Anderson v Nguyen
[2011] SADC 107
•19 July 2011
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
ANDERSON v NGUYEN
[2011] SADC 107
Judgment of His Honour Judge Costello
19 July 2011
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - CONTRACTS ILLEGAL BY STATUTE
Vendor of house and land sued purchaser for damages for breach of contract consequent upon failure to settle - purchaser paid a number of instalments towards purchaser price contrary to Land and Business (Sales and Conveyancing) Act 1994 - too many instalments - contract void - purchaser's failure to settle due to non-fulfilment of condition requiring him to obtain finance - no breach of contract - claim dismissed.
Land and Business (Sale and Conveyancing) Act 1994 s 6; Land and Business Agents Act 1973 s 89, referred to.
Hewett v Court (1983) 149 CLR 639; Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1991) 58 SASR 184; Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (2004) 89 SASR 337; Concut Pty Ltd v Worrell (2000) 176 ALR 693; Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Ltd (2000) 172 ALR 346; Zieme v Gregory [1963] VR 214; Meehan v Jones (1982) 149 CLR 571; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Frangoulis v Moutzanis (1973) 6 SASR 456, discussed.
ANDERSON v NGUYEN
[2011] SADC 107
The plaintiff claims damages for breach of a contract for the sale of his house and land at Ottoway.
This is yet another example of the problems that can arise when parties enter into a real estate transaction without the benefit of competent legal advice.
The defendant has, in separate proceedings in this Court (No 1185 of 2010), obtained a judgment, (in default of a defence by the plaintiff), to his claim for a declaration that the contract is void, being in contravention of s 6 of the Land and Business (Sale and Conveyancing) Act 1994 (“the Act”) and for repayment of certain instalments made towards the purchase price.
It is arguable that the plaintiff is thereby estopped from maintaining his claim. In view of the fact that neither party in the proceedings before me was represented and in the knowledge that default judgments such as these can be, and often are, set aside, I have chosen to consider and deal with the plaintiff’s claim on its merits, as the fairest and most expeditious way of resolving the dispute.
In my view the plaintiff’s claim must fail. The contract (as varied by the parties) provided for too many payments as part of the purchase price prior to settlement and as a result was void pursuant to s 6 of the Act. Furthermore, the defendant’s failure to settle by the settlement date was not a breach of the contract. Rather, it constituted the non-fulfilment of a condition which, in the circumstances, merely gave rise to a right, in either party upon written notice, to terminate the contract. The plaintiff’s Notice of Termination brought the contract to an end but did not give rise to an entitlement to damages for breach of contract.
Finally and in any event, the plaintiff’s claim for damages is based, in large measure, on the “default interest” provisions of the contract which do not apply in circumstances where he has elected to resell.
I now set my reasons for coming to this decision, beginning with a brief history of the relevant facts.
Background Facts
In or about late November 2009, the parties entered into an oral agreement whereby Nguyen would purchase Anderson’s house and land at Ottoway for $290,000. At this time and throughout the course of subsequent negotiations Anderson was assisted by his financial adviser, Mr Ginever.
In November 2009, the property was subject to a mortgage to an entity referred to in evidence as Pepper Home Loans Ltd. Although the parties initially specified a purchase price of $290,000 it was also agreed that the purchase price in a subsequent written contract would be $340,000[1]. Although the reason as to why this was done is not entirely clear, it would appear that the parties may have reasoned that if the purchase price was higher, the potential for the defendant to borrow more from the bank would be greater[2].
[1] Transcript pp 19-21
[2] Transcript p 71 line 28 - p 72 line 2
As part of this oral agreement the defendant gave evidence (which I accept) that the parties also agreed that he would pay a deposit of $5000. The purchase was to be subject to finance of $272,000 with the defendant paying a further $3000 himself at settlement. As to the balance of $10,000 (making up the $290,000) this was subject to a “vendor finance” arrangement whereby Anderson would remain in the property paying rent at the rate of $300 per week. These rental payments were to be credited against the balance[3].
[3] Transcript p 72 lines 3-11
On 28 November 2009 the parties executed a Real Estate Institute of South Australia Residential Contract[4] which recorded some of the terms mentioned above. In particular it provided that the purchase price would be $340,000 with settlement to take place on 18 December 2009. It also provided (in the Special Conditions) that the Agreement was subject to the Westpac Bank agreeing on or before 11 December 2009 to provide a loan of $272,000 which the defendant was required to use his best endeavours to obtain.
[4] Exhibit P1
In the event that finance was not obtained (despite the use of his best endeavours) either party could terminate the Agreement upon written notice to the other[5].
[5] Exhibit P1 - Clauses 14.2 & 14.3.1
On 3 December 2009 the Westpac Bank declined to approve the loan[6]. The defendant informed the plaintiff that the loan had been refused but continued to seek funding elsewhere. As a result neither party sought to exercise the right to terminate.
[6] Exhibit P8 - Memo from Westpac to Mr Nguyen
On 11 December 2009 the Commonwealth Bank issued a letter of approval for the loan[7]. In apparent reliance upon that letter, Mr Ginever drew up what is described as a “Residential Contract Agreement” detailing how monies were to be disbursed at settlement. This document referred to “the actual purchase price” of $290,000[8]. However, four days later the Commonwealth Bank countermanded its approval pending receipt of further financial information. On 15 December 2009, the defendant informed the plaintiff that the approval had been withheld[9].
[7] Exhibit D7 - Affidavit of Defendant - Exhibit DN4
[8] Exhibit D7 - Affidavit of Defendant - Exhibit DN5
[9] Exhibit P4 - Affidavit of Plaintiff para 14
I am satisfied that, despite the reference in the written contract to the figure of $340,000, the agreed purchase price was and (throughout the rest of the negotiations) continued to be $290,000[10].
[10] Transcript p 19 line 29 - p 21 line 24; Exhibit D7 - Affidavit of Defendant paras 6-20
In summary, as at 18 December 2009 being the date for settlement, I find that the defendant had paid the deposit of $5000[11] and that, despite using his best endeavours, loan finance approval had not been obtained.
[11] Exhibit P 4 - Affidavit of Plaintiff - para 9
I am therefore satisfied that as at the date of settlement, the defendant was not in breach of the contract.
On 18 December 2009 the parties met again and agreed to vary the contract. The variations were recorded in a document signed by the parties. The variations in this document (“the first variation”[12]) provided that the purchaser would pay a deposit of $32,000.
[12] Exhibit P2
The first variation also provided for a purchase price of $290,000.
It referred to the defendant proceeding with settlement of the purchase price for $290,000 less monthly mortgage repayments to Pepper Home Loans Ltd. It also recorded that Anderson was to rent the property for $300 per week until an amount equivalent to $4500 had been paid.
I am satisfied that the reference to “mortgage repayments to Pepper Homes Loans Ltd” involved the defendant in making the plaintiff’s mortgage payments to Pepper Home Loans Ltd, which payments would represent and become payments towards, and part of, the purchase price prior to settlement. Both parties confirmed this to be the arrangement[13].
[13] Transcript p 22 line 30- p 24 line 29; p 73 line 22 - p 74 line 11
Although not recorded, I accept that it was agreed that of that $32,000 the defendant would immediately pay $17,000 to the plaintiff which he duly did[14]. I am also satisfied that this payment was intended to be a further deposit on the purchase price for the property[15].
[14] Transcript p 22 lines 37-38
[15] Transcript p 23 lines 30-31
As to the balance of the $32,000 the defendant was to pay $10,5000 towards the arrears of the plaintiff’s mortgage. The balance of $4500 was not required to be paid by the defendant but was to be treated as “advance rental” on the basis of the plaintiff remaining in the premises at an agreed rate of $300[16].
[16] Transcript p 74 lines 2-11
Although there was no express reference to the defendant obtaining finance, I accept the evidence of Mr Ginever that as from 18 December 2009 “he was endeavouring to source finance to the best of his ability as per the contractual requirements”[17].
[17] Transcript p 64 lines 29-32; also p 74 lines 18-21
Although the defendant paid the $17,000 immediately, he had not, by early January, paid the $10,500 towards the plaintiff’s mortgage arrears. It subsequently transpired that the mortgage arrears in January were less than $10,500.
As the plaintiff was under pressure to meet his mortgage commitments, the parties agreed on 13 January 2010 to enter into a further variation of the contract.
This variation (“the second variation”[18]) recorded that settlement was “anticipated” to take place on 18 February 2010. In respect to the $15,000 of the further deposit it was to be met by:
·a payment of $7647.64 (plus a fee of $100) for mortgage arrears;
·the sum of $4500 by way of advance rental for 15 weeks from 18th December 2009 at $300 per week;
·
a further payment of $2852.35. Although the Agreement is silent as to when this payment was expected to be made, the defendant’s
un-contradicted evidence was that it was to be paid at settlement[19] .
[18] Exhibit P3
[19] Exhibit D7 - Affidavit of Defendant - para 35.2.3
In addition, the parties agreed to payments of $1545.17 being made by the defendant for Anderson’s existing mortgage payments representing the Pepper Home Loan payments for January and February 2010. The agreement also refers to a four week rent credit ($300x4) which I understand to be an acknowledgement that if settlement occurred earlier the rental credit would be adjusted.
It was accepted by the plaintiff that some of the sums referred to above were paid by the defendant, i.e the $7747.65 towards arrears and the mortgage payments for January and February[20].
[20] Transcript p 24 lines 21-29
In fact, the defendant made a further mortgage payment on
March 3, although this was made after he received a Notice to Complete, purportedly pursuant to the default provisions of the written contract entered into in November 2009.
As things stood on 13 January 2009, after the second variation, I am satisfied that the parties had contracted that the defendant would, towards the purchase price, pay a deposit represented by payments of $17,000, $7747.65, a rental advance of $4500 together with two further payments of $1545.17.
Accordingly, however, one wishes to characterise the rental advance of $4500, the second variation acknowledged that the defendant was to make no less than four instalment payments towards the purchase price.
If, however, (as it appears the parties intended) the second variation represented a variation to their original contract then the contract included the payment of the initial $5000 making no less than five instalments towards the purchase price.
For the reasons which follow, it is unnecessary for me to decide whether rental advances at $300 per week could be construed as instalments towards the purchase price, although it is clear that the parties contemplated that the “advance rental” was intended to reduce the purchase price at the rate of $300 per week for 15 weeks[21].
[21] Exhibit P3 - Exhibit MJA 13 to the Plaintiff's Affidavit
Thereafter, despite what I have found to be his best endeavours, the defendant did not succeed in raising finance. According to his evidence, it was agreed that if he did not succeed in getting the finance he could try to on-sell the property as a way of helping the plaintiff[22]. This was supported by the defendant’s wife[23].
[22] Transcript p 74 lines 18-26
[23] Transcript p 90 lines 5-12
This evidence was, to some extent, corroborated by the plaintiff who acknowledged that he did agree to the defendant being permitted to hold “an open inspection” of his property with a view to other people buying it[24].
[24] Transcript p 32 lines 26-31
However, the plaintiff baulked when he felt that the defendant was trying to sell it for himself rather than for and on behalf of the plaintiff.
Accordingly, on or about 25 February 2010, as the plaintiff and Mr Ginever concluded that the defendant “could not come up with the finance” and was trying to on-sell the property[25], they instructed solicitors to give the defendant a Notice to Complete. The Notice to Complete prepared by the plaintiff’s solicitors referred to a contract dated 29 November 2009 (instead of 28 November 2009) and a settlement date of 18 December 2009[26].
[25] Transcript p 58 line 38 - p 59 line 5
[26] Exhibit P4 - Exhibit MJA 20 to the Plaintiff's Affidavit
The Notice required him to complete the purchase by 3 March 2010. The defendant did not complete by then or at any other time and on 12 March 2010 the plaintiff gave Notice terminating the contract[27].
[27] Exhibit P4 - Exhibit MJA 21 to the Plaintiff's Affidavit
Despite the contract having been terminated, the defendant continued trying to sell the property (including by advertising it for sale) until directed by the plaintiff’s solicitors to desist.
At the time of making the first variation, the parties agreed that the defendant could caveat the property which he did. This caveat was subsequently warned and removed. The defendant sought to caveat the property again. This caveat was also warned. On 30 June 2010 the defendant also instituted proceedings seeking repayment of the monies paid under the contract.
In July of 2010, the defendant’s interlocutory application, to extend the time for removal of the caveat, came on for hearing in this court before Judge Clayton. The defendant sought to maintain the caveat upon the basis that he had an equitable lien in respect of the monies which he had paid under the contract.
In his decision, Judge Clayton declined to extend the caveat. His Honour referred to a decision of Gibbs CJ in Hewett v Court (1983) 149 CLR 639 at 645 where the Chief Justice said,
The lien of a purchaser for the purchase money that he has paid to the vendor on a sale that has gone off through no fault of the purchaser may perhaps rest on the converse principle that he who has agreed to convey property in return for a purchase price will not be allowed to keep the price if he fails to make the conveyance.
Judge Clayton then said,
This is not a case where the vendor has failed to make the conveyance. In fact the vendor has been trying to enforce the contract. This sale has gone off because of the fault of the purchaser, to use the words of Gibbs CJ. In those circumstances I am not sure that an equitable lien does arise for the moneys which are referred.
Secondly the claim in respect of the six payments is a claim for a sum of money. It really is not a claim for an interest in the land. It is a claim which in my opinion can be adequately satisfied by proceedings claiming a liquidated sum. I do not express any view on the merit of that claim. All that I am doing is pointing out that there is another remedy[28].
[28] Nguyen v Anderson No 1185/2010 - 26 July 2010
It is clear from the above that His Honour was addressing his mind to the question of equitable lien in the context of an extension of a caveat.
I do not, in the circumstances, regard His Honour’s comments as suggesting that the defendant was in breach of the contract, in a way which would give rise to a claim for damages but rather that, unlike the purchaser in “Hewett”, there was “fault” on the part of Nguyen, in the sense that he was not in a position to settle at the time for settlement.
As a result of His Honour’s decision, two further things eventuated. First, the plaintiff proceeded to sell the property which was sold for $280,000, with settlement taking place on 23 July 2010[29].
[29] Transcript p 26 lines 22-28
Secondly, the defendant entered judgment on 1 September 2010, in default of a defence by the plaintiff, to his claim for repayment of the purchase monies totalling $34,383.19.
Against the factual background I now turn to consider the legal issues referred to earlier.
Is the Contract Void
Section 6 of the Act relevantly reads:
(1) A contract for the sale of land or a business that provides for the payment of part of the purchase price of the land or business (except a deposit) before the date of settlement is void.
(2) Money paid under a contract that is void under subsection (1) may be recovered by action in any court of competent jurisdiction.
(3) In this section—
deposit means an amount paid by a purchaser in a lump sum, or in not more than three instalments, towards the purchase price of land or a business before the date of settlement; (my underlining).
Section 6 does not materially differ from its predecessor, s 89 of the Land and Business Agents Act (1973) SA. The object and purpose of that section was identified by King CJ in Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1991) 58 SASR 184 at 188:
It is plain that the mischief aimed at is the loss to purchasers who pay the whole or part of the purchase price of land without obtaining title, and then find that the vendor is unable to make title and to give an effective transfer.
It seems to me that the purchaser here ran that very risk. Given the financial difficulties in which the plaintiff found himself in December 2009 and January 2010, there was the potential, at the very least, for the mortgagee to foreclose and deal with the property without notice to the defendant.
The next question involves a consideration as to the meaning of the phrase “purchase price”. King CJ observed in Pooraka[30]:
The expression “Purchase price” in its ordinary meaning connotes the amount which the purchaser agrees to pay as the worth to him of the property the subject of the sale … I do not think that the expression … is apt to comprehend collateral or ancillary obligations undertaken by the purchaser such as the obligations … to pay outgoings or interest”.
[30] (1991) 58 SASR 187
It is clear to me that the intention of the parties was for the payments made by the defendant to be treated as payments of part of the purchase price. They were, as Bleby J observed in Ethnic Earth v Quoin Technology[31], intended to reduce the amount payable “at completion”.
[31] Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd(2004) 89 SASR 337, 351
The question then remains as to how many payments the defendant made towards the purchase price. This, in turn, involves a consideration as to whether the variations brought about a termination of the original contract or merely varied it in certain respects.
I am satisfied that, having considered the text of the variations as well as the circumstances surrounding them, the parties’ intention was to vary the original contract rather than terminate it[32]. Apart from anything else the original contract of November 2009 dealt with many matters (including the consequences of
non-fulfilment or breach) not touched by the variation agreements.
[32] Concut Pty Ltd v Worrell (2000) 176 ALR 693 para 20; Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Ltd (2000) 172 ALR 346 para 25
I am therefore satisfied as was His Honour in “Ethnic Earth”, that this contract, as varied, provided for too many payments for such payments to constitute a deposit. The contract was therefore void. Even if the second variation constituted a termination of the original contract, it nevertheless provided for at least four payments towards the purchase price and was also void.
This is enough for me to dismiss the plaintiff’s claim. If, however, contrary to my view, the contract is not “caught” by Section 6 and is valid, I will consider whether, in the circumstances, the defendant was in breach of the contract.
Breach of Contract
The contract, as executed, made it conditional upon the defendant obtaining a loan from the Westpac Bank by 11 December 2009. It also obliged him to use his “best endeavours” to obtain the loan. In this respect it is no different from those “subject to finance” provisions in contracts of this type which oblige a purchaser to take all reasonable steps[33] and to act honestly and reasonably in so doing[34]. Such provisions have been identified as conditions precedent to the performance of the contract[35]. Although in some decisions, the Courts have identified these types of conditions as having been inserted for the benefit of only one of the parties, this contract expressly gave either party the right to terminate[36].
[33] Zieme v Gregory [1963] VR 214
[34] Meehan v Jones(1982) 149 CLR 571
[35] Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537
[36] Special Condition 3 and Clauses 14.2 and 14.3
As I have already said, I am satisfied that, despite the defendant’s best endeavours, the condition was not fulfilled.
Although this contract provided that (in that event) either may terminate, where, as happened here, neither party does, the contract remains on foot[37].
[37] Frangoulis v Moutzanis (1973) 6 SASR 456, 462
As neither party elected to terminate but rather sought to pursue the contract the respective parties’ obligations, including an obligation to source finance, continued.
I am satisfied on the evidence, that after the first settlement date had passed, the defendant continued to seek finance[38]. In the end, he did not succeed in securing finance. The only alternative solution then open was for him to try and on-sell to a third party. It was over this arrangement that the parties “fell out” and a Notice of Termination issued.
[38] Transcript p 59 lines 25-26, p 64 lines 29-37, page 88 lines 1-6, p 90 lines 7-11
In circumstances such as this, where the fulfilment of the special condition is no longer subject to an express time limit, the defendant was obliged to obtain the finance within a reasonable time[39].
[39] Perri v Coolangatta Investments Pty Ltd at pp 543, 554, 567
As the defendant had not done so by the anticipated date for settlement, which I accept was a reasonable period, the plaintiff was entitled (as he did) to give Notice to Complete and subsequently terminate the contract.
The defendant’s failure to obtain finance in these circumstances, given the attitude of both the Westpac and Commonwealth Banks, is hardly surprising. There is nothing to suggest that he failed to use his best endeavours. In my view, there is no basis to conclude that he was in breach of the contract. Accordingly, the only remedy available to the plaintiff was to terminate, for non-fulfilment of the condition requiring the defendant to obtain finance, and not damages for breach of the contract.
If contrary to my view the defendant was in breach, is the measure of damages claimed by the defendant appropriate?
Damages
The plaintiff has claimed damages of approximately $186,000 represented, in part, by a claim for default interest pursuant to Clause 15.1 of the contract from the period from 18 December 2009 until July 2010 when the property was resold. He has also claimed an amount of $60,000 being the difference between the contract price of $340,000 and the sale price actually achieved of $280,000.
It is not possible, on the information available to me, to accurately quantify his loss in the event that these circumstances gave rise to an actual breach by the defendant.
It is sufficient for me to say that the purchase price which the plaintiff agreed to accept was always $290,000. He gave evidence that this was the actual figure he agreed to and could not explain why the contract was for $340,000. Although the written contract was expressed as being $340,000, as I have said, I do not believe that this expressed the true price upon which the parties agreed to buy and sell. Further, he executed two variations to the contract both of which recorded the purchase price as $290,000.
In addition to being contrary to their agreement, it would be unconscionable now for the plaintiff to revert to this figure for the purposes of calculating his claim for damages.
Furthermore, and in any event, the contract expressly provides that, where default interest is payable, it is payable from the settlement date until the date of termination, and not as the plaintiff claims, until resale[40].
[40] Exhibit P1 Clause 15.1
Finally, in the event of a resale, it is the provisions of Clause 15.10 and 15.11 which apply to quantify the plaintiff’s damages. The plaintiff’s claim, as quantified, is not based on these provisions.
Accordingly, even if the plaintiff was successful, the quantum of his claim is both over inflated and based on an erroneous premise. It is not possible on the information before me to determine the true measure of his loss and in view of my overall findings it is unnecessary.
Default Judgment – Estoppel
In view of my findings it is also unnecessary to decide whether the plaintiff was estopped by the default judgment from maintaining his claim or whether, in my discretion there were sufficient grounds to set it aside.
Consequences of Void Contract
The provisions of Section 6 of the Act permit the defendant to recover the monies paid under the contract. Given the fact that he has a default judgment for the full amount already there is no need for such an order.
Accordingly, I can make no order for recovery.
In the end result, the plaintiff’s claim is dismissed. I will hear the parties as to any other orders that I should make.
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