Perri v Coolangatta Investments Pty Ltd

149 CLR 537
41 ALR 441

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(Judgment by: BRENNAN 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:
BRENNAN J

Mr. and Mrs. Perri, the appellants, owned a property at Lilli Pilli. They wished to sell that and to buy another at 4 Coolangatta Avenue, Cronulla. The Cronulla property was owned by Coolangatta Investments Pty. Ltd., the respondent. On 7 April 1978 Mr. and Mrs. Perri, the purchasers, and Coolangatta Investments Pty. Ltd., the vendor, exchanged contracts for the purchase and sale of the Cronulla property for the price of $220,000. They used the printed form of contract approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales to which they added an annexure containing terms designated "Special Conditions."

Special Condition 6 (hereafter "the stipulation") reads as follows:

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

The purchasers did not enter into a contract to sell their Lilli Pilli property until 9 March 1979. That sale was not completed until 13 June 1979. In the proceedings in the Supreme Court of New South Wales out of which this appeal arose, Needham J. found that a reasonable time for the completion of a sale of the Lilli Pilli property had expired by September 1978. His Honour found that the failure by Mr. and Mrs. Perri to complete the sale of their Lilli Pilli property within a reasonable time was caused by their listing of the property for sale at an unreasonably high price and by their continued seeking of an unreasonably high price until January 1979. Coolangatta Investments Pty. Ltd. was pressing for completion of the sale of the Cronulla property from May 1978, and ultimately served a notice dated 17 July 1978 requiring the purchasers to complete the contract on or before 8 August 1978. When the purchasers, relying on the stipulation, declined to complete the contract in accordance with the notice, the vendor served a notice of rescission dated 10 August 1978 the material part of which read:

"NOW TAKE NOTICE that the Vendor pursuant to every power available to the Vendor hereby rescinds and/or terminates the Contract and relies upon: -

(a)

the Purchaser's failure to complete in accordance with the contract and the said Notice to Complete, and

(b)

the expiration of a reasonable time under Special Condition 6 of the Contract. . . ."

On 29 September 1978, the vendor filed a summons seeking a declaration that on or about 10 August 1978 it had effectively terminated the contract for the sale of the Cronulla property. After the vendor had commenced proceedings, but before they had sold the Lilli Pilli property, the purchasers approached their bank and made arrangements for finance to complete the purchase of the Cronulla property. On 27 February 1979, the purchasers' solicitors, purportedly waiving the benefit of the stipulation, wrote to the vendor's solicitors seeking completion of the sale "at 3.00 p.m. on the 15th March next or at such other time as shall mutually be agreeable". The vendor's solicitors replied that the vendor had terminated the contract by the notice of rescission of 10 August 1978. On 21 March 1980, the purchasers cross-claimed for specific performance of the contract. Needham J. found that the contract had terminated before the vendor had commenced proceedings on 29 September 1978 and made a declaration accordingly. An order was made that the deposit of $22,000 be repaid by the vendor to the purchasers. The cross-claim failed. The purchasers' appeal to the Court of Appeal was dismissed.

The purchasers submitted in this Court that the contract was not avoided before they waived the benefit of the stipulation and that, upon waiving the stipulation, they were entitled to insist upon performance of the contract. The case turns upon the effect of the stipulation.

The stipulation conditions the obligations of either party to proceed with the sale of the Cronulla property; it specifies the event - namely, the completion of the sale of the Lilli Pilli property - upon the occurrence of which the obligation to proceed with the sale of the Cronulla property is contingent. The stipulation does not affect the purchasers' obligation to pay the deposit on the signing of the agreement (cl. 1); perhaps it does not affect the purchasers ' obligation to tender to the vendor an appropriate instrument of transfer for execution by it (cl. 4). The stipulation is at once a condition precedent to the obligations of the parties to complete the contract and a condition subsequent to the whole contract so that the non-occurrence of the specified event would entitle the vendor to avoid it. The clause which was considered in Maynard v. Goode (1926) 37 CLR 529 was of the same kind. In that case a contract for the sale of a grazing property contained a proviso "that the transfer of purchaser's block goes through in reasonable time". Isaacs J., referring to that proviso as the "second stipulation", said of it (1926) 37 CLR, at p 540 :

"But it may be a condition precedent to the performance of a particular term of the contract, which is of common occurrence. . . . In one sense the second stipulation is of that nature, because there was no obligation on Crosby to transfer unless Goode first transferred his holding in reasonable time. But in another sense it is . . . a condition subsequent in relation, not to a particular term, but to the whole contract, as a binding obligation, that is, as a defeasance, because . . . failure of the second (stipulation) would have entitled the vendor, to retire from the transaction altogether."

In the present case, the vendor asserts that it did retire from the transaction, and it is necessary first to consider whether there was a non-fulfilment of the stipulation which entitled it to do so.

The purpose of the stipulation is to ensure that the purchasers should have the proceeds of the sale of their Lilli Pilli property before their obligation to pay the balance of the purchase price for the Cronulla property becomes absolute. The substance of the stipulation is a condition for the benefit of the purchasers and they may waive it if they choose. But the limit of the time within which the stipulation is to be fulfilled ensures for the benefit of the vendor as well as for the benefit of the purchasers, "the vendor being interested to know for how long his liability was to remain unresolved" (per Windeyer J. in Gange v. Sullivan (1966) 116 CLR 418 , at p 443 ). When vendor and purchaser are each under a contingent obligation to complete a contract of sale, the fulfilment of the contingency or the entitlement to avoid the obligation is of equal interest to both parties.

Though the stipulation specifies the event upon the occurrence of which the obligations to complete cease to be contingent, the stipulation contains no promise that the event will occur. Until the event occurs or the purchasers waive the benefit of the stipulation (Gange v. Sullivan (1966) 116 CLR, at pp 430, 443 ) neither party is entitled to a decree of specific performance of their respective obligations to complete the sale (Brown v. Heffer (1967) 116 CLR 344 , at p 350 ) and the purchasers have no equitable interest in the property which is the subject of the contract (McWilliam v. McWILLIAMS wINES pTY. lTD. (1964) 114 CLR 656 ).

Assuming that the contract remained on foot until 27 February 1979, when the purchasers purportedly waived the benefit of the stipulation, the obligations to complete the sale of the Cronulla property did not become unconditional before that date. In the absence of waiver of the stipulation, the obligations to complete remained contingent upon the completion of the sale of the Lilli Pilli property. Of course, the purchasers had the carriage of the sale of their Lilli Pilli property, and the stipulation imported an obligation upon them to do all that was reasonable on their part in order that a sale of that property might be completed (Butts v. O'Dwyer (1952) 87 CLR 267 , at p 280 ; McWilliam v. McWilliams Wines Pty. Ltd. (1964) 114 CLR, at p 661 ). But that was the extent of their promissory obligation under the stipulation. Their obligation was not to complete a sale of their Lilli Pilli property but to do all that was reasonably to be done to that end.

In the confusion of the promissory and contingent effects of the stipulation lie the seeds of difficulty in this case. The risk of confusion is great, because completion of a sale is the usual consequence of taking reasonable steps to that end. But there is a real distinction between the completion of a sale and the steps taken to achieve it, and the observance of the distinction goes far towards avoiding the difficulty. This is not a case where the purchasers promise that a condition precedent to the obligation to complete will be fulfilled. Where such a promise is made, whether by vendor or purchaser, specific performance may be decreed against the promisor without waiting for fulfilment of the condition: cf. Kennedy v. Vercoe (1960) 105 CLR 521 . But where the occurrence of an event upon which the obligations to complete are contingent is not promised, the mere non-occurrence of the event is no breach of contract, and the court will not decree completion of the contract absolutely. In such a case, a decree must be limited to the performance of any promise affecting the occurrence of the contingency, and further performance decreed only subject to the contingency: see Brown v. Heffer (1967) 116 CLR 344 .

If the event does not occur because of the default of a party, however, the innocent party ordinarily has an option of avoiding the contract (Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418 , at p 441 ). In Gange v. Sullivan (1966) 116 CLR, at p 441 , Taylor, Menzies and Owen JJ. stated the general principle:

"Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end."

In the present case, the event specified in the stipulation did not occur until June 1979, some fourteen months after the vendor and purchasers had exchanged contracts. The vendor had complained of the failure on the part of the purchasers to do what was reasonable to effect a sale of their Lilli Pilli property and, having demanded completion of the contract, the vendor gave notice of rescission of the contract on 10 August and issued a summons on 29 September 1978. Though the vendor was an innocent party and its desire to avoid the contract was manifest on or before 29 September 1978, the purchasers submitted that the vendor was not entitled to rescind and did not do so.

It was submitted that Needham J. was wrong to find that a reasonable time for the completion of a sale of the Lilli Pilli property had expired before September 1978. It was conceded that the stipulation required completion of the Lilli Pilli sale within a reasonable time from the making of the subject contract, and in my view that concession was rightly made. The interests of both parties in resolving their respective contingent obligations under the contract require that a limit be placed upon the time during which the contingency should occur. As there is no reason why a different implication as to time should be made in respect of a contingent condition from the implication made in respect of a promissory condition, a reasonable time is implied in the absence of indications to the contrary: see Reid v. Moreland Timber Co. Pty. Ltd. (1946) 73 CLR 1 , at p 13 . This conclusion accords with the opinion of the Judicial Committee in Aberfoyle Plantations Ltd. v. Cheng (1960) AC 115 as to the time for fulfilment of a condition when the contract fixes no time for completion of a sale. In such a case, said Lord Jenkins (1960) AC, at p 124 , "the condition must be fulfilled within a reasonable time".

What is a reasonable time is a question of fact and depends upon the circumstances. Its limit is determined by reference to what is fair to both parties. In Maynard v. Goode (1926) 37 CLR, at p 539 , Isaacs J. denied that the purchaser was entitled to such a time for the transfer of his block to go through as would be unfair to the vendor:

"I think, as I have said, that 'reasonable time' connotes as a limit the unfairness of further delay to the vendor."

That limit is co-extensive with the limit beyond which equity would not go in giving relief to a purchaser in default. His Honour continued (1926) 37 CLR, at pp 539-540 :

"If that is right, the legal and the equitable standard is the same. If, however, a more rigid legal standard is to be applied to the construction of the words, something further may be necessary. If, for instance, as urged, Goode must be regarded as the only contemplated transferor and, therefore, unable to call in aid the minority of John Edgar Evel Goode as a valid element in the measure of reasonable time, then the contention becomes a claim for strict time limit. In that case the equitable doctrine of time not being primarily of the essence would apply, because there are no reasons for displacing it (Tilley v. Thomas (1867) LR 3 Ch 61 ). Whichever way this point is viewed, it fails."

It is not necessary in this case to consider whether equitable rules will give relief to either party when a fixed time for the fulfilment of a contingent condition expires. Neither Maugham J. in In re Sandwell Park Colliery Co.; Field v. The Company (1929) 1 Ch 277, at p 282 nor the Judicial Committee in Aberfoyle Plantations (1960) AC, at p 125 thought that they did. Of present relevance is the observation of Isaacs J. that there is no conflict between law and equity as to the measure of time which is reasonable for the fulfilment of a contingent condition. In Tilley v. Thomas (1867) LR 3 Ch, at p 67 , Lord Cairns L.J. said:

"The legal construction of the contract is, . . . and must be, in equity the same as in a Court of law. A Court of equity will indeed relieve against, and enforce, specific performance, notwithstanding a failure to keep the dates assigned by the contract, either for completion, or for the steps toward completion, if it can do justice between the parties, and if (as Lord Justice Turner said in Roberts v. Berry (1853) 3 DGM & G 284 (43 ER 112) ), there is nothing in the 'express stipulations between the parties, the nature of the property, or the surrounding circumstances,' which would make it inequitable to interfere with and modify the legal right. This is what is meant, and all that is meant, when it is said that in equity time is not of the essence of the contract."

This passage was cited with approval by Lord Edmund-Davies in Raineri v. Miles (1981) AC 1050, at p 1082 . Whether one adopts a strict or an equitable construction - to adopt the dichotomy in the judgment of Isaacs J. - the time for fulfilling the contingent condition expires when further extension would be inequitable.

Needham J. expresses no error of principle in ascertaining when the reasonable time expired, but it was submitted that upon the facts his finding should be set aside. It appears that the Lilli Pilli property, which was on the waterfront, had some unattractive features and that it was hard to sell waterfront properties in the winter months which intervened between the exchange of contracts in April and the issue of the summons at the end of September. The disadvantages are material to the price which the property might reasonably be expected to fetch and his Honour found that the price sought by the purchasers before January 1979 was unreasonably high. That finding can hardly be challenged in the light of the price obtained for the property when the sale was made in March 1979. As to the unfavourable winter market, the vendor could not reasonably have been expected to allow the winter months to pass in order that the purchasers could have the benefit of the more favourable sale prospects of the ensuing summer. There is no reason to disturb his Honour's finding. Upon that finding, the time for fulfilment of the stipulation expired by September 1978.

Then it was submitted that the vendor could not avoid the contract unless it had given a notice to complete and the notice had not been complied with. The notice of 17 July 1978 was given before the expiration of the time limited for fulfilment of the stipulation and called for performance of the contract before the expiration of that time. Further, it was submitted, the vendor seeking to avoid the contract was bound to give a notice to complete after that time expires, affording the purchasers a further reasonable time for compliance with the demand in the notice. These submissions suggest a confusion between the consequence of non-fulfilment of a contingent condition and the consequence of breach of a promissory term. A notice to complete insists upon performance by a party in default to whom the notice is given of an obligation binding upon him. It can have no application to a situation where the party to whom it is given is under no obligation to perform. And here, of course, the vendor was not seeking performance by the purchaser after 10 August 1978.

In the present case, when the time limited for fulfilment of the stipulation passed, the purchasers did not come under an obligation to complete. That obligation remained contingent on their completion of a sale of the Lilli Pilli property. The vendor was then entitled to say:

"As you have not completed the sale of your Lilli Pilli property, our contract is still contingent. I have waited long enough. Our sale is off."

Thereafter, the vendor was not seeking to rescind the contract for breach by the purchasers of their obligations; it was seeking to rescind the contract because the event upon which the obligations of both parties were conditioned had not occurred. The ground on which it sought to rescind the contract affected the formation of obligations to complete, not their performance. No notice to complete was called for.

It cannot be argued that it was inequitable for the vendor to avoid the contract without giving a further notice of its intention to do so. By its notice of 10 August 1978, it purported to avoid the contract on the ground that the time for fulfilment of the stipulation had expired. It did not resile from that position at any time. The purchasers had adequate notice that the vendor intended to avoid the contract if the stipulation were not fulfilled within a reasonable time. By September 1978 it had become inequitable to hold the vendor to the contract, and it elected to avoid it. It is not necessary to determine whether the notice of 10 August 1978 had a continuing operation, so that when the reasonable time for fulfilment of the stipulation expired the vendor's entitlement to avoid the contract was exercised. On 29 September 1978, after that time expired, the vendor issued and served its summons. That was clear notice of its election to avoid the contract if the election had not been made earlier. A summons does not in itself affect the rights of the parties, but its issue and service may involve an election which affects those rights (Ogle v. Comboyuro Investments Pty. Ltd. (1976) 136 CLR 444 , at p 460 ).

The contract was avoided. The purchasers' waiver of the stipulation came too late. Its cross-claim for specific performance therefore fails. The return of the deposit to the purchasers was consented to and no question as to that arises on this appeal. The appeal should be dismissed with costs.