Perri v Coolangatta Investments Pty Ltd

149 CLR 537
41 ALR 441

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(Judgment by: WILSON J)

Between: PERRI
And: COOLANGATTA INVESTMENTS PTY LTD

Court:

Judges: Gibbs C.J.
Stephen J.
Mason J.

Wilson J.Brennan J.

Subject References:
Contract

Judgment date: 11 May 1982

Canberra

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Judgment by:
WILSON J

On 7 April 1978 the appellants contracted to purchase land from the respondent for the sum of $220,000. The contract did not name a date for completion. It is therefore appropriate to imply a term that the sale was to be completed within a reasonable time, having regard to the circumstances of the case as they would have appeared to th e parties at the date of contract. The dispute between the parties centres upon the effect to be given to a special condition contained in the contract, reading as follows:

"This Contract is entered into subject to Purchasers completing a sale of their property No. 9 Korokan Road, Lilli Pilli."

No date was specified in the contract for the fulfilment of this condition, and it is common ground that the time available for its fulfilment was limited to a reasonable time.

It is said that some importance attaches to the proper characterization of the special condition, as to whether it is a condition precedent or a condition subsequent, and that the applicability of the principle established by the Judicial Committee in Aberfoyle Plantations Ltd. v. Cheng (1960) AC 115 may depend upon the answer.

In Hunt v. Wilson (1978) 2 NZLR 261, at p 267 , Cooke J. said:

"I venture to think that the ambiguous labels precedent and subsequent, when applied to conditions, are seldom of real help in solving issues in this branch of contract law. Certainly they can be positively misleading unles the meaning of what is being said is made specific by explaining to what the condition in question is seen as precedent or subsequent."

I entirely agree. If it matters at all, the special condition in this case may be described with accuracy as either a condition subsequent to the formation of the contract or as a condition precedent to an obligation in either party to proceed to completion. The obligation to complete is contingent on the fulfilment of the condition, but in the meantime there is a conditional contract in existence from which neither party is at liberty to withdraw at will. Interim obligations were undertaken by both parties. The vendor had to make good its title to sell, and the purchasers were obliged to pay the deposit and make all reasonable efforts to bring about a sale of the Lilli Pilli property.

Speaking for myself, I have difficulty in assigning the decision in Aberfoyle to the very limited category of cases dealing with conditions precedent to the formation of a contract. It seems to me that when Lord Jenkins (1960) AC, at pp 128, 130 spoke of a condition precedent, he was speaking of the condition in that case as precedent to the coming into existence of a binding contract of sale. As Sachs L.J. remarked in Property and Bloodstock Ltd. v. Emerton (1968) Ch 94, at p 121 , after referring to Lord Jenkins' words,

"The distinction, of course, is there drawn between a contract and a contract of sale, and that particular distinction is one which derives from the long-used phraseology, almost the traditional phraseology, such as that to be found in Anson on Contract, 22nd ed. (1964), p. 111, and in Chalmers' Sale of Goods 14th ed. (1963), p. 243."

Again, in In re Sandwell Park Colliery Co.; Field v. The Company (1929) 1 Ch 277, at p 282 , Maugham J. refers to a "condition upon which the validity of the contract as one sale depends" (sic "one of sale") and to a "condition precedent to the validity of a contract for sale of land" (my emphasis) (1929) 1 Ch, at p 283 .

In my opinion, therefore, the general character of the conditions in Sandwell Park and Aberfoyle are indistinguishable from the condition in the present case. Nevertheless, there is some difficulty in applying the principle of those cases to an open contract, namely, one where there is no specific date fixed either for the fulfilment of the condition or the completion of the contract. In both cases, the contract specified the date for its completion. In each case, however, the statement of principle extends to cases where no date is fixed. In Sandwell Park (1929) 1 Ch, at p 282 , Maugham J. emphasizes the demand for certainty in relation to conditional contracts, saying

"Equity has, I think, never applied its liberal views as to time to such a condition. If a date is mentioned, the condition must be exactly complied with. If a date is not mentioned, the condition must be fulfilled within a reasonable time . . . ."

But surely the very implication of a reasonable time denies certainty , and one of the functions which a notice to complete issued after the lapse of a reasonable time may serve is to substitute the certainty of a specific date for the uncertainty of a reasonable time. It is true that in In re Longlands Farm (1968) 3 A11 ER 552 , Cross J. characterized the contract in that case as a contract conditional on one party obtaining planning permission, and held that the condition was to be fulfilled within a reasonable time. He held further that the period must be determined as at the date of the contract and that on the expiry of the period the other party was entitled to treat the contract as at an end. However, that decision, while plainly in accord with the merits of the case, may be open to some question: see per Cooke J. in Hunt (1978) 2 NZLR, at p 270 .

Furthermore, I am not satisfied that Aberfoyle provides authority for the proposition that on the expiration of a reasonable time allowed by implication for the fulfilment of a condition a party may thereupon without more declare the contract to be void. As I have said, their Lordships were dealing with a contract which specified a date. It was a date fixing the time for payment of the purchase price by the purchaser, and the real issue between the parties was as to the relationship which the time for fulfilment of the condition bore to that date. Nevertheless, after mentioning the overriding importance of the intention of the parties as expressed in, or to be implied from, the language they have used, their Lordships continued (1960) AC, at pp 124-125 :

"But, subject to this overriding consideration, their Lordships would adopt, as warranted by authority and manifestly reasonable in themselves, the following general principles:

(i)

Where a conditional contract of sale fixes a date for the completion of the sale, then the condition must be fulfilled by that date;

(ii)

where a conditional contract of sale fixes no date for completion of the sale, then the condition must be fulfilled within a reasonable time;

(iii)

where a conditional contract of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles."

The authorities to which their Lordships then refer are Smith v. Butler [1900] 1 QB 694 and Sandwell Park (1929) 1 Ch 277 . The former case was one in which the contract specified a date for completion but there was no time specified for fulfilment of the condition. The Court of Appeal held that the completion date provided the limit of time for the condition to be fulfilled. The case therefore answered to the first of the general principles adumbrated in Aberfoyle. In Sandwell Park, Maugham J. was also dealing with a conditional contract which fixed a specific date for completion.

It is the second of the three principles stated in Aberfoyle which purports to cover the present case, but it will be noted that it takes us no further than the conclusion that the condition must be fulfilled within a reasonable time. The statement of principle provides no guidance as to the next step, which is how the uncertainty inherent in the implication of a reasonable time which is unspecified as to any particular date is to be resolved in the interests of fairness to both parties. It is that function that a notice would serve. I find some confirmation for my view that Aberfoyle does not decide the present case in the discussion of the decision by Cooke J. in Hunt (1978) 2 NZLR, at p 271 , where after citing Aberfoyle (1960) AC, at p 128 his Honour concludes:

"Although their Lordships did not go as far as positively deciding the point, their observations certainly tend towards the view that, if no time is fixed for completion and a condition is to be satisfied within a reasonable time, the equitable requirements as to notice apply."

It is important to recognize and maintain the distinction between a contract which is subject to a condition which requires for its fulfilment a decision from a person other than a party to the contract, and an unconditional contract. It is in the context of the latter that we have become accustomed to the operation of equitable principles which afford relief against the strict application of time stipulations which are not of the essence, requiring in that regard the service of a notice to perform or to complete as the case may be before rescission or specific performance will be enforced. In such cases there is necessarily one party who is in breach of an obligation under a contract which the innocent party rightly expects to proceed to completion. If the contract is not carried through to completion, then the party in default will lose the deposit and, depending on the circumstances, may or may not be liable in damages.

There can be no such firm expectation in a conditional contract. Neither party can be sure of the contract proceeding to completion, for it does not lie in the will of either party to ensure the fulfilment of the condition. This case is an instance of a conditional contract where there is to be implied a collateral promise by the appellants to make reasonable endeavour to sell the Lilli Pilli property. A breach of that implied term may entitle the respondent to an action for damages. Nevertheless, compliance with the term cannot guarantee that a buyer at a satisfactory price will be found. The completion of the contract is dependent, in the absence of a waiver, on the prior fulfilment of a condition as to which it does not lie fully within the capacity of the appellants to effect. The agreement between the parties is subject to the prior sale of the Lilli Pilli property. If on the expiration of a reasonable time that property has not been sold, then either party may initiate the steps which are necessary to the termination of the agreement: cf. Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418 , at p 441 . There being no default, the deposit will be refunded.

In my opinion, it is to be implied from the agreement that should the Lilli Pilli property not be sold within a reasonable time, then the fate of the contract will be resolved according to the action which may be taken by either party. The purchasers may elect to waive the condition, it being one wholly for their benefit, and proceed to completion, thereby holding the vendor to its contract. Alternatively, provided that they have acted reasonably in their attempts to sell the property, they may rely on the non-fulfilment of the condition to bring the contract to an end, and recover their deposit. On the other hand, the vendor may force the issue simply by serving a notice to complete. I do not think it appropriate to contemplate a notice to the purchasers requiring them to fulfil the condition, because the time agreed for that will have expired, and in any event it does not lie within the capacity of the purchasers to fulfil it. The effect of a notice to complete is to give the purchasers, should they wish to waive the condition, the opportunity to finalize the transaction ; alternatively, it serves to crystallize in the minds of both parties a common date on which the contract will come to an end for non-fulfilment of the condition. In the latter case, non-compliance with the notice to complete will not fix the purchasers with any default such as would deprive them of the right to the return of their deposit, although as I have said, a failure to make reasonable efforts to sell the property may expose them to an action for damages.

I believe that this construction of the relationship between the parties is wholly consistent with the decision of this Court in Maynard v. Goode (1926) 37 CLR 529 . In that case a contract for the sale of land was subject to a condition "that the transfer of purchaser's block goes through in reasonable time". The vendor argued that the condition was a true condition precedent, with the result that the vendor incurred no obligation to carry out the contract until the condition had been performed. It was also argued that time was of the essence of the contract, or alternatively that if that were not so then in any event the transfer of the purchaser's block had not gone through in reasonable time. The Court rejected each of these submissions. Knox C.J. said (1926) 37 CLR, at p 536 :

"With regard to the stipulation as to the transfer going through within a reasonable time, I think it is clear on the construction of the contract that this was not a condition precedent. It provides that the performance of the contract shall be subject to the happening of an event which is to happen, if at all, at a future time which cannot be precisely specified. Unless that event happens neither party is to be compelled to perform the contract in its entirety, the promise of each being subject to or defeasible upon the condition expressed. . .

With regard to the second objection it is enough to say that, in the absence of any stipulation that time shall be of the essence of the contract, there is nothing in the circumstances to justify the conclusion that the parties intended that time should be essential. The third objection, in my opinion, fails because in all the circumstances of the case the transfer of Goode's block to Angel did go through within a reasonable time."

See also per Isaacs J. (1926) 37 CLR, at pp 539-540 , and Rich J. (1926) 37 CLR, at p 544 . Higgins J. (1926) 37 CLR, at p 542 said, with reference to the right to avoid the contract for non-fulfilment of the condition:

"... I strongly think that a right to put an end to the contract or to refuse to perform it would not arise thereunder automatically without some warning notice from the vendor, fixing a reasonable limit of time for completion."

There are therefore two questions to be determined, upon the answers to which the efficacy of the notice to complete served 17 July 1978 and the subsequent termination of the contract on 10 August will rest. The first is the period of time, that the parties would have agreed in March or early April 1978 was a reasonable time to allow for the Lilli Pilli property to be sold. This is a matter of inference from all the circumstances. The second question is whether the notice to complete allowed a reasonable time for completion .

Although contracts were not exchanged until 7 April 1978, the deposit of $22,000 was paid some time before that, and the Lilli Pilli property was put on the market in March. The nature of the condition, namely, one which operates wholly in favour of the purchaser, suggests that a reasonable time will be just that and no more. In other words, fairness to the vendor requires that it be determined rationally but without undue latitude. The vendor remains at risk that, in the event of the condition being unfulfilled, the sale will not proceed and it will have to return the deposit. It will then have suffered for the period in question the loss of its freedom to deal with its property without receiving any adequate remuneration for such loss. It would be unjust to require its hands to be tied for a period longer than would have been anticipated when the contract was made to be reasonably necessary to allow the condition to be fulfilled: Sandwell Park (1929) 1 Ch, at p 282 ; United Scientific Holdings Ltd. v. Burnley Borough Council (1978) AC 904, at p 929 . The appellants argue that the difficulties of effecting a sale of a waterfront property during the winter months would have been present to the minds of the parties. I am unable to accept the contention, since it would require the vendor to have bound itself to a sale which could not be expected to be completed until well into the following summer which was then many months away.

The finding of the learned trial judge was expressed in the following sentence in his reasons:

"The defendants do not assert that a reasonable time had not expired by September 1978, and I am of the opinion that the proper conclusion on the evidence is that a reasonable time had by then expired."

This conclusion supplied the ground for a finding in favour of the plaintiff vendor, and his Honour referred to the fact that the plaintiff had taken action to avoid the contract by its notice of termination dated 10 August 1978 and by commencing the proceedings for a declaration on 29 September 1978. His Honour took the view that a notice to complete was unnecessary, so that he did not have to direct his mind specifically to the question whether a reasonable time had elapsed by the 17 July, the date when the notice to complete was served. I do not think that the finding to which I have referred supplies any implication that his Honour rejected the vendor's claim that a reasonable time had expired by the middle of July; it was sufficient to rely on what was common ground between the parties, that, whether or not a reasonable time had expired by July, it had certainly expired by September.

In my opinion, a reasonable time for the sale of the Lilli Pilli property had expired by the middle of July. It is immaterial to seek for an explanation for the non-fulfilment of the condition, but no doubt it lies in the finding of the learned trial judge that the appellants did not make reasonable efforts to effect a sale. Putting oneself in the shoes of the parties as they negotiated their agreement in March, it seems to me that a period of four months would have been the very most that the appellants could have persuaded the vendor to accept.

The final question is whether the period of twenty-two days allowed in the notice to complete was a reasonable time. In my opinion, it was. I have in mind the function of such a notice in the context of a conditional contract where the time for the fulfilment of the condition has expired. I also have regard to the fact that from May 1978 the vendor was pressing the appellants to complete, and made no secret of its wish for an early settlement. The circumstances of the particular case will always be most relevant: cf. Stickney v. Keeble (1915) AC 386, at pp 419, 426 .

For these reasons, I conclude that the decisions, though not the reasoning, of the learned trial judge and the Court of Appeal were correct and ought to be affirmed.

I would dismiss the appeal.