Morrow v Tucker

[2006] NSWSC 750

CITATION:	Morrow v Tucker [2006] NSWSC 750
HEARING DATE(S):	25 July 2006
JUDGMENT DATE :	26 July 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Order for specific performance made.
CATCHWORDS:	CONTRACT FOR SALE – FINANCE CLAUSE – CONSTRUCTION – Whether a “subject to finance” clause imposed obligation on purchaser to complete contract with finance from a specified source and not otherwise.
PARTIES:	Carmen Lee Morrow – Plaintiff May Tucker – Defendant
FILE NUMBER(S):	SC 1991/06
COUNSEL:	S.A. Benson – Plaintiff J.M. Miller – Defendant
SOLICITORS:	Baker Love – Plaintiff Swaab Attorneys – Defendant

Introduction and Issues

1    By a Contract of Sale dated 6 December 2005 the Defendant (“the Vendor”) agreed to sell to the Plaintiff (“the Purchaser”) a residential property in Salt Ash, near Newcastle. The contract required completion on 17 January 2006 but time was not made of the essence. 2    On 18 January 2006, the Vendor served a Notice to Complete requiring completion of the contract by 31 January 2006. The Purchaser did not complete the contract on that date and disputed the validity of the Notice to Complete. On 2 February 2006, the Vendor served a Notice of Termination of the contract. On 22 March 2006, the Purchaser commenced proceedings for specific performance of the contract. 3    In her Defence, the Vendor did not assert that the contract had been validly terminated for the Purchaser’s failure to comply with the Notice to Complete. Rather, she asserted that the Purchaser had failed to perform an essential obligation imposed upon her by a “Finance Clause” contained in the contract so that the contract was validly terminated on 2 February 2006 for breach of a fundamental term. Alternatively, the Vendor says, the contract was subject to a condition imposed upon the Purchaser under the Finance Clause; that condition was not fulfilled, so that the contract never came into effect. 4    The parties filed a number of affidavits traversing many factual issues. However, when the trial commenced, it soon became apparent that there were only two fundamental issues:


– whether the Vendor had made an irrevocable election against exercising a right of rescission of the contract conferred on her by the Finance Clause;

– whether on the true construction of the Finance Clause the Purchaser was obliged to complete the contract utilising finance only from the source identified in the Finance Clause.

5    The resolution of those issues depended only upon the construction of the contract and upon the undisputed facts emerging from a small bundle of correspondence passing between the parties. 6    Accordingly, Counsel sensibly agreed upon a Statement of Facts and a bundle of relevant documents was admitted by consent. No affidavits were read.


The facts

7    There is really only one relevant term of the contract, as follows:
“ FINANCE CLAUSE”


(i) It is a condition of this Contract that the purchaser shall obtain approval in writing of finance for the purchase for the property and to the availability thereof on completion in accordance with this clause and the Schedule. Where approval is conditional, the purchaser will use due diligence to comply with those conditions.

(ii) The purchaser shall promptly at the purchaser’s expense:–

(a) apply for finance in accordance with the Schedule;
(b) make and pursue the finance application, pay all fees, supply all particulars, certificates and valuation and do all other things as may be reasonably required for the purpose of the application;
(c) inform the vendors regarding the progress of the finance application whenever reasonably requested to do so by or on behalf of the vendor;
(d) notify the vendor in writing after receipt of written approval or refusal from the lender.

(iii) This clause is for the benefit of the purchaser who may, prior to rescission of the Contract waive the benefit thereof.

(iv) If without default on the part of the purchaser the finance approval in writing has not been obtained in accordance with this clause within the time limited in the Schedule either party shall be entitled by notice served upon the other to rescind this Contract provided that if the purchaser has obtained the finance approval in writing prior to service of such notice of rescission by either party, neither party shall thereafter be entitled to rescind this Contract for want of such approval.

(v) Upon rescission pursuant to this clause the provisions of clause 19 shall apply except that the vendor shall be entitled to the sum of TWO HUNDRED AND FIFTY DOLLARS ($250.00) (which may at the option of the vendor be paid from the Deposit) towards the vendor’s legal costs and disbursements.

SCHEDULE

LENDER	ALLEN RICHARD TUCKER
AMOUNT OF LOAN	$165,000.00
SECURITY	Registered first mortgage over the land described in the Term as “land”. Number of days after the making of this Contract for obtaining written approval of finance is fourteen (14).”

8    Mr Tucker is the son of the Vendor. It is undisputed that, prior to exchange of the contracts between the Vendor and the Purchaser, the Purchaser and Mr Tucker had agreed between themselves that the Purchaser would buy the property in her name with a financial contribution from Mr Tucker to be secured by a mortgage and that the Purchaser and Mr Tucker would endeavour to realise a profit on the re-sale of the property. The Vendor was not a party to the agreement between the Purchaser and Mr Tucker. 9    Contracts were exchanged on 6 December 2005. Accordingly, the time for obtaining written approval for finance from Mr Tucker, pursuant to the Finance Clause, expired on 20 December 2006. 10    Mr Tucker signed a Memorandum of Mortgage which the Vendor’s solicitor sent to the Purchaser’s solicitor on 12 December 2005. The signature on the mortgage by Mr Tucker and the transmission of the document to the Purchaser’s solicitor may be taken as the giving of written approval of finance by Mr Tucker within the terms of the Finance Clause. 11    However, on 19 December 2005 the Vendor’s solicitor wrote to the Purchaser’s solicitor advising that Mr Tucker had withdrawn his offer of finance to the Purchaser. This remained the state of affairs when the time limited for the obtaining of finance approval from Mr Tucker under the Finance Clause expired at midnight on 20 December 2005. 12    On 22 December 2005, the Purchaser’s solicitor wrote to the Vendor’s solicitor enclosing the signed Transfer for approval, “subject to all the provisions of the contract” . 13    On 17 January 2006, the Vendor’s solicitor wrote to the Purchaser’s solicitor as follows:
“We refer to the above matter and particularly the Finance Clause and seek your advices as to whether your Client has waived the benefit thereof in accordance with Clause (iii). Should your Client not have waived this Clause then take notice that your Client has until 5.00 p.m. on Thursday 19th January 06 to obtain Finance approval, after which time our Client intends to exercise her rights to terminate the Contract under Clause (iv).”
14    On 18 January 2006, the Purchaser’s solicitor responded, advising that, following refusal of finance by Mr Tucker, the Purchaser had made an application for finance to a finance company, RAMS. The letter continued:

“It is unlikely that our client will not succeed in obtaining the RAMS advance, and therefore we would suggest that you withdraw your letter of 17 January 2006 and we allow the matter to proceed in an orderly fashion.

In short, it is not appropriate for our client to waive her rights under the finance clause. Finance was approved, our client is entitled to rely on the finance that has been approved and by virtue of the relationship with the Vendor and the Mortgagee it would be inequitable to attempt a termination or rescission of the contract.

We therefore require an undertaking by you before 5.00pm this afternoon, 18 January 2006, that based on our client exercising due diligence with regard to the processing of the RAMS Application the demand of your client will be withdrawn.”
15    To this letter, the Vendor’s solicitor responded on the same day as follows:

“We refer to the above matter and thank you for your letter of today, and note the finance from Mr Tucker was withdrawn on the 19th December 2005. Consequently as now over four weeks have elapsed it is eminently reasonable that your Client be required to elect whether the Finance Clause is to be waived or not.

You have indicated that your Client is not waiving the Clause and accordingly my Client is entitled to rely on the Termination Provisions.”
16    The reference in this letter to “Termination Provisions” was not a reference to the Vendor’s right to rescind under paragraph (iv) of the Finance Clause but, rather, to a right to terminate the contract for the Purchaser’s default and to forfeit the deposit, under the printed clause 9 of the contract. This is clear from the fact that enclosed with the Vendor’s solicitor’s letter of 18 January 2006 was a Notice to Complete dated the same day. The Notice stated:

“1. You are required to complete the purchase of the property at the office of Douglas Eaton Solicitor & Conveyancer, 1/12 Paul Street, Cardiff on or before 31st January 2006.

2. If you fail to comply with this notice the Vendor shall by notice in writing to you forfeit the deposit paid by you and terminate the Contract for Sale and either sue you for breach of contract or re-sell the property as owner and recover from you as liquidated damages, the deficiency (if any) arising on such resale and all expenses of and incidental to such Resale or attempted resale and your default.”
17    On 19 January 2006, the Purchaser’s solicitor advised the Vendor’s solicitor that the Purchaser now had finance approval from RAMS. 18    On 24 January 2006, the Vendor’s solicitor advised that in certain circumstances the Vendor might consider an extension of time to the Notice to Complete. 19    On 24 January 2006, the Purchaser’s solicitor wrote to the Vendor’s solicitor asserting that the Notice to Complete was invalid for a number of reasons and that the Purchaser required specific performance of the contract. 20    On 30 January 2006, the Vendor’s solicitor wrote to the Purchaser’s solicitor stating that if completion of the contract was not effected on 31 January 2006, the Vendor would terminate the contract. 21    Completion was not effected on 31 January 2006 and by Notice dated 2 February the Vendor purported to terminate the contract under Clause 9 of the contract. 22    The Purchaser’s solicitor responded on 3 February 2006 asserting the invalidity of the Vendor’s purported termination and insisting on performance of the contract.


The Vendor’s submission

23    In a succinct argument, Mr J. Miller, Counsel for the Vendor, did not dispute that the Vendor’s giving of a Notice to Complete at a time when she was aware of the fact giving her a right of rescission under paragraph (iv) of the Finance Clause was an election to affirm the contract. 24    Mr Miller made only one submission, as follows. Since both the Vendor and the Purchaser had elected to affirm the contract rather than to exercise their rights of rescission under paragraph (iv) of the Finance Clause, it followed that the contract in all its terms had to be performed by the Purchaser. On the proper construction of paragraph (i) of the Finance Clause, the Purchaser was obliged to obtain finance from Mr Tucker and no one else. The Purchaser did not, and could not, obtain finance from Mr Tucker because he had withdrawn it. She procured finance from RAMS. Her insistence on completing the contract with finance from RAMS was a breach of paragraph (i) of the Finance Clause and was a fundamental breach of the contract. Although as at the date of the Vendor’s Notice of Termination the Vendor could not rely upon the Purchaser’s failure to comply with a valid Notice to Complete, she could, in defending the Purchaser’s claim, rely upon any breach of the Purchaser existing at that date which would have justified the Vendor in terminating the contract. The Purchaser’s insistence on completing the contract with finance from a source other than Mr Tucker was such a breach, so that the Vendor’s termination was valid.


Conclusions

25    I am unable to accept Mr Miller’s submission. In my opinion, it misconstrues paragraph (i) of the Finance Clause taken in the context of the whole clause and of paragraph (iii) in particular. 26    It is clear that paragraph (i) does not impose an obligation on the Purchaser to take finance from Mr Tucker and no one else. This is because paragraph (iv) contemplates that the contract may proceed if Mr Tucker declines finance approval yet both parties elect not to rescind. The proviso to paragraph (iv) is a further concession to the Purchaser; it does not detract from the first limb of the paragraph, which envisages that the contract may proceed with finance from a source other than Mr Tucker. 27    Second, paragraph (iii), by providing that the Finance Clause is solely for the benefit of the Purchaser, gives the Purchaser the option to proceed with the contract, even though the condition provided by paragraph (i) is not fulfilled, that is, the Purchaser may proceed with the contract even though Mr Tucker declines finance approval. That is the election which the Purchaser in fact made, certainly by 24 January if not by 19 January 2006. 28    I conclude, therefore, that:


– on 18 January 2006, the Vendor irrevocably elected by her Notice to Complete to affirm the contract rather than to exercise the right of rescission under paragraph (iv) of the Finance Clause;

– the Finance Clause did not impose an obligation on the Purchaser to obtain finance from Mr Tucker to the exclusion of any other source;

– the Finance Clause entitled the Purchaser to elect whether to proceed with the contract without the benefit of finance from Mr Tucker;

– the Purchaser made that election by 24 January 2006;


– the Purchaser’s election to proceed with the contract with finance from a third party was not a breach of the contract;

– the Vendor’s purported termination of the contract on 2 February 2006 is invalid and the contract remains on foot.

29    No grounds for refusing specific performance of the contract at the insistence of the Purchaser have been advanced by the Vendor. 30    The Purchaser is entitled to a declaration and order as sought in paragraphs 1 and 2 of the Relief claimed in the Statement of Claim. I will hear submissions as to what further relief, if any, is required and as to costs.
– oOo –