Brien v Dwyer

141 CLR 378
22 ALR 485

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(Decision by: BARWICK CJ)

Between: BRIEN
And: DWYER

Court:

Judges:
Barwick C.J.Gibbs J.
Stephen J.
Jacobs J.
Aickin J.

Subject References:
Vendor and Purchaser

Judgment date: 14 December 1978

Sydney

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Decision by:
BARWICK CJ

On 27th February 1973, the parties, the appellant as purchaser and the respondents as vendors, exchanged a signed contract for the sale and purchase of land at Byron Bay in the State of New South Wales. The purchase price was the sum of $16,000. The parties had signed a printed form of contract as approved by the Law Society and the Real Estate Institute of New South Wales. It does not appear who first signed the form. Clause 1 of this form of contract was as follows:

"The Purchaser shall upon the signing of this agreement pay as a deposit to the Vendor's Agent herein named as Stakeholder the sum of:

ONE THOUSAND SIX HUNDRED DOLLARS ($1,600.00) which shall vest in the Vendor upon and by virtue of completion and which shall be accounted for to the Vendor upon receipt of an order from the Purchaser or his Solicitor authorizing such payment. The deposit may be paid by cheque but if the cheque is not honoured on presentation the Purchaser shall immediately and without notice be in default under the agreement.

The balance of the purchase price shall be paid as stipulated in the First Schedule hereto. Any moneys payable to the Vendor hereunder by the Purchaser or the Agent will be paid to the Vendor's Solicitor or as he may direct in writing."

The deposit was not made at the time the contract was signed by the purchaser. The vendors apparently did not know that fact when they signed the document, if they did sign it later than the purchaser. But some time in March 1973 the appellant's husband, who is a solicitor, gave to an employee of the estate agents named in the contract as vendor's agent to be stakeholder of the deposit, his "cheque" drawn on the Commercial Bank, Ballina, post-dated to 1st April 1973, for the sum of $1,600. Though this document was post-dated, there were in fact adequate funds in the drawer's account in the bank at Ballina to have met a cheque for that amount presented to the bank at the date the document was handed to the estate agents.

No receipt was issued upon the handing over of this document, nor any entry made in the books of account of the estate agents. No advice of the receipt of the document was given to the respondents.

The estate agents held the document until 2nd April, on which date the drawer had a telephone conversation with an employee of the estate agents about his intention to substitute for the document drawn on the Ballina bank a cheque drawn on the A.N.Z. Bank, Byron Bay, for the same amount. However, no such cheque was sent to the estate agents, who continued to hold the March document. On 13th April the drawer left for overseas, not returning till 14th May. He left a solicitor in charge of his Byron Bay practice and of the further conduct of the purchase by the appellant.

On 10th May, this solicitor told an employee of the estate agents to bank the March document. That day the estate agents signed a receipt for the amount of $1,600 and credited that sum to the trust account ledger of the estate agents. On 11th May, the March document was banked and it was cleared by the Ballina bank that day. No advice had been furnished to the respondents of any of these events, nor had any authority been sought in respect of them. They were not at any time before 11th May aware that the deposit had not been duly made according to the requirements of cl. 1.

On 11th May, the respondents' solicitors signed and that day served on the appellant's solicitor a notice in the following terms:

"We are instructed to advise you that as no deposit has at this stage been paid by you, the Vendor pursuant to Conditions one (1) and sixteen (16) of the Contract hereby terminates the said Contract."

Clause 16 of the contract document is in the following terms:

"If the Purchaser defaults in the observance or performance of any obligation imposed on him under or by virtue of this agreement the deposit paid by him hereunder, except so much of it as exceeds 10% of the purchase price shall be forfeited to the Vendor who shall be entitled to terminate this agreement and thereafter either to sue the Purchaser for breach of contract or to resell the property as owner and the deficiency (if any) arising on such re-sale and all expenses of and incidental to such re-sale or attempted re-sale and the Purchaser's default shall be recoverable by the Vendor from the Purchaser as liquidated damages provided that proceedings for the recovery thereof be commenced within 12 months of the termination of this agreement. The Vendor may retain any money paid by the Purchaser on account of the purchase other than the deposit money forfeited under this clause as security for any deficiency arising on a re-sale or for any damages or compensation (including any allowance by way of occupation fee or for rents or profits from a Purchaser who has been in possession of the property or in receipt of the rents or profits thereof) awarded to h0im for the Purchaser's default provided that proceedings for the recovery of such damages or compensation be commenced within 12 months of the termination of this agreement."

Thereafter the appellant, by statement of claim in the Equity Division of the Supreme Court of New South Wales, sued the respondents for the specific performance of the contract of sale and purchase.

The Supreme Court (Holland J.) decreed specific performance. His Honour held that the payment of the deposit in terms of cl. 1 of the contract was not a condition precedent to the creation of the vendor's obligations under the contract; that the removal on 10th May of the restrictive conditions on which the March document was originally lodged with the estate agents rendered that document a performance on that date of that clause, particularly as the document was met on 11th May: and that the deposit being paid on 10th May, the respondents had then no right of rescission.

The respondents appealed to the Court of Appeal Division (Moffitt P., Hutley and Samuels JJ.A.), which unanimously allowed the appeal, set aside the decree for specific performance and dismissed the appellant's suit (1976) 2 NSWLR 420 .

Before the Court of Appeal, the appellant did not support the primary judge's reasons for judgment. The appellant submitted to the Court of Appeal that cl. 1 only required the deposit to be paid within a reasonable time of the signing of the contract and that no fundamental breach of the contract would take place by non-payment of the deposit except after a notice duly making time in that respect of the essence of the contract.

The Court of Appeal saw no reason to depart from the literal meaning of cl. 1. It held, as I read the published reasons for judgment, that the provision for payment of a deposit is wholly for the benefit of the vendor and that the obligation of the purchaser, unless its performance is waived by the vendor, is to pay the deposit either before or immediately upon the signature of the contract. Failure to do so is a fundamental breach which entitles the vendor to rescind forthwith and without prior notice. The Court was also prepared to hold that the acts of the purchaser in this case justified the conclusion that she was repudiating the contract and unwilling to be bound by its terms. Accordingly, the Court of Appeal allowed the appeal and made the orders I have already mentioned.

In my opinion, although cl. 1 speaks of "the" signing of the agreement, it clearly means, in my opinion, that the deposit is to be made by the purchaser on the signing of the document by the purchaser. In using the word "agreement", the clause, in my opinion, does not refer to the time when the parties have already become contractually bound to each other but to some anterior point of time. The form of agreement contemplating a vendor's agent being instrumental in effecting a sale, it is reasonable, in my opinion, to conclude that signature by the purchaser will precede signature by the vendor. In my opinion, the clause in speaking of the signing of the agreement refers at the latest to the time the signature of the purchaser is available to be matched by the signature of the vendor. That, in the ordinary course, will be when the purchaser signs the form of agreement for transmission to the vendor, whether that is to take place through an estate agent or through a solicitor. Of course, if each signs contemporaneously the clause will embrace that time. But this in my experience does not usually happen. I think I see practical difficulties in reading the clause as not requiring the payment of a deposit until the vendor has signed. Thus, on the whole, I prefer a construction of the clause which requires the purchaser to pay the deposit to the agent when the form of agreement is signed by the purchaser for transmission to the vendor. The clause, in my opinion , does not mean on the signature of the document by both parties or on the exchange of the counterparts signed by the respective party. But such a construction would produce in this case the same result as the construction I prefer.

If the form of contract is read as in my opinion it should be, the payment of the deposit at the time the purchaser signs the form of contract for transmission to the vendor performs the function of a deposit in the negotiation of an executory transaction of sale and purchase. It does provide an earnest of performance by the purchaser if the vendor is willing to be bound: it also affords some proof that the estate agent has procured for the vendor a willing purchaser and an agreement enforceable upon the vendor's adherence to the terms of the document signed by the purchaser. It seems to me that, not only must the purchaser so pay to the estate agents the stipulated deposit, which until the vendor becomes bound will be held for the purchaser (see Sorrell v. Finch [1976] AC 728 ), but that it is part of the estate agent's duty, if he is to earn his commission, to obtain payment of the deposit by the purchaser at the time he signs the form of contract for transmission or presentation. Such an obligation on the part of the estate agent is scarcely burdensome: self-interest if nothing else should ensure its performance.

Thus, in my opinion, in the context of cl. 1, and being mindful of the function of a deposit in a transaction of the present kind, the word "upon" means, in my opinion, "at the time of", and relates to the time of the signature by the purchaser of the form of agreement for transmission or presentation to the vendor for his signature.

There is no room, in my opinion, for construing the clause as meaning within a reasonable time after signature, whether it be a signature by the purchaser or by both parties. Such a construction denies to the payment of a deposit, the character of an earnest of performance and raises almost an insoluble question as to what is a reasonable time: for there can be no norm by reference to which a judgment as to what is a reasonable time can be made. It is important, it seems to me, not to apply doctrines equitably devised in relief of purchasers in the performance of a contract to the formation of the contract itself.

No doubt an intending vendor who knows that the purchaser has not paid his deposit will be justified in not making a contract with him. If, having signed the contract in ignorance of the purchaser's failure to pay the deposit, the vendor becomes aware of that failure, he can immediately, in my opinion, and without prior notice, out of hand rescind the contract. Quite clearly, in my opinion, he is not bound to wait any time to allow the purchaser to pay the deposit. Nor is he bound to give any notice to make the time for payment of the deposit of the essence of the contract. In my opinion, if it matters, cl. 1 itself effectively does that. Nor is he required to notify his intention to rescind. No other conclusion, in my opinion, as to the meaning of cl. 1 would give effect to the undoubted function of the deposit as an earnest of performance. I do not see any undue rigidity or unfairness in such a construction of such clear words, bearing in mind the avowed purpose of stipulating for a deposit .

Of course, if a vendor is aware of the failure to pay the amount of the stipulated deposit, he cannot delay in exercising what, in my opinion, is his undoubted right of rescission of the contract. If he takes steps in performance of the contract without knowing whether or not the deposit has been paid, the ability validly to rescind the agreement might have to be decided upon general grounds in the particular circumstances. If, without taking any such steps, a vendor fails to pursue his right to rescind, a court of equity might possibly be prepared to treat his inactivity as inordinate and as having itself led the purchaser into some position of disadvantage, in the particular circumstances of a case. But, in my opinion, the right to rescind, arising at the very moment of the execution of the contract is not lost otherwise than by the conduct (including, perhaps, in an appropriate case, the inaction) of the vendor.

As the right to rescind arises at the very moment that the vendor, in ignorance of the fact that, though the purchaser has signed, no deposit has been paid, signs the contract, there is much to be said for the view that the payment of the deposit at the time the purchaser signs the agreement is a condition precedent to the assumption by the vendor of the obligation of the contract. Again, on that view of the operation of a clause such as cl. 1, the vendor will only subsequently become bound because of some act, or perhaps some particular inactivity, of his own. I have no need in this case, however, to make a firm decision on that point, though there is some force in the reasons of Goulding J. in Myton Ltd. v. Schwab-Morris (1974) 1 WLR 331 ; [1974] 1 All ER 326 . It is sufficient for the purposes of this case to hold that non-payment of the deposit at the time the purchaser signs the form entitles the vendor to rescind out of hand.

Thus I agree with what is said by Hutley J.A. in his reasons for judgment in this case (1976) 2 NSWLR, at pp 424-425 :

"The deposit is an 'earnest to bind the bargain' (Howe v. Smith (1884) 27 Ch D 89, at p 101 ), or, as Lord Macnaghten said in Soper v. Arnold (1889) 14 App Cas 429, at p 435 , 'a guarantee that the purchaser means business'. It cannot so function if payment can be made within a reasonable time after the signing of the contract. No rational vendor would subject himself to the trouble of giving a notice to pay the deposit and the risk of court determination of what is a reasonable time at the very inception of the contract. It must be remembered that on the exchange of contracts the purchaser acquires an equitable interest in the land, and this of itself has a constraining effect upon the vendor. What he can do with his land is materially limited from the moment of exchange."

I also agree with his Honour that the provisions of cl. 1 as to the payment of the deposit by cheque strongly support the construction which I would place on the plain words of the clause.

In this case, no money and no cheque was paid at the time the purchaser signed the form of contract. But her agent deposited the post-dated "cheque" some time later. Clearly, the estate agents had no authority to accept that document as under the contract. The cheque spoken of in cl. 1 is a cheque proper. i.e., an order on a bank for immediate payment. A post-dated cheque is a bill of exchange of a different order and does not, in my opinion, satisfy the description of a cheque in cl. 1. Nor had the estate agents any authority to negotiate that bill of exchange on behalf of the vendor. All the acts of the estate agents to which I have referred were done in the interests of the purchaser. None was for the benefit of the vendors; none was within the vendor's authority to the estate agents. None of these acts, including the receipt of the proceeds of the March document, can be accounted as acts of the vendors, nor, in my opinion, as relevant to their rights or the exercise of their rights.

But it is said that, when on 10th May the estate agents were told that the post-dated cheque could now be banked and cleared, there was then a payment which affected the rights of the vendors. I am at a complete loss to understand how the unauthorized acts of the estate agents can, without any knowledge or act of the vendors, affect the vendors' rights. In my opinion, upon any proper view of the law of contract, or of equity, they cannot. The more so, if anything further were needed, when the estate agents have been acting not in the interests of the vendor but in the interests of the purchaser and in complicity with her agent. The removal on 10th May of the condition on which the March document had been held did not turn that document into a cheque within the meaning of cl. 1: nor the clearance of the March document on 11th May as a payment on 10th May, as might have been the case had the March document been such a cheque. The basic reason that, upon a cheque being met, payment is deemed to have been made at the time the cheque was given is that, being a negotiable demand on a bank for immediate payment, it is susceptible of immediate negotiation. This could not have been said of the March document. In this connexion, I do not place anything on what might be thought a justifiable suspicion that the communication between agent and the drawer's agent on 10th May was inspired by some apprehension on the part of one or both of them that the vendors were about to act.

In my opinion, the primary judge was in error in his conclusions. The vendor was entitled, in my opinion, on 11th May to rescind the contract. The deposit as required by the contract had not then been paid. The activities of the estate agents and the agent for the drawer of the March document were irrelevant to the vendors' rights and did not affect them. The proceeds of the March document were not authoritatively received on his account, unless of course by some act he ratified the estate agents' acts: which quite clearly he did not; and, in any case, for the reasons I have given, there was no payment on 10th May.

I might observe, having regard to some remarks made by the primary judge, that it is, in my opinion, erroneous to discuss the position of a vendor on non-payment of a deposit in terms of damage or disadvantage thereby suffered by the vendor. To do so misconceives the function of a deposit and fails to give proper significance to the fact of its non-payment at the time the purchaser signs the form of contract.

Having regard to the view I have formed, I should say something as to certain decisions of the Supreme Court .

Holland J. in Payne v. City Syndicate Management Pty. Ltd. (Supreme Court of NSW; 3rd May 1973), so far as presently relevant, held that the obligation of clauses such as cl. 1 was to pay the deposit within a reasonable time of the contract coming into existence and that that time was not of the essence.

In Babic v. Williams (Supreme Court of NSW; 13th June 1974), his Honour affirmed his earlier decision, preferring it to the decision of Goulding J. in Myton Ltd. v. Schwab-Morris (1974) 1 WLR 331 ; [1974] 1 All ER 326 .

In Lydia Court Pty. Ltd. v. Panousis (Supreme Court of NSW; 7th September 1973), Street C.J., when Chief Judge in Equity, associated himself with the decision in Payne's Case.

In Alarm Facilities Pty. Ltd. v. Jackson Constructions Pty. Ltd. (1975) 2 NSWLR 22 , Wootten J., according to the headnote, held:

"(1)

Whether or not payment of a deposit is a condition precedent to the coming into operation of a contract for the sale of land depends upon the terms of the contract. In the present case, such payment was not a condition precedent, that is to say that failure to pay the deposit constituted default under the contract, rather than failure to bring it into existence.

(2)

Semble, time is not of the essence so far as payment of a deposit is concerned. In the present case, the implication to be draw from the terms of the contract was that the deposit should be paid within a reasonable time after the contract had commenced to operate. Therefore, it was necessary for the vendor to give a notice of intention to rescind specifying a reasonable time for payment of the deposit, and this the vendor had done."

In my opinion, these decisions, in so far as they decide that under a clause in terms of cl. 1 a deposit is not payable at the time the purchaser signs the form of contract but at a reasonable time thereafter, that time is not of the essence in that respect and that a vendor may not rescind out of hand for failure to pay the deposit as and when stipulated by cl. 1, are insupportable and ought to be overruled.

In my opinion, the Court of Appeal was correct in its conclusions. I agree with Hutley J.A. that the acts of the purchaser in this case were capable of establishing that the purchaser had evinced an intention not to be bound by the contract.

In my opinion, the appeal should be dismissed.