Stoilas & Tsogas v Mazzocchetti - [2013] SADC 74

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
STOILAS & TSOGAS v MAZZOCCHETTI
[2013] SADC 74
Judgment of His Honour Judge Boylan
30 May 2013
CONTRACTS - PARTICULAR PARTIES - VENDOR AND PURCHASER
Contracts - sale of land - subject to finance - purchasers to use best endeavours to obtain finance - whether purchasers made best endeavours to obtain finance in amount stipulated in the contract.
Held: Plaintiffs used best endeavours, in the circumstances, to obtain finance. Judgment for the plaintiffs. Defendant's counter claim for damages dismissed.
Jetcity Pty Ltd v Yenald Nominees Pty Ltd [1999] WASC 1042 at paragraphs 4 & 4.1 , referred to.

STOILAS & TSOGAS v MAZZOCCHETTI
[2013] SADC 74
A claim for the return of the deposit

Ms Fanoulis Stoilas and Mr Iaonnis Tsogas signed a contract to buy a house from Mr Mazzocchetti and paid a deposit of $10,000 to his agent. The contract was subject to finance: a special condition required them to use their best endeavours to borrow $390,000. Their bank refused to lend them the money and they were unable to buy the house but Mr Mazzocchetti has refused to return their deposit, claiming that they breached the contract by failing to use their best endeavours to borrow the precise amount stipulated in the contract, as opposed to some higher amount. Further, he claims damages on the basis that he lost money when he eventually sold the house for a price less than that offered by the plaintiffs. His damages are agreed at $50,209.52.
In my judgment, the plaintiffs have not breached the contract and are entitled to the return of their deposit. Mr Mazzocchetti’s counter claim fails. I now give reasons for that judgment.
The witnesses
Both plaintiffs and the defendant gave evidence. In addition, the plaintiffs called Ioannis Tsogas’ father, Mr Bill Tsogas, Ms Belinda Whitehill of the National Bank, and Mr Tasso Kotsonis, a mortgage broker.
The parties and witnesses were all honest and did their best to tell me the truth. There were some differences between the evidence of Ms Stoilas and Ioannis Tsogas but none of those differences, nor any combination of them, made me think that either of the plaintiffs were being other than frank. Where there are differences, I prefer the evidence of Ms Stoilas, who struck me as a more careful witness than Mr Ioannis Tsogas.
Findings of fact
The following narrative constitutes my findings of fact.
In August 2010, Ioannis Tsogas was 23 and was working as an apprentice plumber. Ms Stoilas, known as “Stephanie”, was 22 and was working as an apprentice hairdresser. They had been boyfriend and girlfriend since their high school days and planned to marry but, in August 2010, were living separately, Ms Stoilas with her parents and Ioannis Tsogas with his. They had modest incomes and few assets. Ms Stoilas had received some money from a damages claim after a motor vehicle accident but had kept that money not in her own bank account but in her mother’s. Ms Stoilas had never before applied for a loan. Mr Tsogas owned a van and a motor car. His only prior loan application had been for a credit card and, at the time he signed the contract to buy Mr Mazzocchetti’s house, he had a poor credit history as he had defaulted on credit card payment.
Mr Mazzocchetti is a 41 year old practising solicitor. In August 2010, he owned a house at 53 Pitman Avenue, Woodville West. He had put the house up for sale and was using Mr Joe Ienco as his land agent.
Mr Ienco was at the house on Saturday 28 April 2010. At the same time, Mr Bill Tsogas was next door, at his daughter’s house. Mr Ienco told Bill Tsogas that number 53 was for sale. Bill Tsogas immediately saw a good opportunity for his son and Ms Stoilas: as the two houses had adjoining driveways and building approval had already been given, there was potential for redevelopment.
That afternoon, Bill Tsogas and Ms Stoilas inspected the house. Ms Stoilas liked it and Bill Tsogas, who was very much in favour of the purchase, told her that he would give his son $50,000 towards a deposit. After some discussion, Mr Ienco said that the plaintiffs would have to offer $455,000 and sign up that very day as he had another potential buyer. Ms Stoilas thought that she and Ioannis Tsogas could raise a deposit of $80,000, made up of the $50,000 offered by Bill Tsogas, $25,000 from her damages claim and another $5,000 which they could get together. Mr Ienco then calculated that they would need to borrow $390,000 to buy the house. He prepared the contract, which Ms Stoilas read and signed that day. Ioannis Tsogas inspected the house and signed up the next day.
The contract was subject to finance and contained a clause requiring that the plaintiffs use their best endeavours to obtain a loan in the sum of $390,000 on or before 14 September 2010.[1]
[1] See schedule at appendix 1.
The plaintiffs paid Mr Ienco a deposit of $10,000. That money is still in his trust account.
Mr Mazzocchetti signed the contract on Monday 30 August 2010.
On that same Monday, or on Tuesday 31 August, the plaintiffs set about obtaining the loan by attending at the National Australia Bank’s Port Adelaide branch where they both held accounts. Bill Tsogas went with them to this first meeting because he was an established customer at that branch. The plaintiffs did not yet have a copy of the signed contract to give to the bank. Indeed, it may well be that Mr Mazzocchetti had not signed the contract when they first went to the bank.
At the bank, the plaintiffs spoke with Mr Belinda Whitehill, a loans officer. Neither of the plaintiffs nor Ms Whitehill had any clear memory of the meeting but I infer that the plaintiffs told Ms Whitehill that they wanted to apply for a loan as they had contracted to buy a house for $455,000. The plaintiffs did not, at that first meeting, mention the sum of $390,000 but that is the amount that they then believed they needed to borrow. Ms Whitehill told Ms Stoilas and Ioannis Tsogas what information they would have to provide in support of their application. Very keen to buy the house, they set about complying with her requests: they collected payslips, bank statements and, income tax returns and they arranged for Ioannis’s parents to sign a statutory declaration confirming that the $50,000 offered by Mr Bill Tsogas was to be a gift and not a loan.
The plaintiffs next met with Ms Whitehill on 7 September 2010. I find that the meeting took place on that day because a document entitled “Customer Particulars Report” prepared by Ms Whitehill bears that date; because Ms Stoilas said that the meeting took place on that day; and because it was a Tuesday, one of Ms Stoilas’s regular days off.
On 7 September 2010, the plaintiffs gave Ms Whitehill a number of documents, including a copy of the signed contract. Ms Whitehill had a practice of immediately checking the date by which finance was required in the hope that the bank could meet that date. Accordingly, Ms Whitehill knew, on checking the contract, that the plaintiffs thought that they needed to borrow $390,000 and were in fact applying to borrow that amount. But, applying the bank’s lending criteria, Ms Whitehill estimated that they needed to borrow $405,000. In arriving at that figure, Ms Whitehill used information given to her by the plaintiffs and information which the bank required to be included regardless of the plaintiffs’ actual position – for example, their living expenses. That is, Ms Whitehill included amounts which she estimated would have been their living expenses had they been living independently and paying their own way rather than living with their parents free of board. Applying the bank’s criteria and allowing six percent of the purchase price for costs, Ms Whitehill calculated that the plaintiffs would need a loan of $405,000 to settle. The plaintiffs did not see or sign the document prepared by Ms Whitehill.
On 9 September 2010, the plaintiffs went to the bank for the last time. I am satisfied that the meeting was on 9 September because a Privacy Consent Form which the parties signed at the bank bears that date; because both Ms Stoilas and Ioannis Tsogas had to take a short time off work; and because 9 September was a Thursday, not a regular day off for Ms Stoilas.
After the plaintiffs had been to the bank on 9 September, Ms Whitehill submitted to the relevant bank officer for loan approval the application which she had prepared. That was an application for a loan of $405,000.
I pause here to deal with a letter dated 14 September 2010 which was, on that day, faxed not by Ms Whitehill, but by the branch manager of the Port Adelaide branch of the National Australia Bank, to Mr Ienco. The letter was addressed to the plaintiffs advising them that the bank had “pre-approved” a loan of $405,000 and setting out what documents and information the bank required from the plaintiffs before formal approval could be given. It was suggested at trial that that letter was evidence that, by 14 September, the plaintiffs still had not completed their loan application. I reject that suggestion. The letter was not sent to the plaintiffs and it contradicts their evidence and the evidence of Ms Whitehill’s documents. I ignore it. The letter was probably sent to Mr Ienco at his request for some purpose of his own. The plaintiffs had complied with all of the bank’s requests by 9 September.
The National Australia Bank refused the loan application. It did so because the plaintiffs had no savings, a poor credit history, and were unable to service such a debt.[2]
[2] See page 19 of the “Customer Particulars Report” at page 66 of exhibit P1.
On 16 September 2010, Ms Whitehill rang Ms Stoilas and told her of the bank’s refusal. During their conversation Ms Whitehill also told Ms Stoilas that there was “No way” that the bank would change its attitude.
On the same day, Mr Bill Tsogas found out about the refusal. He remained very eager for the plaintiffs to buy the house. So, on their behalf, he made enquiries at another bank with which he had dealings, Laiki Bank, but was told “Bill, you’re wasting your time, you won’t get the loan from us”. But an officer of Laiki Bank gave him the name of a mortgage broker, Mr Tasso Kotsonis.
Although 14 September had passed, the contract remained on foot because neither party had exercised the right to terminate by giving notice in writing to the other party.
Ms Stoilas took all the information she had to Mr Kotsonis. Some little time later, Mr Kotsonis asked the plaintiffs’ parents if they were prepared to act as guarantors. He did so because, as a broker who knew the lending criteria of some 30 to 40 lending institutions, he knew that there was “no way” that the plaintiffs could obtain a loan on their own. Both sets of parents refused to act as guarantors.
In addition to speaking with Mr Kotsonis, Ms Stoilas spoke to an acquaintance of hers who worked in the mortgage lending section of the Commonwealth Bank. I do not know when she spoke to him but it was before the defendant terminated the contract. She was told that “no matter what” she and Ioannis Tsogas would not be eligible for loan as they had not been saving in an account with the bank for six months.
The plaintiffs could do no more and gave up.
There was no evidence that Ms Stoilas asked Mr Kotsonis or the Commonwealth Bank Officer for $390,000 or, indeed, for any specified amount. Nor was there any evidence of the precise amount, if any, that Mr Bill Tsogas mentioned to Laiki Bank.
The defendant terminated the contract, by notice in writing, the termination being effective on 2 October 2010.
Later in the year, there was correspondence between the parties about the return of the deposit and the plaintiffs’ alleged breach of contract. As a result of that correspondence, the plaintiffs realised that Mr Mazzocchetti was asserting that the plaintiffs had breached the contract by not making any efforts to borrow the precise amount stipulated in the contract, namely, $390,000, but a greater sum, $405,000. Therefore, they then applied to the National Australia Bank for a loan in the sum of $390,000. That application was refused early in 2011. None of those later events is relevant, in my view, given my decision about events of September 2010.
Trial issues
There are two issues for me to determine:
Did the plaintiffs try to obtain a loan in the sum of $390,000, being the amount stipulated in the contract, or did they only try to obtain a loan in the sum of $405,000?
If they did try to borrow $390,000, did they use their best endeavours to do so?
The defendant submitted that the plaintiffs applied to the National Australia Bank for a loan of $405,000, being the amount requested on their behalf by Ms Whitehill. The defendant went on to submit that there was no evidence that they made any application to the NAB or any prospective lender for a sum of $390,000, the amount stipulated on the contract
I reject the submission that the plaintiffs did not apply to the National Australia Bank for $390,000. While it is, of course, true that the written application prepared by Ms Whitehill was the only one submitted to the bank’s loan approval department, it was not the plaintiffs’ initial application. The plaintiffs made their initial application, an oral and “composite” one, when on 7 September 2010 they gave the signed copy of the contract to Ms Whitehill together with documents requested by her . Their application on that day was for the amount stipulated in the contract, $390,000. There was no requirement in the contract that their application be in writing.
Owing to Mr Ienco’s advice on 28 August 2010 the plaintiffs believed, when they gave Ms Whitehill the contract, that they needed only $390,000 and I find that that is the amount for which they applied on 7 September 2010. That Ms Whitehill submitted an application on their behalf in the sum of $405,000 does not change the fact that, at the outset, they applied to their bank to borrow the precise sum stipulated in the contract.
As I have already mentioned, there is no evidence that, at any time after 7 September they applied elsewhere to borrow the precise sum of $390,000. But, in my view, that does not matter. I shall explain why it does not matter as I deal with the “best endeavours” question, to which I now turn.
Best endeavours
A “best endeavours clause” required the plaintiffs 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.[3]
[3] See Jetcity Pty Ltd v Yenald Nominees Pty Ltd [1999] WASC 1042 at paragraphs 4 & 4.1.
There is no suggestion that Ms Stoilas and Ioannis Tsogas were ever other than honest. From the weekend on which they first saw the house up until the time that Mr Mazzocchetti terminated the contract, they both remained very keen to buy it. Mr Bill Tsogas’ offer of $50,000 as a contribution to the deposit was on foot during that time. The plaintiffs complied promptly with all of the National Australia Bank’s requests for information. After the NAB had refused their application, they remained keen and made enquiries of other lenders.
Did the plaintiffs act reasonably?
Both plaintiffs were young, both were serving apprenticeships and both were receiving modest incomes. Neither had any history of saving with any bank or lending institution. Although Ms Stoilas had $25,000 available to her, she had not kept that money in a savings account in her name, while Ioannis Tsogas had a poor credit history and no assets of any consequence. In those circumstances, all that could reasonably be expected of them was that they approach the only bank with which they had any connection, namely, the National Australia Bank. In my view, they fulfilled their obligation to use their best endeavours when they made their application there. Thereafter, it became plain to them, from the responses of the Commonwealth and Laiki Banks and from Mr Kotsonis, that they were not going to be able to obtain the funds they needed to settle. It can readily be inferred from those refusals that it would have been futile for them to try to borrow $390,000 elsewhere. It is unreasonable to expect them to have tried to do so. They were not obliged to hawk themselves from one lending institution to another; nor were they obliged to make applications on the basis that their financial positions were in fact better than appeared on the National Bank’s Customer Particulars Report owing to the fact that they were not paying board. There is no reason to think that any lending institution would have regarded that other than as a short term arrangement only.
Accordingly, the plaintiffs complied with their obligations under the contract. They did not breach it and are entitled to the return of their deposit. Mr Mazzocchetti’s counter claim fails and I dismiss it.
I order that the defendant direct his agent, Mr Ienco, to return to the plaintiffs their deposit, being the sum of $10,000, together with any interest that may have accrued thereon.
I dismiss the defendant’s counter claim.
I give liberty to both parties to apply should there be any complications arising from my orders.
Appendix 1
Schedule
SC 1 FINANCE
SC1.1This Contract is conditional upon the Purchaser obtaining, on or before the date 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.
SC1.2The 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 [Handwritten:] 14/9/2010
Amount of Loan [Handwritten:] $390,000- (or less than)
Interest Rate [Handwritten:] 9% (or less than)