Amalgamated Investment v Texas Commerce Bank [1982]
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Amalgamated Investment v Texas Commerce Bank [1982] QB 84 revolves around the application of estoppel by convention in the context of mistaken beliefs between parties involved in a complex financial arrangement.
Texas Commercial Bank agreed to lend money to Amalgamated Property, a subsidiary of Amalgamated Investment. However, the loan was provided through Portsoken Properties, which was a subsidiary of Texas Commercial Bank. Amalgamated Investment (the parent company) gave a guarantee to secure all monies owed to Texas Commercial Bank. The guarantee was believed by both parties to cover the loan by Portsoken Properties to Amalgamated Property, although a strict interpretation might suggest otherwise. Both parties operated under a mistaken belief regarding the scope of the guarantee but conducted their negotiations and dealings on the assumption that the guarantee covered the loan by Portsoken Properties to Amalgamated Property. Amalgamated Investment went into liquidation, and the issue arose regarding whether the cash realised from the sale of Amalgamated Investment's assets had to be applied to pay off the indebtedness to Portsoken Properties.
The central question was whether the mistaken belief held by both parties regarding the scope of the guarantee could give rise to estoppel by convention.
The Court of Appeal, in a judgment delivered by Lord Denning, found in favour of Texas Commercial Bank on the basis of estoppel by convention. The court held that when parties to a contract are under a common mistake about its meaning or effect and subsequently conduct their affairs on the basis of that mistake, the original contract is replaced by a conventional basis on which they both act. As a result, either party can sue or be sued upon this conventional basis.
This form of estoppel arises not from a misrepresentation of fact but from an agreed statement of facts assumed by the parties as the basis of their transaction. Once the parties have acted on the assumption that certain facts are true, they are estopped from challenging the truth of those assumed facts in relation to that transaction.
Lord Denning suggested that he would have reached the same conclusion by lifting the corporate veil and treating all dealings, including guarantees, as if they were only between Amalgamated Investment and Texas Commerce Bank. Brandon LJ indicated a willingness to construe the guarantee broadly, extending its coverage to the repayment of the loan to Portsoken Properties, if necessary.
The case illustrates the application of estoppel by convention in situations where parties operate under a mistaken belief about the terms of a contract. The court emphasised the significance of the parties' conduct and the conventional basis on which they conducted their affairs, leading to the replacement of the original contract by the terms assumed in their dealings.
Texas Commercial Bank agreed to lend money to Amalgamated Property, a subsidiary of Amalgamated Investment. However, the loan was provided through Portsoken Properties, which was a subsidiary of Texas Commercial Bank. Amalgamated Investment (the parent company) gave a guarantee to secure all monies owed to Texas Commercial Bank. The guarantee was believed by both parties to cover the loan by Portsoken Properties to Amalgamated Property, although a strict interpretation might suggest otherwise. Both parties operated under a mistaken belief regarding the scope of the guarantee but conducted their negotiations and dealings on the assumption that the guarantee covered the loan by Portsoken Properties to Amalgamated Property. Amalgamated Investment went into liquidation, and the issue arose regarding whether the cash realised from the sale of Amalgamated Investment's assets had to be applied to pay off the indebtedness to Portsoken Properties.
The central question was whether the mistaken belief held by both parties regarding the scope of the guarantee could give rise to estoppel by convention.
The Court of Appeal, in a judgment delivered by Lord Denning, found in favour of Texas Commercial Bank on the basis of estoppel by convention. The court held that when parties to a contract are under a common mistake about its meaning or effect and subsequently conduct their affairs on the basis of that mistake, the original contract is replaced by a conventional basis on which they both act. As a result, either party can sue or be sued upon this conventional basis.
This form of estoppel arises not from a misrepresentation of fact but from an agreed statement of facts assumed by the parties as the basis of their transaction. Once the parties have acted on the assumption that certain facts are true, they are estopped from challenging the truth of those assumed facts in relation to that transaction.
Lord Denning suggested that he would have reached the same conclusion by lifting the corporate veil and treating all dealings, including guarantees, as if they were only between Amalgamated Investment and Texas Commerce Bank. Brandon LJ indicated a willingness to construe the guarantee broadly, extending its coverage to the repayment of the loan to Portsoken Properties, if necessary.
The case illustrates the application of estoppel by convention in situations where parties operate under a mistaken belief about the terms of a contract. The court emphasised the significance of the parties' conduct and the conventional basis on which they conducted their affairs, leading to the replacement of the original contract by the terms assumed in their dealings.
