Brien v Dwyer

141 CLR 378
22 ALR 485

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(Judgment by: GIBBS J)

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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Judgment by:
GIBBS J

This appeal raises for decision a number of questions of considerable importance to persons buying and selling land in New South Wales, at least to those who use the form of contract for sale of land approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales in 1972. In particular, the following questions arise:

1.

Within what time is the deposit required to be paid?

2.

When there has been a default in the payment of a deposit, is the vendor entitled to terminate the contract without first giving a notice requiring payment of the deposit within a specified reasonable time?

3.

When a purchaser has made default in payment of the deposit, does the vendor lose the right to terminate the contract if, before the right is exercised, the purchaser makes a belated payment to the vendor's estate agent but the vendor is unaware that the belated payment has been made?

The word "terminate", which is used in the second and third of these questions, is the expression employed in cl. 16 of the contract for sale .

The form of contract in question is intended for use whether the sale is by private treaty or by public auction. In the latter case the introductory provisions of the contract require the purchaser to sign the agreement "upon the fall of the hammer". In the present case the sale was by private treaty. The purchase price specified was $16,000. Clause 1 of the contract provided 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 ($1,6000) 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 this 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 First Schedule required the balance of the purchase money to be paid "In cash on completion which shall be completed within 90 days of the date hereof". However, the contract was not dated. Clause 16 provided, inter alia, as follows:

"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 ..."

It is no doubt true, as Hutley J.A. said in the Court of Appeal, that this form of contract has been "refined and polished by the courts and leading conveyancers", but this process has, unfortunately, not meant that the resulting product has been altogether freed of its obscurities. The phrase "upon the signing of this agreement" contains two possible sources of ambiguity. It is a question whether "the signing" referred to is the signing by the purchaser, or whether what is meant is that the deposit is not payable until both parties to the contract have signed it . If it were intended that both parties should sign the contract at the one time the difficulty would not arise. However the usual practice in New South Wales is for parties intending to enter into a contract for the sale of land to exchange counterparts, and this was done in the present case. The word "upon" is also ambiguous. In its ordinary sense, according to the Shorter Oxford Dictionary, it means "immediately after; following upon". However the word "in different cases, may undoubtedly either mean before the act done to which it relates, or simultaneously with the act done, or after the act done, according as reason and good sense require the interpretation, with reference to the context, and the subject matter of the enactment": Reg. v. Humphery (1839) 10 A & E 335, at p 370 (113 ER 128, at p 142) ; see also Ex parte Lesiputty; Re Murphy (1947) 47 SR (NSW) 433, at p 436 , and Bowman v. Durham Holdings Pty. Ltd. (1973) 131 CLR 8 , at p 16 . If the word means "after" rather than "immediately after", it must be taken to mean within a reasonable time after the event specified: Koon Wing Lau v. Calwell (1949) 80 CLR 533 , at p 573 . The purchaser contends that this is its meaning in the present case.

When parties propose to enter into a contract for the sale of land, and to follow the customary procedure of exchange, they do not contemplate the coming into existence of a binding agreement before the exchange has taken place; the exchange "is the crucial and vital fact which brings the contract into existence": Eccles v. Bryant and Pollock (1948) Ch 93, at p 99 and see Allen v. Carbone (1975) 132 CLR 528 , at pp 532-533 . It is clear that if, before the counterparts had been exchanged, a cheque given as deposit was dishonoured, the purchaser would not at that time have committed a breach of the contract, because no binding agreement would have come into existence. It is also clear that whatever the proper construction of the contract, the vendor can insist that the deposit be paid before he signs the contract or exchanges counterparts, because until those things have been done the matter remains in the realm of negotiation. For these reasons it may not matter, from a practical point of view, whether the deposit is intended to be paid upon the signing by the purchaser, or upon the signing by both parties. The crucial question is whether the use of the word "upon" has the effect that the obligation to pay the deposit is postponed until a reasonable time after both parties have signed. Since the word is used in a clause which provides for payment of the deposit, in deciding which of its possible meanings it is intended to bear it is necessary to keep in mind the functions which a deposit performs. The nature of a deposit is well understood. In Soper v. Arnold (1889) 14 App Cas, at p 435 , Lord Macnaghten said:

"The deposit serves two purposes - if the purchase is carried out it goes against the purchase-money - but its primary purpose is this, it is a guarantee that the purchaser means business . . ."

In the same case Lord Herschell said (1889) 14 App Cas, at p 433 : "The deposit is given as a security for the performance of the contract."

The primary purpose of the deposit would not be served unless the deposit were paid at the very time when the purchaser assumed his obligations under the contract. A vendor is entitled to expect that the purchaser will be ready to show that he means business by paying the deposit no later than the time when the contract is entered into, and a security for due performance is likely to be ineffective if not available at the time when the binding obligations attach. If the vendor were compelled to wait an indefinite time after contracts had been exchanged before becoming entitled to receive the deposit, the purposes of the deposit would be frustrated. These considerations strongly support the view that "upon" in cl. 1 does not mean "after", but "immediately after", or, to use the language of Reg. v. Humphery (1839) 10 A & E, at p 369 (113 ER, at p 141) , "upon the occasion of, or at the time of". This is consistent with the use of the word in the auction conditions, where the expression "upon the fall of the hammer" indicates the occasion on which the purchaser is to sign. It is also consistent with the use of the word "upon", and its synonym "on", in a number of other places in cl. 1. The deposit is to vest in the vendor "upon" completion; it is to be accounted for to the vendor "upon" receipt of an order from the purchaser and if the cheque is not honoured "on" presentation the purchaser is to be immediately in default. In these parts of cl. 1 the word indicates the occasion when the right or duty arises or the default occurs, and does not have the effect that a reasonable time is to elapse before those things happen.

It is not, of course, intended that the payment of the deposit and the signing of the agreement should be strictly simultaneous, because that would be absurd. What is meant is that the deposit shall be paid on the occasion when the contract is signed. This conclusion throws some light on the question whether it is intended that it shall be paid only when both parties have signed. In the ordinary course of events it is unlikely that the purchaser will be present either when the vendor signs his part of the contract, or when the parts are exchanged, and it is unlikely that the agent will be present on the latter occasion. The contract should be construed in the light of what is likely to be the practice usually followed, so as to render its operation practicable and convenient. I therefore think that what is meant is that the deposit should be paid by the purchaser when he signs the contract, although it will no doubt be sufficient from a practical point of view if the deposit has been paid before contracts are exchanged.

It was not necessary for the vendor, before he terminated the contract, to give notice requiring payment of the deposit within a reasonable specified time. The time for payment of the deposit was, as I have held, fixed by the contract, and the condition that the deposit be paid upon the signing of the agreement was an essential term going to the very root of the contract, the breach of which would immediately entitle the vendor to terminate the contract. In Myton Ltd. v. Schwab-Morris (1974) 1 WLR 331 ; [1974] 1 All ER 326 , Goulding J. held that a clause requiring that a deposit be paid on the signing of the contract stated a condition precedent to the contract taking effect. Alternatively, he held that if payment of a deposit was not a condition precedent it was a term of so radical a nature that a failure to comply with it would entitle the other party to renounce further performance. In Alarm Facilities Pty. Ltd. v. Jackson Constructions Pty. Ltd. (1975) 2 NSWLR 22 , Wootten J. held in the case of a contract in similar terms to that in the present case that the payment of a deposit was not a condition precedent to the coming into operation of the contract, but that failure to pay the deposit constituted default under the contract. With respect I agree with Wootten J. that cl. 1 does not state a condition precedent. There is nothing in the words of the contract that suggests that payment of a deposit is a condition precedent to the coming into existence of the contract; on the contrary, a failure to pay the deposit is a breach of a term of the contract, namely the term contained in cl. 1. However, I respectfully agree with the alternative view of Goulding J. that the character and importance of a deposit indicate that the clause requiring payment of a deposit is a fundamental term the failure to perform which goes to the root of the contract and entitles the vendor to renounce further performance. A similar view was expressed by Woodhouse J. in Watson v. Healy Lands Ltd. (1965) NZLR 511, at p 516 . This conclusion is supported by the final words of cl. 1, read in conjunction with cl. 16. If the vendor is entitled to terminate the agreement immediately and without notice when a cheque given in payment of a deposit is dishonoured it would be strange if he were not entitled similarly to terminate the agreement if no payment was made at all.

For these reasons the learned trial judge was incorrect in holding that the contract provided for payment of the deposit within a reasonable time, and that in order to gain the right to rescind for non-payment of the deposit the vendor must first give to the purchaser a notice specifying a reasonable time for payment. If the headnote to Alarm Facilities Pty. Ltd. v. Jackson Constructions Pty. Ltd. is correct in indicating that Wootten J. favoured that view, he was, in that respect, in error.

In the present case there was a clear default in the observance of the obligation imposed on the purchaser by cl. 1 of the contract. Although undated contracts were exchanged on 27th February 1973 no cheque was given to the agent until some time in March - according to the evidence of the purchaser's husband, about a fortnight after the exchange had been effected. The cheque then given was post-dated to 1st April 1973. Payment by a post-dated cheque is not payment by cheque within the meaning of cl. 1, for that clause contemplates payment of a cheque which is capable of being honoured immediately on presentation. A post-dated cheque does not answer that description. In my opinion a bank is not entitled to pay a post-dated cheque before the date which it bears and to charge the amount to the customer's account. In my respectful opinion the view expressed in Pollock v. Bank of New Zealand (1901) 20 NZLR 174 and Keyes v. Royal Bank of Canada (1947) SCR 377, at pp 382-383, 386-387 is to be preferred to that taken by the Full Court of Queensland in Magill v. Bank of North Queensland (1895) 6 QLJ 262 .

The final question is whether the vendor had lost his right to terminate the contract. The learned trial judge held that the right to terminate the contract could no longer be exercised once the deposit had been paid, and that the obligation to pay the deposit was performed on 10th May 1973. On that day a solicitor purporting to act on behalf of the purchaser's husband, the drawer of the cheque, told the agent to bank the cheque, which the agent had continued to hold notwithstanding that the date for its payment had arrived on 1st April. The agent thereupon signed a receipt for the deposit, and credited the vendors' trust account ledger card with the amount of the cheque. On the following day, 11th May 1973, he presented the cheque for payment, and it was paid. On the same day the vendors gave the notice of termination.

It does not seem to me material to consider whether the solicitor who instructed the agent to bank the cheque had authority to do so or whether the cheque was banked before or after the notice of termination was given. Nor is it necessary to consider the circumstances in which the agent withheld the cheque from presentation after 1st April 1973. The vendors were not aware until some time in May that the post-dated cheque had been accepted and held. They did not expressly authorize the agent to accept payment either on 1st April or on 10th May. In my opinion the agent had no actual or ostensible authority on either of those dates to receive payment of the deposit. The expression "agent", when used in relation to an estate agent acting for a vendor, is misleading, as has been pointed out by this Court in Petersen v. Moloney (1951) 84 CLR 91 , at pp 94-95 , and by the House of Lords in Sorrell v. Finch [1977] AC 728 , at pp 750, 753 . Such so-called agents do not have a general authority to act on behalf of the vendor in relation to the contract. They have no general authority either to accept a deposit before a contract is made (Sorrell v. Finch [1977] AC 728 ) or to receive the purchase money (Peterson v. Moloney (1951) 84 CLR 91 ), although such authority may of course be conferred on an agent in a particular case. Conflicting opinions have been expressed as to whether an agent has a general authority to receive a deposit when a contract is made, but in the present case, as in most cases in practice, authority to do so is expressly conferred by the contract of sale. It is however clear in principle that where the contract of sale expressly provides for the payment of the deposit to the agent, the authority of the agent to receive the deposit is limited by the provisions of the contract. In the present case the authority of the agent was to receive a deposit paid in accordance with cl. 1. As I have said, the agent was authorized to accept a cheque, but not a post-dated cheque. He was authorized to accept payment of the deposit "upon the signing of this agreement", but not later. Of course, the vendor might have ratified the acceptance of a belated payment, but there was no ratification in the present case. The agent therefore had no actual or ostensible authority to accept payment on 10th May, or if it matters on 1st April, because by those dates the time specified in the contract for payment of the deposit was long past. In other words, the deposit was never paid in accordance with the contract. I do not find it possible to regard the case as one in which the default had been remedied, and the conditions of the contract fulfilled, before the notice of termination was given. At best the purchaser had offered to remedy the breach and this offer was accepted by the agent, who acted however without the authority or knowledge of the vendors. The vendors did not waive their right to terminate the agreement and in the circumstances they were not estopped from exercising that right. In my opinion the right was effectively exercised, and the Court of Appeal was right in dismissing the action for specific performance.

I would dismiss the appeal.