| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : WILKES HOLDINGS PTY LTD AND GORDON WILKES -v- GLEN ROY CORNISH AND LISA MICHELLE CORNISH & ANOR [2003] WADC 131 CORAM : JENKINS DCJ HEARD : 28-29 MAY 2003 DELIVERED : 6 JUNE 2003 FILE NO/S : CIV 5962 of 1994 BETWEEN : WILKES HOLDINGS PTY LTD AND GORDON WILKES Plaintiffs
AND
GLEN ROY CORNISH AND LISA MICHELLE CORNISH
First Defendant
BARRIE ROBERT CORNISH
Second Defendant
Catchwords: Contract - Sale of shares in business - Termination of contract - Breach of contract - Damages
Legislation: Nil
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Result:
Judgment for the plaintiffs in the sum of $25,000 against the first defendants. Claim against the second defendant is dismissed Representation:
Counsel:
Plaintiffs : Mr W L Goodlet
First Defendant : Mr R J Grayden
Second Defendant : Mr R J Grayden
Solicitors:
Plaintiffs : Unmack & Unmack
First Defendant : Hammond Worthington
Second Defendant : Hammond Worthington
Case(s) referred to in judgment(s):
Coates v Sarich [1964] WAR 2
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Earnshaw v Gorman & Sons Pty Ltd [2001] WASCA 50
Farrant v Leburn [1970] WAR 179
Perri v Coolangatta Investments Pty Ltd Coolangatta Investments Pty Ltd (1982) 149 CLR 537
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) SR (NSW) 632
Case(s) also cited:
Nil
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Introduction 1 By an agreement in writing entered into in early October 1993 ("the first agreement") the plaintiffs and the first defendants agreed that the plaintiffs would purchase from the first defendants all the shares in a company known as Nutrivite Pty Ltd ("Nutrivite") and the majority of the plant and equipment used by Nutrivite. The purchase price payable under the agreement was $115,000. This was to be payable by a "non refundable deposit" of $10,000 on the signing of the agreement and the balance of $105,000 on settlement or as mutually agreed between the parties. 2 The plaintiffs paid the deposit of $10,000 on 1 October 1993. A further payment of $25,000 was made on 18 November 1993 after the plaintiffs signed a document of that date ("the second agreement"). No further payments have been made. 3 By their statement of claim the plaintiffs accept the "rescission" of the contract which was affected by letter dated 21 January 1994 from the first defendants terminating the agreement. The plaintiffs seek repayment to them of the moneys paid in the sum of $35,000. 4 The plaintiffs seek relief from the second defendant also on the basis that the first defendants, in the alternative, held the shares in Nutrivite as constructive trustees or resulting trustees for the second defendant. The second defendant denies these allegations. 5 The defendants deny that the plaintiffs are entitled to repayment on the basis that the $10,000 was a non-refundable deposit and the $25,000 was expressed in the second agreement to be regarded as an unsecured loan to Nutrivite if the balance of the purchase price was not paid on 10 December 1993, which it was not. The defendants also say that the plaintiffs have received consideration for the payment of $25,000.
The evidence 6 The following facts have been found by me. 7 In late 1993 the second named plaintiff ("the plaintiff") was residing in Scarborough and in the process of subdividing and redeveloping a block of land in that suburb. Through his accountant of many years he
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met a man called Johannes Miller ("Miller"). As a result of conversations with Miller the plaintiff was introduced to the second defendant. 8 The second defendant is a retired business and rural consultant. For many years he had been involved in manufacturing nutritional feed supplements for cattle. He and his wife ran a business known as "WA Feed Supplements". That business suffered financial problems due to having borrowed money to purchase equipment for the manufacturing of feed supplements. The business could not repay the money and the financiers required that the equipment be sold to recover the debt. In 1991 the first and second named defendants, respectively Glen and Lisa, the second defendants' two adult children, approached him with the idea of forming a company to take over the business with Glen in the manufacturing side and Lisa in administration. Nutrivite was set up with the sole shareholders being Glen and Lisa. They purchased the equipment from WA Feed Supplements at scrap metal prices. They intended to manufacture in Malaysia. The second defendant at all times acted as a consultant for Nutrivite and was very involved in the business. 9 The second defendant had met Miller as the agent for new premises which Nutrivite wished to lease. Miller asked him a lot about the new business, became interested in it and asked if the defendants were interested in selling it. The second defendant said yes, on behalf of the first defendants. He provided all the financial information relevant to the sale in order for Miller to provide it to his prospective purchasers, the plaintiffs. 10 At the initial meeting between the plaintiff, the second defendant and Miller they discussed a business that the second defendant may have for sale. At that stage the business was not named but it was a business which the plaintiff believed manufactured lick blocks as a nutritional supplement for cattle. The plaintiff was aware that the business was not operating at that time but he was shown a factory by the second defendant and Miller which housed machinery then under repair and generally being prepared for production of lick blocks. The plaintiff understood that if he did not buy the business it was going to be exported to Malaysia. 11 Miller drew up the first agreement being an agreement for sale and purchase of the shares in the business which had by then been identified as Nutrivite. The first agreement is between the plaintiffs and the first defendants. The plaintiff gave no evidence as to the nature of the first named plaintiff ("the plaintiff company") but it is clear that in all respects the plaintiff represented the interests of the plaintiff company. By the first
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agreement the plaintiffs offered to purchase the shares of Nutrivite including the goodwill of the business, the business trade name and plant, furniture, fittings and other assets described in the first agreement. Clause (c) of the first agreement states as follows: "MANNER OF PAYMENT OF PURCHASE PRICE of $115,000 in total shall be paid by $10,000 as non-refundable deposit to the vendors on acceptance of this offer and the balance shall be paid on settlement or as mutually agreed between the parties herein." 12 The first agreement contains no express terms as to the date of settlement. The only other relevant clause is E(7) which states: "The balance of the purchase price of the business being the sum of $105,000 shall be subject to the purchaser arranging the necessary finance through an approved financial institution." 13 The first agreement is undated and the plaintiff was unaware of the exact date on which it was made. On the basis of subsequent evidence I am satisfied that the first agreement and the deposit were made on 1 October 1993. The defendants said that at the meeting of that date the terms of the settlement were discussed these being that a $10,000 non-refundable deposit was payable immediately and the balance on 31 October 1993. 14 The plaintiff insists that at the meetings between himself and the defendants prior to the signing of the first agreement a settlement date was not discussed but it was implied that it was to take place in an orderly fashion when he had either sold or mortgaged his properties. He said that he had put his cards on the table about his need to liquidate property in order to settle and the defendants were well aware of this. 15 With respect to the non-refundable deposit he believed that it was non-refundable if for some reason the agreement went "awry" through his actions but that if the defendants terminated the first agreement he believed that it would be refundable to him. 16 He said that if a date for settlement had been specified he would have moved a lot faster to liquidate his assets. 17 The plaintiff stated that he was not present when Lisa signed the first agreement. He said that after the other parties had signed it Miller took the document away and a couple of days later returned with Lisa's
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signature on it. The defendants assert that all parties were present at the one time when the document was signed. Although it is probably unnecessary for me to decide I am of the opinion that Lisa was present and the plaintiff has simply forgotten that fact. 18 The $10,000 deposit was paid by a cheque signed by the plaintiff and made out to Nutrivite. The deposit was paid on the same day the first agreement was signed by the parties. The second defendant deposited this cheque into a Nutrivite account operated by the first defendants at Challenge Bank. 19 After the first agreement was signed the plaintiff commenced working at the Nutrivite factory every two to three days. Over the next month or so the parties, Miller and employees got the factory ready for manufacturing and started production of lick blocks. The plaintiff said that the second defendant was probably at the factory every day and certainly more than he was. Glen assisted at the factory after he completed his normal work as an upholster and on his days off. Lisa did not attend at all but she did some work at home on the administrative side. 20 The plaintiff gave Miller a cheque in the sum of $10,000 with which to open up a bank account at the Commonwealth Bank in the name of Nutrivite for the purpose of using the account to provide working capital. This occurred. 21 In order to finance the payment of the balance of the purchase monies the plaintiff intended to either mortgage property he jointly owned with another person in Midland or sell the property in Scarborough There was some delay in doing this which was, the plaintiff said, the reason why settlement did not occur. He said that the defendants did not say anything to him about the delays in settlement. The defendants agreed but said that was because the plaintiff came up with excuses for the delay. 22 During the latter half of 1993 the plaintiff received about $8,000 from a client of Nutrivite for each of approximately two loads of lick blocks that were delivered to the client. The plaintiff said that he did not receive payment for a third load. This was disputed by the defendants. It is unnecessary for me to decide who is telling the truth in this respect. Suffice to say the arrangement whereby the plaintiff worked in the business, provided working capital for it and received payments prior to settlement was not an arrangement sanctioned by the first agreement. 23 In November 1993 Miller approached the plaintiff and as a result of what he said the plaintiff believed that the second defendant was buying a
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property in Mandurah and needed money urgently to settle the purchase. The plaintiff tendered in evidence a certified copy of a Certificate of Title Vol 490 Fol 193A which showed a transfer to Spring Park Investments Pty Ltd ("Spring Park") registered on 10 January 1994. The plaintiff also tendered a transfer of land document for that transaction dated 17 December 1993 and signed on behalf of Spring Park by Glen and the second defendant. The transfer is stamped for the Commissioner of State Taxation to the effect that the instrument upon which the transfer is based was dated 17 November 1993. The parties agree that this is a reference to the relevant offer and acceptance of what I will describe as the Mandurah property. 24 Upon learning of the proposed purchase the plaintiff mortgaged a property he held in the sum of $30,000 and at a meeting between himself, Miller and the second defendant the sum of $25,000 was provided to the second defendant by cheque made out to Nutrivite. The plaintiff said that this cheque was then pinned to what he believed was an offer and acceptance for the Mandurah property and Miller and the second defendant then left the office. 25 At the same meeting the plaintiff signed the second agreement on behalf of himself and the plaintiff company. Although the second agreement is signed only on behalf of the plaintiffs the defendants agreed in their consolidated defence that the parties agreed to vary the first agreement by the terms of the second agreement. Relevantly, the second agreement is addressed to the first defendants and confirms payment of the sum of $25,000 as part payment of the acquisition of shares in Nutrivite. I note that the balance outstanding is $80,000. Reference is then made to interest being payable on the outstanding balance. There are then terms relevant to the issue of settlement and the status of the $25,000 as follows: "Settlement of the balance of the purchase price is deferred, not as a result of the ability (sic) to raise finance but due to aforeseen (sic) circumstances in regards to lapsed caveats on the security property. We acknowledge that should the remainder of the debt not be paid on the 10th December 1993 that we shall forfeit all rights, title and interest in the company styled Nutrivite Pty Ltd and the funds paid of $25,000 shall be an unsecured loan to the company."
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26 The defendants' version of events leading up to the second agreement are somewhat different. They say that the second defendant was asked by Miller if the first defendants would accept a part payment of $25,000 as the plaintiffs were having difficulty arranging finance to settle the purchase. The second defendant spoke to Glen and Lisa and they agreed on the basis that interest was to be payable on the balance and a settlement date was stipulated in the second agreement. Miller was advised. Miller then drew up the second agreement. The second defendant was present when the plaintiff signed it. At the same time the cheque for $25,000, written out to Nutrivite, was given to the second defendant. He immediately deposited this into the Nutrivite Challenge Bank account. The second defendant denied that the cheque was pinned to the offer and acceptance for property in Mandurah.
27 In respect to the Mandurah property the second defendant said that he and his wife were in Mandurah and saw the subject property for sale and he signed a document that would hold the property until Glen and Lisa could have a look at it. Glen gave evidence that $5,000 of the $25,000 was used as part of the deposit on the Mandurah property. The defendants said that all the family had used the property at some stage to live in. At the date the offer and acceptance for the Mandurah property was signed, 17 November 1993, Spring Park was not in existence. Apparently at some later date it had been suggested to Glen and Lisa that they should purchase the property in the name of a family company or family trust company. That is how Spring Park came to be used as the vehicle to purchase the property. 28 On 10 December settlement did not occur as provided for in the second agreement. The plaintiff was reminded and he provided excuses as to why settlement could not occur. These excuses involved delays in liquidating his property assets. 29 The plaintiff said that at a Christmas function in December 1993 at the Nutrivite factory the second defendant told him late in the evening that he would like to see him in the office. The plaintiff said that the second defendant asked him what he was doing about the balance of the purchase moneys and the plaintiff told him that he'd better speak to Miller about that. The second defendant then said he wanted to know and the plaintiff told him that he was in the process of finishing off the houses. This being a reference to the houses in Scarborough he was intending to sell. The second defendant said that that wasn't good enough and that the plaintiff should not come back. The plaintiff then said that he did not return to the factory. In cross-examination he said he remembered the second
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defendant saying words to him such as "the deal's off". He said he hadn't said this in examination in chief because he had forgotten those words. 30 Some time later he received a letter which was dated 21 January 1994. The letter signed by Glen on behalf of the first defendants states that the deposit of $10,000 was paid to them on 3 October 1993 "with a clear understanding that the remainder of the purchase price was to be paid within 30 days." It further states "we are of the opinion that a reasonable time to complete the purchase has expired. Accordingly in our view that contract is now at an end." The letter then went on to offer to enter into a new contract and gave the plaintiffs seven days in which to indicate their willingness to enter into a new contract. 31 The plaintiffs' case is that he did not receive this letter until some date after 31 January 1994. The explanation for this assertion is that the front page of the letter is on old style thermal fax paper and there is a fax endorsement at the top of the letter with the date 31 January 1994 and the name "Bowman House WA". The plaintiff said that the only inference to draw from this is that as he did not have a fax machine this document must have been received by him in the mail some time after 31 January 1994. That is after it had been faxed by someone at Bowman House. Bowman House is the place of business of the plaintiff's accountant and Miller's place of employment. The difficulty with this assertion is that the second page of the letter is on normal letter weight paper, not on thermal fax paper, and appears to have an original signature on it. The inevitable inference to draw is that these two pages were clearly copies of the same document but were not originally put together as the one document. I am inclined to the view that the second page originally had a front page that was not on thermal paper and that it was the combination of those two pages that were originally sent to the plaintiffs. The front page has probably been lost. Whilst the plaintiffs may well have received a copy printed on thermal paper some time after 31 January 1994 I am not prepared to infer that that was the first and only time they received a copy of the letter. I note in this regard that the plaintiff only said that he was "pretty sure" that the document shown to him was the letter that he received by mail. 32 In cross-examination the plaintiff said that Miller was not his agent at the time the first agreement was entered into and I accept this. On the basis of other evidence I have heard in the case I accept that Miller to some extent was acting on his own behalf and also as an agent for the vendors. The first agreement appointed Miller as joint agent. All parties relied significantly upon information provided to them by Miller and on
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work done for them by Miller. However none of the parties called him to give evidence. 33 The second defendant did not recall if the plaintiffs had ever paid interest on the outstanding balance of $80,000. There was no other evidence about this issue. The plaintiffs have never paid the outstanding balance of $80,000 and did not contact the first defendants to discuss entering into a new contract. 34 The second defendant rejected the allegation that he was the principal of Nutrivite. He said that whilst he was a consultant to the business he could not make decisions about the company and he did not have anything to do with arranging finance for the business, he admitted to having day to day control as the company's business consultant. 35 In cross-examination he said that Glen and Lisa had paid for the shares in Nutrivite and he did not know how much they paid. In late 1993 Glen was working as an upholsterer and Lisa had her own hairdressing business. The first defendants confirmed this evidence and said that Nutrivite was their company to provide for their future financial security. They said they borrowed the money to finance the company. 36 There was an issue as to whether or not the second defendant was ever a secretary of Spring Park despite signing the transfer for the Mandurah property as such. In the end the defendants agreed that it was unlikely that he was secretary at that time.
$10,000 Deposit 37 The plaintiffs’ claim repayment of the $10,000 deposit paid on or about 1 October 1993. 38 Before finally determining whether the plaintiffs are entitled to repayment, I must determine whether the plaintiffs were in default and therefore whether the first defendants were entitled to terminate the contract on 21 January 1994. The first defendants plead that they were entitled to terminate for breach by the plaintiffs of an essential term of the contract, that being a requirement that the plaintiffs complete on 10 December 1993. The first defendants purported to terminate without notice by letter dated 21 January 1994 and the issue is whether the stipulated time was an essential term of the contract, making time of the essence and giving the first defendants the right to terminate without notice.
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39 In Earnshaw v Gorman & Sons Pty Ltd[2001] WASCA 50 Malcolm CJ said;
"The general rule in the law of contract is that if a contract does not state a specific time for performance, performance by any particular time is not an essential term. … Where a contract fixes no time for performance, with the result that a reasonable time is to be implied, the obligation to perform in that time is unlikely to be held to be an essential term: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; cf Ellmore (Maitland) Pty Ltd v Tull (1995) 7 BPR 14,035 per Mahoney JA at 14,307 - 14,308. It is also significant that, if time is not of the essence of a contract or has ceased to be of the essence of a contract, the party not in default cannot terminate a contract for delay in performance without first giving notice requiring performance within a specified time. If the notice is not complied with, the contract may be terminated: Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 348-349 per Fullagar J; Balog v Crestani (1975) 132 CLR 289 at 296 per Gibbs J; Green v Somerville (1979) 141 CLR 594; Louinder v Leis (1982) 149 CLR 509; Ciavarella v Balmer (1983) 57 ALJR 632; and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd, supra. The time allowed must be reasonable and the onus of proof of reasonableness is on the party giving the notice: Sunstar Fruit Pty Ltd v Cosmo [1995] 2 Qd R 214; and see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 638-640 per Mason CJ; and at 647 per Brennan J.” 40 Thus even if the first agreement is to be construed as specifying no time period it still required settlement within a reasonable time. Whether the time for settlement was orally agreed to be 30 days or implied to be within a reasonable time, I do not accept that time was of the essence of the contract upon the signing of the first agreement. Therefore the first agreement could not be terminated by the plaintiffs without first requiring performance within a reasonable time specified by notice clearly indicating that, if the notice was not complied with, the contract may be terminated. 41 The defendants say that the second agreement either constituted such notice or alternatively by its terms rendered time of the essence.
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42 The first issue between the parties in this respect is whether the second agreement was binding upon the parties. The plaintiffs submit that it was a non binding bare promise by them. Whilst the first defendants acknowledge that the second agreement is not signed by them they submit that it is binding as the offer contained in it was accepted by them and they gave consideration for it. Acceptance, they say is proved by acceptance of the plaintiffs' cheque for $25,000 and by inference from that fact that second agreement was signed and the cheque handed over at a meeting between the second defendant, the first defendants' business consultant, Miller who was then agent for of all the parties, and the plaintiff. Further they rely upon the evidence of all defendants to the effect that they were aware of the terms of the second agreement and believed themselves to be bound by it. I also note that the plaintiff, in his evidence, did not contend that it was only an offer by him that was not acted upon by the defendants. The defendants say that they gave consideration for the second agreement and the payment of $25,000 by granting the plaintiffs a deferred settlement date.
43 Acceptance of an offer must be unqualified but it may be inferred by words or conduct. In this case, the circumstances give rise to an inevitable inference that, to the plaintiffs' knowledge, the first defendants accepted the terms of second agreement. 44 As for consideration, forbearance can be consideration. The second agreement specifically acknowledges that "balance of the purchase price is deferred" and acknowledges that should settlement not occur on 10 December 1993 certain things would follow. I accept the first defendants’ submissions that the deferment of settlement until 10 December was consideration for at least part of the payment of $25,000 as well as the agreement to pay interest on the balance of the purchase price until completion. At completion the $25,000 was to become part payment of the purchase price. Consequently I find that the second agreement was binding upon the plaintiffs and the first defendants. 45 The next issue is whether upon the making of the second agreement time was of the essence. In my view it was. Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd(1938) SR (NSW) 632 at 641-2 proposed the following test of essentiality: "The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract
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unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor." 46 The Courts have been willing to find that in commercial contracts time stipulations are of the essence: Perri v Coolangatta Investments Pty Ltd Coolangatta Investments Pty Ltd(1982) 149 CLR 537 at 545, 555. In this case I consider that the fixing of the time in circumstances where there had previously been no time stipulated clearly indicated that the promise to complete by that date was so important to the first defendants that they would not have entered into the second agreement without it. Time being of the essence the first defendants were entitled to terminate the contract when then the plaintiffs failed to complete by the stipulated date. 47 The plaintiffs acknowledge in their statement of claim that this occurred on 21 January 1994 when the defendants wrote to the plaintiffs communicating the termination of the contract. There was an issue at the trial as to whether termination occurred earlier at the function held just before Christmas 1993. I find it unnecessary to determine that issue. There was a further dispute as to when the plaintiffs received the letter of 21 January 1994. Again I find it unnecessary to resolve that dispute as the plaintiffs acknowledge that they did receive it and that it terminated the contract. Whether that occurred on or about 21 January or on or about 31 January is not material to the issues I have to decide. 48 The final question with respect to the claim for the $10,000 deposit is whether the plaintiffs are entitled to repayment of it when the contract was terminated due to their default. 49 Where a defaulting purchaser attempts to recover a deposit the categorization of the money may be critical. That is whether it is a pledge or guarantee of performance, or an instalment of purchase money, or penalty or liquidated damages: Farrant v Leburn [1970] WAR 179 at 183. In Coates v Sarich [1964] WAR 2 at 6 Wolff CJ said: "The function of a deposit paid on a contract of sale, and the rights of the parties in regard to the sum so paid, has occasioned some difficulty, particularly in regard to sales on terms. The old and familiar type of transaction where the purchaser paid (say) 10 per cent or 15 per cent down and undertook to pay the balance within (say) 14 days after investigation of title, is less frequent than formerly. If the sale went off by the purchaser's
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default the meaning and intent of the deposit was clear. It was paid as an earnest on the part of the purchaser to bind the bargain and give some assurance that the purchaser meant business: the very circumstances pointed to the conclusion that it was the intention of the parties that it should become the property of the vendor, even if the contract was silent on the point. Where the sale was completed the deposit was reckoned as part of the purchase price, while in case of default the deposit was intended as a compensatory sum to cover the vendor for the many hypothetical losses (difficult of precise specification or assessment) that a vendor might suffer in such circumstances. In these cases it is easy to see how it became 'forfeited' to the vendor either by the express terms of the contract or by the intention of the parties (Howe v Smith (1984), 27 Ch. D. 89) and when speaking about a 'deposit' it is not the fact that the parties call as sum of money the deposit that is conclusive; the circumstances of the bargain are the test." 50 Then at 8 he said: "I think that in Australia it is clear that where the sum of money, …, is in fact a deposit as distinct from a penalty and the contract provides for its forfeiture on default, there is no equity on the part of the purchaser to get a refund of the whole or any portion of the deposit: McDonald v Dennys Lascelles (1933) 48 CLR 457." 51 In my opinion this case is stronger than the first example referred to by Wolff CJ as in this case the deposit is specifically referred to as being "non refundable". Clearly the parties envisaged it as such. Even the plaintiff in evidence said that he thought that it was non refundable if things went awry and I have found that, on his part, they did. There is no basis for holding that the deposit was a penalty and thus no basis for holding that the plaintiffs are entitled to a refund of the deposit.
$25,000 part payment 52 The second part of the plaintiffs' claim relates to the $25,000 paid on or about 18 November. Many of the factual findings and legal principles referred to in my determination of the claim for the deposit apply also to this sum.
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53 The plaintiffs’ claim the money on the basis that consideration has totally failed. The first defendants plead that the sum is non refundable because the plaintiffs received consideration for it. Alternatively, they plead that the second agreement stipulates that it is a loan to Nutrivite and therefore the first defendants, personally, have no obligation to repay it.
54 With respect to the first defendants' first point I cannot accept that the parties intended that the plaintiffs would never be able to recover the money because by the second agreement the plaintiff received consideration for it. This is because by its very terms the second agreement provides that in default of completion on the specified date, the sum "shall be an unsecured loan to the company", that is Nutrivite. By expressly stating that the sum, upon default, was to be loan the parties negated any suggestion that it would vest entirely in the first defendants or any other entity. The issue before me is, as the parties intended that upon default the sum was to be a loan to Nutrivite, whether the plaintiffs are entitled to obtain a refund from the first defendants or whether, by that contractual term, they forfeited their right to a repayment from the first defendants in favour of obtaining a right to demand it from Nutrivite? 55 The first issue to determine is whether the plaintiffs would but for the reference to Nutrivite be entitled to repayment of the sum. The answer depends upon the categorization of the payment. It was clearly intended to be an instalment of the purchase price and, as I have already found the loan of at least part of it was consideration for deferment of settlement. However I do not accept that it falls into the same class as a deposit. The deposit had already been made. Further there is no forfeiture clause indicating that the parties intended that it would be forfeited upon default, rather the express terms are that it would be a loan and thus repayable, at least upon demand. 56 In McDonald v Dennys Lascelles Ltd(supra)at 478, Deane J said: "It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract (Mayson v Clouet (1924) AC 980). Although the parties might by express agreement give the vendor an absolute right at law to retain the instalments in the event of the contract going off, yet in equity such a contract is considered to involve a forfeiture from which the purchaser is entitled to be relieved (see the judgment of Long Innes J in Pitt v Curotta (1931) 31 SR (NSW) 477 at pp 480-482). The view adopted in In re Dagenham (Thames) Dock Co; Ex parte
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Hulse (1873) LR 8 Ch 1022 seems to have been that relief should be granted, not against the forfeiture of the instalments, but against the forfeiture of the estate under a contract which involved the retention of the purchase money: and this may have been the ground upon which Lord Moulton proceeded in Kilmer v British Columbia Orchard Lands Ltd (1913) AC 319, notwithstanding the explanation of that case given in Steedman v Drinkle (1916) 1 AC 275 and Brickles v Snell (1916) 2 AC 599. However, these cases establish the purchaser's right to recover the instalments, other than the deposit, although the contract is not carried into execution." 57 I see no reason why the same principles would not apply to the facts of this case, making the $25,000 repayable upon termination even for default by the plaintiffs. 58 As I have stated, the final issue is whether the stipulation that upon default the $25,000 was to be an unsecured loan to Nutrivite alters that right of recovery? 59 The plaintiffs argue that the relevant part of the second agreement is of no effect because Nutrivite is not a party to the second agreement and is not bound by it. Further they say the first defendants should not be able to avoid liability for repayment by this artificial device. 60 The first defendants submit that as the sole shareholders and directors of Nutrivite had the ability to bind Nutrivite to this second agreement and that is what they did. They argue that in order to recover the $25,000 the plaintiffs have to sue Nutrivite for repayment of the money and they have never done so. 61 In my opinion the evidence fails to prove that the parties intended that Nutrivite was to be a party to this contract. The second agreement varied the first agreement but did not add a party to it. There was something made at the trial of the fact that the cheques for $10,000 and $25,000 were made payable to Nutrivite, not the first defendants. However the first defendants’ evidence in this regard made it clear that the reason why the cheques were written out in this way had nothing to do with any belief on their part that Nutrivite was a party to the contract, rather they professed not to know why it was done but believed that as they were the shareholders and directors of Nutrivite they could use the money in Nutrivite's bank account as if it belonged to them as individuals.
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I am not prepared to draw an inference from the cheques that Nutrivite was a party to the second agreement or was bound by it. 62 Further I note that the Nutrivite seal was not affixed to the second agreement and neither was any resolution of the company tendered to prove that Nutrivite was a party to the second agreement. 63 If as Deane J says in McDonald's (supra) case an instalment is refundable upon termination, even in the light of an express forfeiture clause, I am of the opinion that the plaintiffs are entitled to repayment even in the light of the loan clause. I agree with the plaintiffs' submissions that by this device the first defendants cannot avoid their liability. As the first defendants have not counterclaimed for damages, the plaintiffs are therefore entitled to repayment of the whole of the sum of $25,000. 64 The defendants submit that in interpreting the provisions of the written agreements I should adopt the construction that is least favourable to the plaintiffs. This they say is because the doctrine of "contra proferentem", that is, that limiting terms should be construed strictly and, in the case of ambiguity, against the party relying upon it. 65 The modern view is that limiting terms should be given their ordinary meaning in the context of the document as a whole. Further the doctrine of "contra proferentem" is only to be used where a clause is ambiguous: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510. 66 I have interpreted the first agreement without need to apply the doctrine as the ordinary meaning of the deposit term is plain and unambiguous. Insofar as the second agreement is concerned the doctrine has no application in favour of the first defendants as the plaintiffs do not in fact rely upon the agreement. It is the first defendants who seek to rely upon its terms as binding upon the parties. I have not needed to resort to the doctrine but if I had I cannot see that it would assist the first defendants.
Claim against the second defendant 67 The plaintiffs' claim for the sum of $25,000 is also made against the second defendant on the basis that the shares the first defendants held in Nutrivite were alternatively, purchased by them as constructive trustees or resulting trustees for the second defendant.
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68 At the conclusion of the evidence Mr Goodlet, the plaintiffs' counsel, acknowledged that this claim could not succeed because there was insufficient evidence to prove it but he did not abandon this part of the claim. Mr Goodlet said that he did not think that the claim would succeed because he was not, as a consequence of a ruling I made, able to cross examine the second defendant about something he was alleged to have said at a pre trial conference of this action. I agree that the plaintiffs have failed to make out their claim in this respect.
69 There is no doubt a very close relationship between the first defendants and the second defendant, their father. It is also true that the type of business Nutrivite operated was identical to that operated by their father prior to the financiers foreclosing on its loans taken out to purchase manufacturing equipment. It was also proved that the second defendant carried on the day to day running of the business of Nutrivite and when these proceedings were first instituted he also represented the first defendants at conferences and interlocutory proceedings despite not being a party to the action at that time. There was also evidence with respect to the Mandurah property. 70 Against this, the first defendants in their evidence said that Nutrivite was their business and they gave oral evidence to support this claim. They were the signatories to the Nutrivite bank account and said that they approved each of the company’s transactions which were to benefit them. They said that the second defendant was Nutrivite's business consultant only. 71 Whilst there remains a suspicion that the first defendants held the shares in Nutrivite for the benefit of the second defendant, there was not proof on the balance of probabilities of this pleading. Consequently the plaintiffs claim against the second defendant fails.
Conclusion 72 The plaintiffs are entitled to judgment against the first defendants in the sum of $25,000. The claim against the second defendant is dismissed.
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