Brien v Dwyer
141 CLR 37822 ALR 485
(Judgment by: JACOBS J)
Between: BRIEN
And: DWYER
Judges:
Barwick C.J.
Gibbs J.
Stephen J.
Jacobs J.Aickin J.
Subject References:
Vendor and Purchaser
Judgment date: 14 December 1978
Sydney
Judgment by:
JACOBS J
An agreement for the sale by private treaty of certain land from the respondents to the appellant was made on 27th February 1973. The agreement was made by exchange of contracts in the printed Law Society and Real Estate Institute form. The price was $16,000. Clause 1 provided:
"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 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."
On some date in March 1973 the appellant's husband, who was acting as her solicitor, handed a cheque for the amount of the deposit to an employee of the agents named in the contract, Messrs. Patch & Taylor of Byron Bay. The cheque was post-dated to 1st April 1973. The agents did not bank the cheque on or immediately after 1st April, nor did they issue a receipt for it or credit it in the firm's trust account ledger.
On or about 2nd April 1973 the appellant's husband had a telephone conversation with the employee of the agents, Mrs. Charters. According to Mrs. Charters, Mr. Brien told her that he would take down to the agents a cheque on the Byron Bay Bank which could be banked but Mr. Brien's version was that he told Mrs. Charters or another person at the agents that the cheque already held would be met but would the agents call up and get another cheque on the A.N.Z. account. No substituted cheque was sent, but still the agents did not bank the cheque in their possession. If they had done so it would at all material times have been met on presentation.
On 13th April 1973 the appellant's husband left Byron Bay for overseas and returned on 14th May 1973. Whilst away Mr. Watson, solicitor, was in charge of his office at Byron Bay and of this transaction. On 10th May 1973 Mr. Watson told the agent's employee to bank the cheque held by that firm. On the same day a member of the agent's firm signed a receipt dated 10th May 1978, and the agent's employee credited the trust account ledger card with the amount of the cheque as being a deposit in the matter of Brien from Dwyer, Lot 2, Lawson Street, Byron Bay.
On 11th May 1973 the agent's employee banked the cheque, which was cleared through the bank on which it was drawn on that day. On the same day the respondent's solicitor delivered to the appellant's solicitor a notice of termination of the contract "as no deposit has at this stage been paid by you". There was no proof whether this notice was recieved before or after the cheque was banked.
The respondents first became aware of the form in which the deposit had purportedly been paid when they with their solicitor went to the agent's office. The date of this visit is put by Mr. Dwyer at 14th May but he was not clear in his recollection. Thus it is not made clear how or when the respondents or their solicitors obtained information which led to the letter of termination on the ground therein stated.
Holland J. ordered specific performance of the contract. He took the view that, whether or not the provision for payment of the deposit was a fundamental term of the contract, on its true construction cl. 1 required that the deposit be paid within a reasonable time. He then held that a provision so construed required that before notice of termination could be given there be a notice fixing a time certain for payment and failure to pay at or before that time.
The New South Wales Court of Appeal reversed the decision of Holland J. It held that the provision for payment of the deposit was a fundamental term, that it required payment of the deposit simultaneously with the making of the contract and that the respondents, on learning of the breach, were entitled to rescind even if the deposit had in the meantime been paid (1976) 2 NSWLR 420.
In my opinion there can be no doubt but that the payment of the deposit strictly in accordance with the terms of the contract was an essential condition or fundamental term of the contract. It seems to me that the very nature of a deposit on the sale and purchase of land leads to that conclusion. A deposit fulfils a very important function which would be destroyed if payment of the deposit is not regarded as an essential term. It is an earnest to bind the bargain, as was said in Howe v. Smith (1884) 27 Ch D 89, at p 101 . It is an assurance to the vendor, a security to him pending completion. He can take his property off the market and not concern himself with other offers in case the sale should go off, with the comfort at least that the deposit is there for his security.
Moreover, the terms of the present contract make it clear that payment of the deposit in accordance with cl. 1 was intended to be an essential condition. This appears from cl. 1 itself. If payment is by cheque and the cheque is not honoured on presentation the purchaser is immediately in default and the vendor may terminate under cl. 16.
Next there is the question what is meant by "on the signing of the contract". I cannot agree that it means "within a reasonable time" if those words introduce any substantial interval of time between signing and payment and particularly if they introduce a requirement that notice be given fixing a time. It should be observed that the requirement that an act be done within a reasonable time does not necessarily mean that notice must be given fixing a time. It is true that the general principle which has been applied in actions for specific performance of contracts for the sale of land has been that where it is implied that a step is to be taken within a reasonable time, then before termination for breach notice must be given fixing a time. But the reason for that approach has been that equity has no regarded provisions as to time as essential conditions, and it would not ordinarily regard a provision that a step be taken within a reasonable time as an essential condition. If, however, it would in some circumstances regard a provision for taking a step within a reasonable time as embodying an essential condition, I am not satisfied that it would regard notice fixing a time as a necessary condition precedent to termination of the contract.
On the other hand I cannot agree with the view expressed in the Court of Appeal that the word "on" means "simultaneously with". It cannot be said that the word "on" has this meaning as a literal or even prima facie meaning. It may as well mean "after". It all depends on the context. If simultaneous payment is a practical impossibility, that tends to the adoption of some different construction of the phrase in which the word "on" appears. The purchaser is not by the contract required to pay the deposit to the agent before signing, which I take to mean exchange of contracts. A construction should not lightly be adopted which would in effect require him to do so.
In my opinion the words "on the signing" mean "at the earliest practicable time after the signing". This gives the word "on" the same meaning as the word "upon" has in the condition of the contract form (inapplicable in the present case) dealing with sales by auction. That condition provides that "upon the fall of the hammer the Purchaser shall sign". That must mean "at the earliest practicable time after". The reason is obvious and does not need elaboration. And the same is true of the deposit clause. Some time must be allowed but it is only that short time which circumstances of time and place dictate. It may be that some element of reasonableness comes into the matter. A man does not have to run rather than walk to the agent's office. If the agent cannot be found, if his office is closed, some time must be allowed. In many circumstances the use of the post may be permissible. It may be that the length of time taken by a letter in the course of post gives a good general indication of the limit of the time after signing which is permissible. However it is clear that nothing done by the appellant in the present case could fall within the words "on the signing" when they are construed as I have suggested.
Then there is the fact that the cheque was post-dated Payment by cheque was permissible under the express provision in cl. 1 but the word "cheque" must there mean "a cheque which is capable of being presented for honouring", and the words "on presentation" must mean "on presentation by the agent at any time while it is not stale". Otherwise the provision as to the consequences of the cheque not being honoured on presentation could not sensibly operate.
So, the appellant was in breach of an essential or fundamental condition. Strict performance of the condition was not waived by the respondents at any time because at no material time before termination did they know of the breach. The consequence, it was held in the Court of Appeal, was that the respondents were entitled to rescind the contract for breach. This conclusion would follow from the application of the broad principle that a party to a contract may rescind for breach of a term or condition performance of which has not been waived. But the real question is whether the general rule is an all-embracing one , necessarily applicable to the facts of the present case. The general rule was designed by the courts to meet the situation where the innocent party had suffered an injury in the performance of the contract which he was not bound to tolerate even if he could not show that the injury had caused pecuniary loss to him; he would nevertheless not be getting in the long run precisely what he had bargained for. It is seldom that a breach of an essential condition can be so wholly cured that when it is cured without the innocent party being aware of the breach he is in no worse position than if there had been no breach at all. In this respect the late payment of a deposit to a stakeholder may possibly stand alone among real, rather than fanciful, situations. So long as the deposit is not paid the vendor is undoubtedly gravely prejudiced and he can certainly rescind the contract. Further, if he learns of the non-payment before the deposit is paid, he would be prejudiced if he could not immediately resell without having first to give notice rescinding the earlier contract. But if the deposit is paid and is safely in the hands of the stakeholder before the vendor has taken any step to inquire whether or not it has been paid the vendor, once it has been paid, is in the same position as if the deposit had been paid on time. He suffers no continuing prejudice under and in the performance of the contract. It is true that he might say "If I had known, I could have rescinded and therefore I was prejudiced". But that, it seems to me, is not prejudice under and in performance of the contract. At the most he is deprived of a justification for non-performance of the contract on his part and that is not a relevant prejudice. It should be noted that failure to pay a deposit which is payable to a vendor or agent of a vendor raises different considerations. On the one hand the vendor is inevitably out of his money while the deposit is unpaid, and on the other hand he has immediate notice of the breach and is both entitled (and depending on the circumstances bound) to act in the light of that knowledge.
The question whether a party can rescind a contract for a breach of an essential condition which has been wholly cured before he is aware of the breach has never, so far as I have been able to discover, been the subject of judicial decision. However, a hint of the correct approach to the question appears, perhaps, in the decision of the English Court of Appeal in Panchaud Freres SA v. Establissements General Grain Co. (1970) 1 Lloyd's Rep 53 . There a buyer of goods c.i.f. rejected the goods on the ground of defect in quantity. Much later during the currency of arbitration proceedings the party claimed to be entitled to reject the goods because they were not shpped during the contractual shipping period. The shipping documents bore an incorrect date and as a result the buyer did not become aware of the breach of contract until shortly before he sought to rely on it during the arbitration proceedings. It was held that the arbitrators were correct in their conclusion that the buyer could no longer reject on that ground. There was no waiver of the breach, and the Court of Appeal so held. Lord Denning M.R. based his decision on estoppel but Winn L.J., conscious of the difficulty in that approach, said (1970) 1 Lloyd's Rep, at p 59 :
"I respectfully agree with my Lord that what one has here is something perhaps in our law not yet wholly developed as a separate doctrine - which is more in the nature of a requirement of fair conduct - a criterion of what is fair conduct between the parties. There may be an inchoate doctrine stemming from the manifest convenience of consistency in pragmatic affairs, negativing any liberty to blow hot and cold in commercial conduct."
The decision shows that the statement of principle that a party who has not waived the breach of an essential condition of a contract can rescind does not state the whole law. There may be circumstances not amounting to waiver which deny him that right.
The facts in the present case would be closer to the facts in the case to which I have referred if the vendor had sought to rescind on another ground, if the parties had been locked in dispute, and if then the vendor had discovered that the deposit had been paid late. The rule which in ordinary circumstances operates quite fairly would seem to me to operate unfairly if he should then be able to rescind when at the time of his discovery of the breach he can still get everything under his bargain which he was entitled to have .
The deposit was in my opinion effectively paid in the present case when the cheque became immediately presentable for payment, that is to say, on 1st April 1973. The request by the appellant's solicitor, her husband, to the agent to withhold presentation had no legal effect. The agent was under a duty both to the vendors and the purchaser to present the cheque and if he failed in that duty that was his concern. He had received the deposit once the cheque became immediately presentable. Thus by 1st April the initial breach of contract had been cured. Nevertheless there had unknown to the respondents been a breach of an essential condition of the contract
I would note that, even if the cheque was not immediately presentable at the beginning of April because of a view that it was delivered subject to a condition against presentation, a view which is not borne out by the evidence of the circumstances surrounding delivery of the post-dated cheque, nevertheless by 10th May the condition had been removed, and so far as appears from the evidence that was a time before the respondents knew of the late payment.
It seems to me that it would be an unfair and unsatisfactory rule that a vendor in the circumstances of the present case should be entitled to go back to this breach in order to rescind the contract, relying on the fact that he had not previously known that the breach had occurred. The fact in the present case that the purchaser's solicitor had requested the agent to withhold presentation of the cheque even after 1st April, a request devoid of legal significance, must not be allowed to obscure the relevant facts from which the legal principle ought to be deduced. A rule entitling a vendor to rescind in case of late payment at any time so long as he had not waived the breach would apply in every case where there was any delay in payment of the deposit to the stakeholder and where the delay was not known to the vendor until after the deposit had been paid. Knowledge of the late payment might not be obtained until a late stage in the progress of a sale towards completion. A vendor who then sought to be relieved of the contract could go back to an event which by that stage was no more than a part of the history of the matter.
It seems to me that a vendor who is so concerned to see that a deposit is paid right on time that he would rather rescind the contract than take any other course should stir himself promptly after the exchange of contracts to ascertain for himself that it has not been paid. If he does nothing, and thereafter the deposit is paid, he cannot in my opinion be heard to complain. Whether it be called an estoppel or a doctrine of the kind which Winn L.J. sought to formulate does not matter. The particular rule which I have described will operate more fairly and more in accordance with the business expectations or ordinary men and women than an application of the general rule governing termination of contracts for breach of an essential term.
For these reasons I am of the opinion that the appellant was entitled to specific performance of the contract. I would allow the appeal with costs, set aside the orders of the Court of Appeal and in lieu thereof order that the appeal to that Court be dismissed with costs.