Munro & Anor v Humphries
[2008] VSC 600
•11 December 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 9492 of 2008
No. 9629 of 2008
| JASON ANDREW MUNRO AND CHRISTY LEE ANNE MUNRO | Plaintiff |
| v | |
| JOHN JAMES HUMPHRIES | Defendant |
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JUDGE: | BYRNE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 December 2008 | |
DATE OF JUDGMENT: | 11 December 2008 | |
CASE MAY BE CITED AS: | Munro v Humphries | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 600 | |
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SALE OF LAND – whether contract of sale is a terms contract – whether contract should be rectified - non-compliance with statutory requirements for terms contract - whether purchaser avoided contract – whether vendors ought to be excused for contravention
Sale of Land Act 1962 ss. 2, 6,14
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr P T Vout | C. Kyriacou & Associates |
| For the Defendant | Mr G S Lucas | Abraham Rockawin |
HIS HONOUR:
In late 2007 Jason Andrew Munro and Christy Lee Anne Munro became registered as the proprietors of the land situated at and known as 11 Threadneedle Street, Balwyn, and being the land more particularly described in certificate of title volume 8039, folio 506.
They removed the house on the land and offered it for sale by auction by the estate agent, Hocking Stuart. They engaged for the purpose the conveyancers, Daintree Conveyancing Pty Ltd which company prepared a contract of sale. The land was offered for sale by auction and for cash sale. The contract prepared by Daintree reflected this. The auction was unsuccessful and the vendors left the land with the agent for private sale. The person handling the sale at Hocking Stuart was Glen Victor Coutinho.
On 14 February 2008 the defendant, John James Humphries, agreed to purchase the land for $1.452 million payable by deposit of $145,000 on that date and the balance 10 months later. In late May 2008 Mr Humphries, contending that the contract was a terms contract within the meaning of the Sale of Land Act 1962, called for a transfer pursuant to section 4.
The vendors took the position that the contract was not a terms contract and declined to agree to the transfer. After some correspondence, the purchaser, on 24 September 2008, served on the vendors a document entitled, "Notice of avoidance of contract". In this document he asserted the contract was a terms contract and that it, the contract, was in breach of section 6(1) and 6(2) and was therefore voidable pursuant to section 6(3).
The notice concluded by asserting that the purchaser hereby avoided the contract and demanded the repayment of all moneys paid under its terms. As a consequence, two applications have been made to the court pursuant to section 49 of the Property Law Act 1958.
In the first, proceeding number 9492 of 2008 filed on 27 October 2008, the purchaser seeks a declaration that the contract is a terms contract. The second was filed on 11 November on behalf of the vendors, in effect seeking a declaration that the contract is not a terms contract, rectification and relief under section 14 (1) of the Sale of Land Act and specific performance.
In section 2 of the Sale of Land Act terms contract is defined as follows:
terms contract means an executory contract for the sale and purchase of any land under which the purchaser is—
(a) obliged to make two or more payments to the vendor after the execution of the contract and before he is entitled to a conveyance or transfer of the land; or
(b) entitled to possession or occupation of the land before he becomes entitled to a conveyance or transfer of the land;
The basic point in issue in this case is whether the contract of sale entered into on 14 February 2008 is one which meets the requirements of Part B of this definition: is the purchaser entitled under the contract to possession or occupation of the land before he becomes entitled to a transfer?
The contract was prepared for the auction in a form which was appropriate for a cash sale. The negotiations with the purchasers were commenced on that a basis, namely, that the purchaser would be given possession upon settlement after 30 days, or some other period of time, after the contract. The negotiations, however, moved away from this in two respects. The purchaser wanted a longer period before settlement and further, he wanted to be able to commence planning, to apply for necessary permits for the construction of a dwelling on the land and to commence the construction, all before settlement.
Eventually this was agreed to by the vendors and the agent inserted in handwriting the agreed price with a 10 month settlement period and a new special condition which is in the following terms:
The vendor agrees to grant the purchaser immediate possession of the vacant land to start planning and building. The vendor agrees to sign any necessary papers to assist in the purchaser starting the project, providing there is no cost or liability to the vendor. The purchaser agrees to sign the section 27 for release of deposit within 30 days of acceptance of this offer providing the mortgage level is less than the purchase price.
The document in these terms was signed by the parties on the evening of 14 February 2008 as a record of their agreement. The first issue is as to the true construction of the contractual document. Counsel for the purchaser, naturally enough, drew my attention to the express words of the special condition. This, he said, satisfies the statutory definition of terms contract.
On behalf of the vendors, counsel said it was not so simple. When read in the context of the whole document this clause means that the purchaser was entitled to no more than access to the land pending settlement. He pointed to the fact that the document was prepared as a cash contract. This is of course correct.
General condition 4, which should have been left in a terms contract document, was struck out. The particulars of sale include as part of the form that the balance of the price was payable 10 months after the date of sale, adding, rather ungrammatically, "is the date upon which vacant possession of the property and chattels must be provided, namely, upon acceptance of title and payment of the price."
Finally, since the land was subject to a mortgage to the ANZ Bank, a terms contract should have complied with section 6(1) and 6(2) of the Sale of Land Act, but it did not. All of this pointed against the document being a terms contract.
To my mind there are two compelling answers to this analysis. The question which I have to consider is not whether the parties should be taken to have intended to have entered into a terms contract. This is a conclusion of law created by the statute. The factual basis of this conclusion is whether the purchaser is entitled to early possession or to early access short of possession. In this light the terms of the special clause are unequivocal.
The second answer is provided by the circumstances in which the contract of sale was originally prepared. As I have mentioned, it was prepared for a cash sale by auction. It is, in these circumstances, not surprising that it was not drawn as a terms contract. The question is whether the special condition drawn by the agent changed its legal effect. I should add too that, to the extent that the special condition is inconsistent with the other provisions of the contract, it must prevail having regard to general condition 10.
I am satisfied that on its proper construction the special condition means what it says. It entitles the purchaser to early possession. That the word "possession" should be given no other meaning is also supported by the fact that this is not a document drawn by an unskilled person. It is a formal conveyancing document. The special condition was prepared by an experienced, professional estate agent. In these circumstances the use of a technical conveyancing word such as "possession" should be given its ordinary technical meaning.
The vendors then seek rectification of the contract on the basis that both parties agreed that the purchaser should have early access, not possession, and that the document does not accurately record this agreement. The circumstances of the execution of the document were that the agent had had discussion with the purchaser at a time when the agent's instructions were to sell for $1.5 million on a deposit of 10 per cent on a 30 or 60 day period of completion.
The agent went to Mr Humphries' home on the evening of 14 February with a view to closing the deal if this were possible. There were two points of difficulty. First, the purchaser was prepared to pay only $1.45 million and second, the purchaser wanted a longer settlement period. The purchaser said he would buy for $1.5 million on a nine month settlement period. The agent told me that, as an inducement, he told Mr Humphries that he could probably obtain from the vendors early access to enable him to obtain permits and start building. Mr Humphries in evidence accepted the agent may have used those terms but he maintained that he had previously told the agent that he wanted possession before completion and that he repeated this to the agent on the evening in question.
Both the agent, Mr Coutinho, and the purchaser, Mr Humphries, were cross-examined upon these discussions. Mr Coutinho said that he was broadly familiar with the sale of land legislation but that he had never in his 20 years experience, made a terms sale. It is not likely that he was aware of the significance in terms of this legislation of the use of the word "possession".
Mr Humphries told me that he was a retired builder and that he had undertaken developments such as this on earlier occasions. He was, he said, aware of the significance of a term giving him early possession and he told the agent of this. His intention was to commence building as soon as possible so that the house could be completed by the date for settlement. In this way he would not have to bear the finance costs, at least until the work was well advanced. He would then call for a transfer and use the land, with the incomplete building as security, for a second mortgage loan to finance completion. This would not have been possible, he said, if he could not have obtained title until settlement in December. I prefer the evidence of Mr Humphries as to these circumstances.
As I have mentioned, the agent would not have appreciated the relevant significance of the difference between "access" and possession. It is likely that his account in his affidavit bears the marks of reconstruction since this significance later became apparent. Moreover, this sale was doubtless one of a number of sales in February which he had negotiated so that he may not have had a particular recollection of the precise words used.
Second, he composed a special condition at Mr Humphries' house in the presence of Mr Humphries in the course of the discussions. If he is correct in his recollection that the word "possession" was not used in these discussions, it is difficult to suppose that he would have adopted that word in the special condition which he drafted. This is particularly the case when it is appreciated that in all other respects the special condition faithfully records the matters insisted upon by Mr Humphries.
Finally, when the agent's account in the affidavit was explored in cross-examination, it became apparent that his recollection was in fact less definite and in some respects, at variance to that in his affidavit. I do not wish it to be understood by this to be saying that Mr Coutinho was an untruthful witness, it is just that his recollection of this routine transaction is imperfect.
By contrast, I was impressed by the detail and consistency of the evidence of Mr Humphries. Mr Munro also gave evidence but necessarily, his evidence did not bear upon this issue. He said that the document was presented to him with the special condition already inserted and he signed it, as did his wife, it does not really matter what was said between them and their agent. Accepting as I do the evidence of Mr Humphries, I am unable to conclude on an objective basis that the purchaser and the vendors were agreed that access only should be given to the purchaser prior to the execution of the contract of sale. The claim for rectification must therefore fail.
The contract of sale in this case is a terms contract. Section 6 of the Sale of Land Act imposes certain restrictions upon the sale under a terms contract of land which is, as here, subject to a mortgage. These require that certain provisions be inserted in the contract dealing with the mortgage. These include the provisions of general condition 4 which in this case had been struck out before the negotiations were undertaken.
The statutory requirements are in these terms (and I set out in full as part of this judgment sections 6(1) and 6(2). By subsection (6)(3), where, as here, the contract of sale contravenes subsection (1) or (2) it is voidable by the purchaser at any time before completion. This was the course adopted by the purchaser in this case by his notice of 24 September 2008.
Section 14 also provides that a contract entered into in contravention of the statute is voidable by the purchaser prior to completion and moneys paid are recoverable. Then follows a proviso which is in these terms:
Provided that a terms contract shall not be voidable by the purchaser if a court is satisfied that the vendor has acted honestly and reasonably and ought fairly to be excused for the contravention, and that the purchaser is substantially in as good a position as if all the relevant provisions of the Act had been complied with.
I shall assume, as did the parties before me, that this proviso is applicable to an avoidance under section 6(3). If this assumption is not correct then the avoidance cannot be attacked by application of the proviso. I am satisfied that the vendors acted honestly and reasonably in entering into the contract in the form which it took. I am satisfied that they ought fairly to be excused for omitting to include in the contract the provisions required under section 6(1) and (2). Although they, like anyone else, must be taken to have been aware of the legal requirements of the Sale of Land Act with respect to terms contracts for the sale of mortgaged land, they were unaware that this was in fact such a contract. Nevertheless, they did not act reasonably in failing to comply with the section 4 requirement to transfer the land to the purchaser in June 2008.
The position of the purchaser must also be examined. He was aware at the date of the contract that the land was subject to a mortgage in favour of the bank, although he did not know the amount of the debt to the bank which was secured. In that sense, had he known the precise amount and detail of the mortgage, this would not have affected his decision to purchase. He does not assert any disadvantage as a consequence of the failure of the contract to permit him to assume the obligation of the mortgagors would be provided if a term had been inserted as required under section 6(1).
His difficulty, which I accept, arises from the fact that the vendors refused to comply with their obligations under section 4 to transfer the land to the purchaser in June 2008. This refusal has the consequence under section 4(4)(a) that the vendors are deemed to have broken a condition of the contract and that the purchaser is entitled to all civil remedies as a consequence. These remedies would presumably include the right to rescind.
The question which then arises is whether the failure of the vendors to comply with section 4 is a failure to comply with the "relevant provisions of the Act" so that the right to avoid the contract under section 14(1) arises. I have pondered upon this point as it was not the subject of argument before me. Having regard to the imminence of the completion date, next weekend, the parties accepted that I should consider the application of the proviso on the written submissions and what was put as to the disadvantage of the purchaser orally before me yesterday.
Having considered the terms of the statute, I conclude, with some hesitation, that section 14(1) is a provision of general application, that is, it applies to contraventions of both section 6 and section 4. This being the case, I am not satisfied that the position of the purchaser is as good as if the provisions of the Act had been complied with.
I accept that the commercial benefits which he should have enjoyed under the statute were denied him. He was denied the right to obtain title to the land with the consequence that he could not undertake the construction as an owner/builder and he could not obtain the necessary second mortgage finance which he required to carry out the development. It follows from this, and from the fact that the vendors' refusal to transfer was not reasonable, that the proviso has no application. The end result is that the notice of avoidance was effective.
The contract was terminated on 24 September 2008 and moneys paid under it are repayable. I propose therefore to make the declaration sought in the purchaser's application and that the vendors' application be dismissed.
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