Margush v Maddeford - [2014] SADC 44

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MARGUSH v MADDEFORD
[2014] SADC 44
Judgment of His Honour Judge Boylan
20 March 2014
CONTRACTS - PARTICULAR PARTIES - VENDOR AND PURCHASER
Contracts - sale of land - subject to finance - purchaser to use best endeavours to obtain finance - whether purchaser used best endeavours to obtain finance - contract became unconditional immediately upon expiry of "subject to finance" period.
Held: Contract did not become unconditional - purchaser did not waive her rights under the "subject to finance' clause. Plaintiff's claims dismissed.
Pipeline Services WA Pty Ltd v Atco Gas [2014] WASC 10 at [69]; Jet City Pty Ltd v Yenald Nominees Pty Ltd [1999] WASC 1042 AT [4] and [4.1]; Kurnann v Pivovorova (2012) 32 NTLR 48; Meehan v Jones (1982) 149 CLR 571; Dodds v Kennedy (no.2) [2011] WASCA 131 at [50], considered.

MARGUSH v MADDEFORD
[2014] SADC 44

Ms Claudia Maddeford signed a contract to buy a house from Mrs Margush for $1,200,000.00. The contract was subject to finance and included a special condition requiring Ms Maddeford to use her best endeavours to obtain a loan of $600,000.00 by 5 February 2009. If, having used her best endeavours, she failed to obtain the loan she was entitled to terminate the contract. Ms Maddeford failed to obtain the loan but did not terminate. She did nothing: she ignored calls from the real estate agent, did not cool-off, did not pay the deposit and did not settle. Months later, Mrs Margush sold the house to another buyer for $90,000.00 less than Ms Maddeford had offered. Ms Margush now claims $90,000.00, plus costs associated with the second sale, as damages for Ms Maddeford’s alleged breach of contract. Mrs Margush does not argue that Ms Maddeford failed to use her best endeavours to obtain the loan. Rather, she argues that the contract became unconditional when Ms Maddeford failed to exercise her right to terminate after 5 February and that Ms Maddeford, therefore, breached the contract by failing to settle.
In my judgment, Mrs Margush’s claim fails because the contract always remained conditional upon Ms Maddeford’s obtaining finance. At no time did Ms Maddeford waive that condition,[1] affirm the contract or act in any way that would estop her from relying upon it. By selling the house to someone else, Ms Margush repudiated the contract but in the circumstances, and as Ms Maddeford concedes, that repudiation is of no consequence. I now give my reasons for that judgment.
[1] See Pipeline Services WA Pty Ltd v Atco Gas [2014] WASC 10 at [69].
The witnesses
Mrs Margush called only one witness, Mr David McRostie, the real estate agent who acted for her in the sale of the house. Ms Maddeford gave evidence herself and called her former partner, Mr Bill Young, and Mr Grant Thomas, a finance expert. Mr Thomas’s evidence was unchallenged and I accept it.
Mr McRostie kept good records of the circumstances of the sale and of his dealings with Ms Maddeford and with Mr Young. I accept him as an honest and reliable witness. Ms Maddeford, on her own admission, lied in her pleadings but I am 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. Mr Young had poor recall of events but his evidence generally supported Ms Maddeford’s evidence. On any matters where their evidence differs from Mr McRostie’s, I prefer and act upon his evidence. As it happens, there are only minor factual differences and they do not matter.
Findings of fact
The following narrative constitutes my findings of fact.
Ms 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.
When 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.
Sometime 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.
On 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.
The contract was subject to finance. By special condition 1.1 the contract was conditional upon Mrs Maddeford’s obtaining a loan in the sum of $600,000.00 by 5 February 2009. I now set out the special condition in full.
CONTRACT FOR THE SALE OF LAND RESIDENTIAL PROPERTY
Society of Auctioneers and Appraisers (SA) Inc.
SPECIAL CONDITIONS
(clause 14)
SC1        FINANCE
SC1.1This Contract is conditional upon the Purchaser obtaining, on or before the date specified below, approval in writing for a loan in the amount specified below (or such lesser amount as the Purchaser may accept) at the Interest rate specified below and otherwise on such terms and conditions that the lender requires acceptable to the Purchaser, to assist in purchasing the property (“the approval”). Upon notification of the approval to the Vendor this conditional provision will be satisfied and notwithstanding that the lender may subsequently withdraw the approval the Purchaser will be bound by this Contract.
SC1.2         The Purchaser will use best endeavours to obtain the loan.
SC1.3In the event that the approval is not obtained on or before the latest date for approval and provided the Purchaser has not waived this special condition and communicated such waiver to the Vendor in writing then either party (but, in the case of the Purchaser, provided it has complied with SC1.2) may immediately terminate this Contract by giving notice in writing to the other party.
SC1.4In the event of termination of the contract pursuant to SC1.3 and provided the Purchaser has complied with SC1.2 all monies paid by or on behalf of the Purchaser shall be repaid to the Purchaser.
SC1.5In the event of termination of this Contract pursuant to SC1.3 in circumstances where the Purchaser has failed to comply with SC1.2 the Vendor will be entitled to the deposit which is forfeited and to proceed against the Purchaser for damages for breach of Contract.
Latest date for approval     Thursday 5/2/09
Amount of Loan              $600,000 (or less than)
Interest Rate                 Standard Rate .% per annum (or less than)
14.     TIME OF THE ESSENCE
Time will be of the essence of this contract in respect of any obligation under clauses 9, 10, 13 and all special conditions.
Mrs Margush also signed the contract on 29 January 2009.
At 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.
In 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.
By 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.
From 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[2] and she continued to believe that the money would come through.[3] 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.
[2] T 82/13.
[3] T 82/21.
Ms 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.
On 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 11.30 am.
The 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.
Because 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.
On 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.
Ms Maddeford did not reply to the letter.
On 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.
Again, Ms Maddeford failed to respond to the solicitor’s letter.
Sometime 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 arguments of the parties
The plaintiff’s position is that this is not a best endeavours case. The plaintiff argues that, because neither party sought to terminate pursuant to the special condition after Ms Maddeford had failed to obtain finance by 5 February 2009, the contract remained on foot but became unconditional. The plaintiff argues that, by failing to terminate immediately after 5 February, the defendant waived her rights under the Special Conditions. Accordingly, so the argument goes, the plaintiff was entitled to call upon the defendant to complete. The plaintiff emphasised that the notice to complete did not allege any failure to comply with the special conditions: it simply required the defendant to settle. By failing to settle on the stipulated date, the defendant is in breach. In mounting this argument, the plaintiff relied upon the fact that time is of the essence of the contract in respect of the special conditions. In short, the plaintiff argues that whether or not Ms Maddeford used her best endeavours is irrelevant: both parties had an option to terminate after 5 February and neither chose to do so. Because time is said to be of the essence of the contract with respect to the special conditions, the contract became unconditional upon Ms Maddeford’s failure to exercise her right to terminate. She was then, from 6 February, bound to complete the contract.
Ms Maddeford’s position is that she used her best endeavours to obtain a loan when she pressed Mr Young about when he would receive the money from England. It was quite pointless for her to do more. As Mr Thomas’s evidence makes clear, it would have been fruitless for her to approach a bank or other lender to borrow $600,000.00. Ms Maddeford argues that the contract subsisted after 5 February 2009 as neither party chose to exercise her right to terminate. The contract subsisted, indeed, until the plaintiff repudiated it by selling to another buyer. The notice to complete was defective and, as the plaintiff’s purported to termination of the contract relied upon it, that termination was ineffective but the plaintiff’s repudiation of the contract is of no consequence in the circumstances. The contract subsisted until the subsequent sale and that Ms Maddeford was never in breach of it.
Best endeavours
Given the way the plaintiff has pitched her case, it is strictly unnecessary for me to make a finding about best endeavours but I have done so in case I am wrong on other matters.
A ‘best endeavours clause’ required Ms Maddeford to act honestly and reasonably. What is reasonable is to be determined in light of the capacity, qualifications and responsibilities of the purchaser viewed in light of the particular contract. Parties bound by such a clause are not obliged to go beyond the bounds of reason or to obtain finance in terms unacceptable to them.[4] As I have said, there was no challenge to Ms Maddeford’s evidence that her only possible source of funds was Mr Young’s supposed inheritance. From the time she signed the contract, she remained very eager to buy the house and continued to ask Mr Young when the money would be available. She was honest about that.
[4] Jet City Pty Ltd v Yenald Nominees Pty Ltd [1999] WASC 1042 at [4] and [4.1].
Ms Maddeford, in 2009, was a woman nearing the end of her working life. She had modest assets and a very modest income. The evidence adduced on her behalf that it would have been pointless for her to try to obtain a loan of $600,000.00 from any commercial source is unchallenged. In those circumstances, it would be unreasonable to expect her to have done so. All she could do was continue to press Mr Young. She did that; it was all she could reasonably do. Accordingly, she complied with her obligation under the contract to use her best endeavours.
In my view, the case turns upon whether or not the plaintiff is correct in her submission that the contract became unconditional immediately upon Ms Maddeford’s failure to exercise her right to terminate immediately after 5 February 2009. I do not accept that submission. It is settled law that a subject to finance clause subsists for the benefit of the purchaser. But the clause does not make the contract completely “one-sided”. The wording of the contract is such that, even though the clause is for Ms Maddeford’s benefit, Mrs Margush was not at any risk of being left ‘in limbo’ if Ms Maddeford failed to exercise her right to terminate. That, of course, is because the special condition also gave Mrs Margush the right to terminate. Mrs Margush could have terminated on 6 February by giving notice in writing to Ms Maddeford. Plainly, she was anxious that the sale proceed. At that stage Ms Maddeford was also still hoping that it could proceed. Both of them, therefore, chose not to terminate and both continued to treat the contract as remaining on foot.
There is no basis for the assertion that the contract became unconditional once 5 February had passed. This is not a case where the contract became unconditional because the purchaser failed to comply with her obligations under the “subject to finance” clause.[5]
[5] Kurnann v Pivovorova (2012) 32 NTLR 48.
I refer to the judgment of Mason J in Meehan v Jones[6] at 588.
Primarily the object of such a clause is to benefit or protect the purchaser…by ensuring that he is not under a binding obligation to complete if he is unable to obtain finance.
[6] (1982) 149 CLR 571.
Later in the judgment at 592, his Honour said this:
I say ‘each party’ because it seems to me that, although the primary object of the condition is to protect the purchaser, it is perhaps difficult to assert that the clause is for his benefit exclusively when it states that the result of non-performance is that the contract shall be null and void, rather than null and void at the option of the purchaser. I see no justification for implying a right of avoidance on the part of the purchaser alone. In other circumstances to make this implication would be to reach a one-sided interpretation, allowing the purchaser to keep the contract on foot, despite the non-performance of the condition, but denying the vendor the right to avoid. Here the vendors were protected by the fixing of the date for completion and the making of time of the essence.

Even though the wording of the special condition was different in Meehan v Jones, his Honour’s comments are apposite here. Here, too, Mrs Margush was protected against a one-sided contract by the fact that a particular date had been fixed for the obtaining of the finance and the contract stipulated that, as far as a special condition was concerned, time was of the essence. Making time of the essence of the contract did not mean that Ms Maddeford was obliged to terminate immediately upon the expiry of the stipulated time. Making time of the essence of the special condition meant that, upon the expiration of the stipulated time, either party was entitled to exercise her option to terminate if she chose to do so.[7] Neither of the parties chose to do so and the contract, therefore, subsisted. Because the subject to finance clause was for Ms Maddeford’s benefit, she was entitled to waive the condition. She did not do so. Her position never changed: she continued her attempts to obtain finance from the same source, namely, Mr Young. That is, at no stage did she do anything inconsistent with her continuing to act as a purchaser who could only settle if she obtained finance from Mr Young. It cannot be said that, at any stage, she evinced “an unequivocal final choice between alternative procedures so that it could be said that [she] had abandoned the right, if the right was thereafter asserted”.[8] Up until 18 February, Mr Young, on her behalf, was making it plain to Mr McRostie that Ms Maddeford was still ‘waiting on finance’. Thereafter, she continued to wait but, of course, must have eventually realised that, yet again, no money would be forthcoming from Mr Young.
[7] Dodds v Kennedy (no.2) [2011] WASCA 131 at [50].
[8] See Pipeline Services WA Pty Ltd (supra) at [69].
At no time did Ms Maddeford breach the contract.
I dismiss the plaintiff’s claim.