Background
Background to the litigation
The respondent purchaser failed to obtain the finance. The special condition clause gave rise to a right in either party to immediately terminate the contract by giving notice in writing. However, the purchaser did not take that step and, when the vendor’s agent was finally told that finance was not available, neither did the vendor take that step. It is common ground that the contract remained on foot. The contest is whether, in the absence of the purchaser either terminating, or waiving the special condition, the contract remained subject to finance or became unconditional.Background The contract was signed on 29 January 2009. The purchase price was $1.2m. The special condition referred to the purchaser obtaining approval in writing for a loan of $600,000 at the “standard” interest rate, the latest date for approval being given as 5 February 2009. In fact, the purchaser had no means of obtaining any such loan. She was expecting that her male friend of long standing would soon receive a large amount of money by way of inheritance. He had told her that a substantial amount of those funds would be applied to the Hyde Park property. Settlement was to take place on 20 February 2009. The purchaser neither paid the deposit after the cooling off period ended, nor settled on 20 February. The vendor purported to send a notice to complete and sought information about the purchaser’s ability to settle; nothing came of either initiative. Early in March the vendor advised that the contract was terminated. The property was later sold for $1.11m. The vendor sued for the difference in the contract prices as well as associated costs. On appeal the vendor argues that at the point at which the special condition was not met the contract did not become void, but voidable. The vendor relies on a statement by the High Court in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 441 to this effect:The provision in question is to be construed as making the contract not void but voidable. The question of who may avoid it depends on what happens. If one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract. If the event has happened without default on either side, then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right the other party may enforce the contract against him.It is said that the High Court recognised the same principle in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, and that it has often been applied since. The vendor argues that at the point where the special condition was not satisfied the purchaser had a choice whether or not to terminate the contract by giving notice in writing. The vendor argues that the result of the purchaser not having done so was that the contract became unconditional. Mr Hoile for the appellant vendor put it this way:It is erroneous to say that the contract was always conditional on the subject to finance clause. By its terms, that subject to finance clause had an expiry date, being 5 February, which date was made of the essence.
Decision
Reasons for decision
PEEK J
In the present case the vendor purported to call upon the purchaser to settle as if the contract then in force were unconditional. It was not open to the vendor to do so. The vendor had the choice either to terminate the contract when finance was not approved by 5 February, or to give notice of termination based on any available and sufficient breach on the part of the purchaser. She did neither of these. (In particular she did not rely on the purchaser’s failure to pay the deposit.) Instead, she served what the judge found was an ineffective notice to complete.Conclusion The contract was throughout conditional upon the approval of finance. The purchaser did not (relevantly) breach the contract. The judge correctly rejected the vendor’s claim for damages. The appeal should be dismissed. Appeal against dismissal of claim for damages. In January 2009, Mrs Margush (the appellant/vendor) had her house in Hyde Park for sale (the house), and Mr McRostie was acting as her real estate agent. Ms Maddeford (the respondent/purchaser) viewed the house, spoke to Mr McRostie, and signed a contract to buy it for $1,200,000.00, with special conditions stipulating that the sale was subject to the obtaining of finance. The respondent was subsequently unable to obtain finance. Unfortunately, she did not actively terminate the contract but rather buried her head in the sand. In the words of the trial Judge “She did nothing: she ignored calls from the real estate agent, did not cool-off, did not pay the deposit and did not settle.”[1][1] Margush v Maddeford [2014] SADC 44, [1]. The appellant was forced to put the house back on the market and eventually sold it to another buyer for $90,000.00 less than the respondent had offered. The appellant issued proceedings in the District Court claiming that $90,000.00 difference in the sale price, plus costs associated with the second sale, as damages for breach of contract. The District Court Judge dismissed her claim and she now appeals to this Court against that dismissal.The witnesses at trial The appellant called only her real estate agent, Mr McRostie. The Judge found Mr McRostie to be an honest and reliable witness and proceeded on the basis that his Honour preferred, and acted upon, his evidence in any matters where his evidence differed from that of the respondent or her witness Mr Young. I take the same approach. However, as the Judge correctly observed: “there are only minor factual differences and they do not matter”. As to the appellant, the Judge was “satisfied that she did her best to tell me the truth in evidence. Indeed, as things turned out, her evidence on relevant matters was unchallenged”. As to Mr Young, the Judge found that he “had poor recall of events but that his evidence generally supported” the respondent’s evidence. The respondent also called Mr Grant Thomas, a finance expert. His evidence was unchallenged and accepted by the Judge. The findings of fact made by the trial Judge The Judge made detailed and comprehensive findings of fact. His Honour’s findings were unchallenged on the appeal and are extracted below (numbered for convenience):1Ms Maddeford is a 58 year old unmarried woman who, throughout her life, has worked as a clerk in addition to running a small business of her own, a ballet school. Her total income from both sources has ever been only modest. At the beginning of 2009, she was living in a home unit at Melrose Park which was worth about $220,000.00. She owed about $64,000.00 on her mortgage. 2When Ms Maddeford was 22, she met Mr Bill Young, an older, married man and they began a relationship which lasted into 2009. Despite their long relationship and Ms Maddeford’s hopes, they never lived together. Mr Young continued to live with his wife. During the years of their relationship, Mr Young prevailed upon Ms Maddeford from time to time to lend him significant sums of money, sums which he never repaid. On occasions, he gave her cheques which were dishonoured. Over the years, he took advantage of her fondness for him and of her hopes that they could eventually set up house together. 3Sometime before the weekend of 17 and 18 January 2009, Mr Young announced to Ms Maddeford that he was about to receive, by way of inheritance, some £1,000,000.00 to £1,500,000.00 from the sale of a house property in Portman Square in London and that they at last would be able to buy a house of their own. Despite his previous behaviour, Ms Maddeford believed him. She and Mr Young looked at a number of houses before seeing the house at 5 Charra Street, Hyde Park which Mrs Margush had put on the market. Mr McRostie of Smallacombe Real Estate Pty Ltd was Mrs Margush’s agent. 4On the weekend of 17 and 18 January 2009, Ms Maddeford and Mr Young inspected the house at Charra Street. During one of their inspections, one or other of them told Mr McRostie that they had sold a property. Ms Maddeford liked the house at Charra Street very much and, on 29 January 2009, she signed a contract to buy it. The purchase price was $1,200,000.00 and a deposit of $50,000.00 was to be paid on the next day following the cooling-off period. Settlement was to be on 20 February 2009. 5The contract was subject to finance. By special condition 1.1 the contract was conditional upon Ms Maddeford’s obtaining a loan in the sum of $600,000.00 by 5 February 2009. …6Mrs Margush also signed the contract on 29 January 2009. 7At the time she signed the contract, Ms Maddeford believed that Mr Young would shortly receive the proceeds of the sale of the London property and that he would then pay the full purchase price of the house at Charra Street. Ms Maddeford had no other possible source of funds. I accept Mr Thomas’s evidence that no lending institution would have approved a loan in the sum of $600,000.00 or, indeed, any sum like it. Ms Maddeford knew that the only possible source of funds was Mr Young’s expected inheritance and that it was pointless for her to try to borrow elsewhere.8In the days following the signing of the contract, Mr McRostie tried to serve the Form 1 documents on Ms Maddeford but she delayed, avoided, or cancelled appointments. Mr McRostie first arranged to meet Ms Maddeford on Monday 2 February but she postponed that meeting until the following day, saying that there had been a ‘small hiccup’. On Tuesday 3 February, Mr McRostie and Ms Maddeford met at the Palais café on North Terrace but, on that occasion, Ms Maddeford put off signing the documents, saying that Mr Young did not want the documents signed until Thursday as he expected to have the cash in the bank on Thursday. Accordingly, Mr McRostie made an appointment for her to attend with him at a solicitor’s office on the Thursday but, an hour before Mr McRostie was due to collect her, Ms Maddeford rang and said that the finance had not come through. Thereafter, Ms Maddeford ignored Mr McRostie’s telephone calls and did not reply to his messages. Accordingly, on Friday 6 February 2009, Mr McRostie sent the Form 1 documents to her by registered mail. In accordance with the provisions of clause 13.4 of the Contract of Sale, she is deemed to have been served with those documents two clear business days after posting, namely, Wednesday 11 February 2009. She did not respond to receipt of the documents. In particular, she did not exercise her right to cool-off within two clear business days of receiving them. 9By letter dated 12 February 2009, Mr McRostie wrote to Ms Maddeford advising her that the cooling-off period had ended and that the deposit was due. Mr McRostie’s assertion that the cooling-off period ended on 12 February was wrong; the correct date was 14 February. Ms Maddeford ignored the letter. She did not communicate any intention to cool-off and she did not pay the deposit. 10From the time Ms Maddeford signed the contract until at least 18 February, she continually asked Mr Young if the money from England was coming through and she continued to believe that the money would come through. She asked Mr Young to speak to Mr McRostie. On 18 February, Mr Young rang Mr McRostie on Ms Maddeford’s behalf and left a message in which he said that Ms Maddeford was waiting on finance but that finance was ‘down to him’ because he was waiting on a property sale in the United Kingdom which was just about to be finalised. Mr Young suggested meeting with Mr McRostie the following Friday; then he suggested the Sunday and, later, the following Monday. There was never any meeting and both Mr Young and Ms Maddeford ignored Mr McRostie’s calls. 11Ms Maddeford failed to settle on 20 February 2009, the date stipulated for settlement in the contract. She believed that she was not bound by the contract as she had not paid a deposit.12On 25 February 2009, Mrs Margush’s solicitors sent to Ms Maddeford by registered mail a ‘Notice to Complete’. The notice asserted a breach by non-completion of the purchase on settlement date, 20 February 2009, and relied upon clause 9.3 of the Contract of Sale. The notice required Ms Maddeford to complete the purchase on 2 March 2009 at 11:30am.13The notice was defective. It was posted on Wednesday 25 February 2009. Ms Maddeford is not deemed to have received it until two clear business days after the date of posting. Accordingly, the date of receipt was Monday 2 March 2009. Pursuant to clause 9.3 of the Contract of Sale, the vendor could require the default to be remedied and appoint a time for settlement being not less than three clear business days after service of the notice upon Ms Maddeford. Because clause 9.3 required three clear business days, Mrs Margush was not entitled to require settlement on 2 March. She was not entitled to require Ms Maddeford to settle before Friday 6 March 2009. 14Because Ms Maddeford takes no point about the plaintiff’s repudiation, the fact that the notice was defective does not matter. I make this finding in case I am wrong about my ultimate conclusions.15On 4 March 2009, Mrs Margush’s solicitor wrote to Ms Maddeford. The letter included this paragraph:Would you please provide a detailed assessment of your ability to settle on the land contract in the next seven days. Please note that this does not relieve my client of the option to terminate the land contract without further notice to you and seek damages for loss from you at a later date.16Ms Maddeford did not reply to the letter. 17On 12 March 2009, Mrs Margush’s solicitor wrote again. In that letter he said:I am instructed that the contract dated 29 January 2009 for the sale and purchase of the above property is now terminated pursuant to your failure to settle on the contract as detailed in the Notice to Complete dated 25 February 2009.18Again, Ms Maddeford failed to respond to the solicitor’s letter.19Sometime later, Mrs Margush re-advertised the house and sold it on 28 August 2009 to another buyer for $1,110,000.00. Not only did she sell the house for less than the price agreed with Ms Maddeford, Mrs Margush incurred various costs associated with the subsequent sale. Her damages, in total, but excluding interest, are agreed at $110,089.88. I did not hear argument about interest.The relevant special conditions in the contract