date on which, or at a place at which, or otherwise in circumstances in which, it was not in fact made or altered.42
Serious penalties apply. Section 300(1), for example, provides:
A person who makes a false instrument, with the intention that he or she, or another person, will use it to induce another person:
(a) to accept the instrument as genuine; and
(b) because of that acceptance, to do or not do some act to that other person’s, or to another person’s, prejudice,
is liable to imprisonment for 10 years.
An act or omission is prejudicial if it is one that results
(i) in the person’s temporary or permanent loss of property; or
(ii) in the person’s being deprived of an opportunity to earn remuneration or greater remuneration; or
(iii) in the person’s being deprived of an opportunity to obtain a financial advantage otherwise than by way of remuneration.43
3.25 There appears to be some support for the use of criminal sanctions instead of civil proceedings to deal with fraudulent alteration of instruments.44 One submission to the Commission suggested:
If the alteration were made with an intent to defraud then no doubt Criminal Law might have a role to play.45
In fact, criminal sanctions for the alteration of documents appear in the background of at least one case involving the rule where one person, at the time of the civil proceedings, was serving a gaol term for fraud relating to alterations made to the mortgage in issue.46
FOOTNOTES
1. A Beehag, “Unilateral Alterations to Mortgage Documents” (1997) 8 Journal of Banking and Finance Law and Practice 289 at 302.
2. R Newlinds, Submission at 2.
3. Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at para 47; Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 at 276 (Bray CJ); Farrow Mortgage Services Pty Ltd v Slade (1996) 38 NSWLR 636 at 640 (Gleeson CJ); and Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 at 244 (Hope JA).
4. J W Salmond and J Williams, The Principles of the Law of Contracts (2nd edition, Sweet & Maxwell, London, 1945) at 573.
5. G L Williams, Joint Obligations (Butterworths, London, 1949) at para 67.
6. O W Holmes, “The Path of the Law” (1897) 10 Harvard Law Review 457 at 473. See also J C Sheahan, “Use and Misuse of Legal History: Case Studies from the Law of Contract, Tort and Restitution” (1998) 16 Australian Bar Review 280 at 282; and Elliot v Holder (1567) 3 Dyer 261b; 73 ER 580 now more fully reported in J H Baker (ed), Reports from the Lost Notebooks of Sir James Dyer (Selden Society, London, 1994) at 129-131.
7. J W Salmond and J Williams, The Principles of the Law of Contracts (2nd edition, Sweet & Maxwell, London, 1945) at 574.
8. (1791) 4 TR 320 at 331; 100 ER 1042 at 1048.
9. Master v Miller (1791) 4 TR 320 at 330; 100 ER 1042 at 1047.
10. (1857) 26 LJ Exch 153 at 159.
11. Davidson v Cooper (1844) 13 M&W 343 at 352; 153 ER 142 at 146. See also Winchcombe v Pigot (1614) 2 Buls 246; 80 ER 1096: “He at his peril ought to keep the same safely, without any rasure, or interlining”.
12. See Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 at 275.
13. Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 at 243.
14. Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 at 275.
15. See Hong Kong and Shanghai Banking Corporation v Lo Lee Shi [1928] AC 181.
16. See Henfree v Bromley (1805) 6 East 309; 102 ER 1305; Wilkinson v Johnson (1824) 3 B&C 428; 107 ER 792.
17. Davidson v Cooper (1844) 13 M&W 343 at 345-346; 153 ER 142 at 143-144.
18. J Chitty, Chitty on Contracts (28th edition, Sweet & Maxwell, London, 1999) at para 26-019.
19. S Williston, “Discharge of Contracts by Alteration” (1904) 18 Harvard Law Review 105 at 108.
20. Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 at 275.
21. See Evidence Act 1995 (NSW) s 48 and 51.
22. See L Friedlander, “Unilateral Alteration of Contracts in Canada” (1996) 11 Banking and Finance Law Review 267 at 286.
23. Vacuum Oil Co Pty Ltd v Longmuir [1957] VR 456 at 464. Justice Sholl’s decision was, however, also premised upon an absence of fraud in the case before him: see H Tarlo, “The Unilateral Alteration of Instruments” (1959) 2 Melbourne University Law Review 43 at 75.
24. L Friedlander, “Unilateral Alteration of Contracts in Canada” (1996) 11 Banking and Finance Law Review 267 at 289.
25. Sanderson v Symonds (1819) 1 B&B 426 at 430; 129 ER 786 at 788.
26. J Chitty, Chitty on Contracts (28th edition, Sweet & Maxwell, London, 1999) at para 26-019.
27. O W Holmes, “The Path of the Law” (1897) 10 Harvard Law Review 470 at 472-473.
28. Master v Miller (1791) 4 TR 320 at 329; 100 ER 1042 at 1047.
29. J W Salmond and J Williams, The Principles of the Law of Contracts (2nd edition, Sweet & Maxwell, London, 1945) at 574.
30. Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 at 243.
31. Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 at 244. It was, however, not necessary for Justice Hope to go so far in the case before him. See also Zisti v Ryde Joinery Pty Ltd (1996) 7 BPR 15,217 at 15,224.
32. S M Waddams, The Law of Contracts (4th edition, Canada Law Book, Toronto, 1999) at para 351 considers that the rule should be reserved for cases of actual fraudulent intent. See also L Friedlander, “Unilateral Alteration of Contracts in Canada” (1996) 11 Banking and Finance Law Review 267 at 274.
33. See para 2.23.
34. See P Butt, Land Law (3rd edition, LBC Information Services, Sydney, 1996) at para 2057-2061.
35. See para 2.66.
36. See para 2.92-2.93.
37. Kaffe Pty Ltd v Vasta (Queensland, Supreme Court, No 949/1992, Kiefel J, 4 August 1994, unreported) at 22.
38. See, for example, I C F Spry, The Principles of Equitable Remedies (5th edition, LBC Information Services, Sydney, 1997) at 165-170.
39. In Goods of Rolfe (1846) 4 Notes of Cases 406 the Prerogative Court considered it most improper to alter codicils after execution, even if only to correct errors and allowed probate to pass as the codicils were originally written without the alterations.
40. See 2 Geo 2 c 25 (1728) s 1.
41. Master v Miller (1791) 4 TR 320 at 329; 100 ER 1042 at 1047.
42. Crimes Act 1900 (NSW) s 299(2).
43. Crimes Act 1900 (NSW) s 305.
44. H Tarlo, “The Unilateral Alteration of Instruments” (1959) 2 Melbourne University Law Review 43 at 74.
45. R Newlinds, Submission at 2.
46. See Chilcott v Goss [1995] 1 NZLR 263, where a solicitor to the lending company acted fraudulently and was found guilty of criminal misconduct.
