VALID CONTRACTS... 5 Principles... 5 FINALITY... 5 Rule... 5 Surrunding circumstances... 5 COMPLETENESS... 5 Rule... 5 Principles... 5 Surrunding circumstances... 6 Examples... 6 INCURABLE VAGUENESS... 6 Principles... 6 ILLUSORY CONSIDERATION... 6 Principles... 6 Examples... 6 VALID CONTRACTS: CASES... 7 Hall v Busst (1960)... 7 Sudbrk Trading Estates v Eggletn [1983]... 7 Meehan v Jnes (1982)... 7 OBLIGATION TO ACT IN GOOD FAITH AND TO USE REASONABLE ENDEAVOURS... 8 Principles... 8 GOOD FAITH IN THE PERFORMANCE AND ENFORCEMENT OF CONTRACTS... 8 GOOD FAITH, AGREEMENTS TO AGREE AND CONTINGENT CONDITIONS... 8 GOOD FAITH AND THE ENFORCEMENT OF CONTRACTUAL POWERS... 9 GOOD FAITH AND THE NEGOTIATION PROCESS... 9 The cntent f an agreement t negtiate in gd faith:... 9 Remedy fr breach f a cntract t negtiate:... 9 EXCLUSIVE DEALINGS, LOCK OUT AGREEMENTS AND GOOD FAITH... 9 CONTRACTS CONTEMPLATING FURTHER DOCUMENTATION... 11 Principles... 11 First categry... 11 Secnd categry... 11 Third categry... 11 CONTRACTS CONTEMPLATING FURTHER DOCUMENTATION: CASES... 12 Masters v Camern... 12 Gdecke v Kirwan... 12 Suth Sydney Cuncil v Ryal Btanic Gardens... 12 EXCHANGE... 13 PRINCIPLES... 13 Ntes... 13 NON- IDENTICAL COUNTERPARTS... 13 Principles... 13 Thery... 13 AMENDMENT OF COUNTERPARTS BY SOLICITOR OR AGENT... 14 Principles... 14 METHODS OF EXCHANGE... 14 Exchange by pst... 14 Exchange by telephne... 14 EXCHANGE: CASES... 15 Allen v Carbne (1975)... 15 Lezbar v Hgan (1989)... 15 Landsmiths v Hall (1999)... 15 Eccles v Bryant and Pllck... 15 Dmb v Isz (1980)... 16 Hendersn v Hpkins (1988)... 16 Sindel v Gergiu... 16 Hayward v Planet Prjects... 16 CONTRACTS BY ESTOPPEL... 17 PRINCIPLES... 17 1
Remedy... 17 ESTOPPEL AND SUBJECT TO CONTRACT CASES... 17 Principles... 17 ESTOPPEL AND BELIEFS ABOUT EXCHANGE... 17 Principles... 17 ENFORCEABILITY... 18 Sectin 54A Cnveyancing Act 1919... 18 WRITING REQUIREMENT... 18 Signature... 18 Cntent f the nte r memrandum... 18 Reference t cntract... 19 Linkage f dcuments... 19 ENFORCEABILITY: CASES... 20 Tivertn Estates v Wearwell (1975)... 20 PART PERFORMANCE... 21 PRINCIPLES... 21 Rule... 21 Ntes... 21 apprach... 21 ACTS THAT AMOUNT TO PART PERFORMANCE... 21 Sufficient Acts... 21 Insufficient Acts... 21 AGENCY... 22 INTRO... 22 Actual authrity... 22 Actual implied authrity... 22 Apparent authrity... 22 AUCTIONS... 23 NATURE OF A BID AND AN AUCTION CONTRACT... 23 Principles... 23 Auctin sales with a reserve... 23 Auctins withut a reserve... 23 COMPLIANCE WITH THE STATUTE OF FRAUDS... 23 Signing f auctin cntract... 23 AUCTION: CASES... 24 AGC (Advances) Ltd v McWhirter (1977)... 24 Bulas v Angelpuls (1991)... 24 Barry v Davies (2000)... 25 Phillips v Butler (1945)... 25 DEPOSITS... 27 NATURE AND FUNCTION OF THE DEPOSIT... 27 Principles... 27 DEPOSIT HOLDER... 27 Capacity f depsit hlder... 27 Recvery f paid depsit by purchaser... 27 Payment f depsit is prtected by an equitable lien... 28 NON- PAYMENT OR LATE PAYMENT OF DEPOSIT... 28 Nn- payment r late payment f the depsit... 28 Timing f the payment... 28 Lss f the right t terminate fr failure t pay a depsit punctually... 28 PRE- CONTRACT DEPOSITS... 29 Principles... 29 RECOVERY BY THE VENDOR OF AN UNPAID DEPOSIT (FORFEITURE)... 30 Recvery while the cntract is still n ft... 30 Recvery after the cntract is terminated... 30 RELIEF AGAINST FORFEITURE OF THE DEPOSIT... 31 Principles... 31 DEPOSIT: CASES... 32 Hwe v Smith (1884)... 32 2
Brien v Dwyer (1979)... 32 Srrell v Finch (1977)... 32 Saunders v Lenardi (1976)... 33 Lucas & Tall v Victria Securities (1973)... 33 Eigth SRJ v Merity (1997)... 33 Scratus v K (1993)... 33 Farrant v Leburn (1970)... 33 VENDOR DISCLOSURE: COMMON LAW... 34 PRINCIPLES... 34 COMMON LAW REQUIREMENTS... 34 Rule... 34 Patent and latent defects in title... 34 Defects in title and defects in quality... 34 Defect in title after cntract but befre cmpletin... 34 VENDOR DISCLOSURE: EXPRESS AGREEMENT... 35 PRINCIPLES... 35 Effect f clause 16.3... 35 Breach f clause 16.3... 35 VENDOR DISCLOSURE: LEGISLATION ATTACHING DOCUMENTS... 36 RULE... 36 PRESCRIBED DOCUMENTS... 36 Schedule 1 Cnveyancing Regulatin 2010 [pages 23-26]... 36 CONSEQUENCES OF FAILURE TO ATTACH DOCUMENTS... 36 Entitlement t rescind... 36 Methd f rescinding... 36 Cnsequences f rescissin... 36 WARRANTIES... 37 RULE... 37 PRESCRIBED WARRANTY... 37 Part 1 Schedule 3 Cnveyancing Regulatin 2010 [pages 29-34]... 37 ADVERSE AFFECTATION... 37 Statutry definitin... 37 Disclsure... 37 Meaning f affect... 38 Meaning f prpsal... 38 CONSEQUENCES OF BREACH OF WARRANTY... 38 Entitlement t rescind... 38 Methd f rescinding... 38 Cnsequences f rescissin... 38 VENDOR DISCLOSURE: CASES... 39 Drmer v Sl Investments (1974))... 39 Carpenter v McGrath (1996)... 39 Eighth SRJ v Merity (1997)... 39 McInnes v Edwards (1986)... 40 Summers v Ccks (1927)... 40 Fletcher v Mantn (1940)... 40 REMEDIES: RESCISSION AND TERMINATION... 41 TERMINATION FOR VENDOR S FAILURE TO CONFER TITLE... 41 Rule... 41 AVAILABLE REMEDY... 41 Cnditin... 41 Intermediate term... 41 STANDARD FORM CONTRACTS... 41 TIMING OF RESCISSION... 42 Principles... 42 RESCISSION IN EQUITY... 42 REMEDIES: CASES... 42 Liverpl Hldings v Grdn Lyntn Car Sales (1978)... 42 Brthwick v Walsh (1980)... 42 MISREPRESENTATION: COMMON LAW... 43 3
PRINCIPLES... 43 RULE... 43 MISREPRESENTATION: LEGISLATION... 43 18 Misleading r deceptive cnduct... 43 Rule... 43 Misleading and deceptive cnduct... 43 MISREPRESENTATION: CASES... 44 Cmmn law... 44 Wilsn v Unin Trustee Cmpany f Australia (1923)... 44 Jennings v Zilahi- Kiss (1972)... 44 Krakwski v Eurlynx Prperties (1995)... 44 ANTI- GAZUMPING LEGISLATION... 45 GUIDE... 45 4
Depsits Nature and functin f the depsit Principles Depsit serves tw purpses: if the purchase is carried ut it ges against the purchase mney; it is a guarantee that the purchaser means business: Sper v Arnld (1889) per Lrd Macnaghten Depsit is als viewed as serving the third functin f being a specified sum f mney which the parties have agreed shuld be payable t the vendr as cmpensatin r damages fr lsses incurred upn terminatin fr the purchaser s breach (liquidated damages): TEXT p 107. Depsit hlder Capacity f depsit hlder If the depsit is payable t a third party, in the absence f an agreement t the cntrary, the depsit hlder hlds the depsit as agent fr the vendr: Edgell v Day [1865] It is mre cmmn fr the cntract t prvide that the purchaser will pay a depsit t a third party, such as an estate agent r slicitr fr the vendr, as stakehlder In the event that the cntract stipulates that a depsit is t be paid but is silent as t whm it is payable, it is cnsidered that the parties impliedly intended that the payment shuld be t the vendr. Recvery f paid depsit by purchaser In the event that the purchaser becmes entitled t recver the paid depsit, it is imprtant t determine whether the depsit hlder hlds the depsit as agent fr the vendr r as stakehlder. If depsit held as agent Depsit is held t the accunt f the vendr and it is the vendr and the vendr alne that the purchaser must direct an actin fr recvery f the depsit, whether r nt the agent has accunted t the vendr: Christie v Rbinsn (1907); Smith v Wdcck [1950] If depsit held as stakehlder The stakehlder hlds the depsit r stake as trustee fr bth the vendr and purchaser until the sale is cmpleted r terminated: Malney v Hardy (1970) It is the stakehlder against whm the purchaser s claim shuld be brught, since neither the vendr nr their agent ever received the depsit. Therefre, in the event the sale is cmpleted the stakehlder releases the depsit t the vendr as part payment f the price payable n cmpletin Therefre, if the cntract is terminated, the stakehlder pays the depsit t whichever party is entitled t it under the terms f the cntract and the general law in the particular circumstances. If the stakehlder mistakenly pays the depsit t a payee wh was nt legally entitled t receive the sum, the stakehlder will incur persnal liability t the party wh was entitled: Malney v Hardy (1970) If the stakehlder is unable t accunt fr the depsit (eg, misapprpriatin, inslvency) the lss is brne by the party wh wuld have nrmally received it. The lss will be brne by the vendr if: the purchaser had becme entitled t have the K cmpleted; r the depsit had becme frfeitable by the vendr by reasn f terminatin fr the purchaser s breach. The lss will be brne by the purchaser if: the cntract has been rescinded ab initi; justifiably terminated by the purchaser; r terminated by the vendr in circumstances where depsit refundable t purchaser (eg failure f cnditin precedent t further perfrmance). Special situatins where purchaser can recver depsit frm vendr rather than stakehlder: where the terms f the cntract expressly prvide that either party may rescind the K, and that the depsit will be refunded, if specified cntingencies ccur (vendr regarded as warranting that depsit will be refunded): Minahan v Sahib Dad (1925) 27
where the purchaser has rescinded the cntract fr fraudulent misrepresentatins by the vendr (r agent), the vendr must pay the purchaser such amunts as are required t return the latter t the psitin befre entry int the K: Swindle v Knibb (1929) where the depsit has been paid t a stakehlder whm the vendr insisted t be appinted despite the purchaser s unequivcal request fr a different stakehlder: Laybutt v Amc Australia Pty Ltd (1974) where, in a sale f land by auctin, a depsit is paid t a stakehlder auctineer, wh then defaults: Barringtn v Lee [1972] Payment f depsit is prtected by an equitable lien A purchaser btains an equitable lien ver the subject matter f a sale, where, pursuant t a valid K, the purchaser pays a depsit r price installment t the vendr (r agent) r at the directin f the vendr: Rse v Watsn (1864) Lien des nt arise where a depsit is paid t a stakehlder rather than the vendr Where such a lien arises, the purchaser is, in equity, a secured creditr f the vendr fr the amunt paid under the K. Accrdingly, if the K is rescinded a initi, r terminated fr a reasn ther than serius breach by the purchaser but the vendr fails t return the depsit and any price installments already paid, the purchaser will becme entitled t enfrce the security. This is dne by btaining a curt rder f sale f the prperty in questin. A purchaser s lien arises whether r nt the cntract fr sale was specifically perfrmable: Hewitt v Curt (1983) Nn-payment r late payment f depsit Nn-payment r late payment f the depsit Nn- payment r late payment f the depsit is a breach f an essential term f the K by the purchaser, entitling the vendr t sue t either terminate the cntract and sue the purchaser fr the depsit and any ther damages, r t affirm the cntract and seek specific perfrmance f the cntract: Brien v Dwyer (1978) Timing f the payment Standard frm cntracts fr the sale f land require that the depsit be paid n r befre the making f the K In practice, where parties are fllwing standard cnveyancing practices, payment f the depsit will nt ccur until a day r s after K frmatin Thus, an express term was intrduced int the standard frm K stating that the purchaser wuld be deemed t have paid the depsit t the designated depsit hlder where the sum had been paid t the vendr, the vendr s agent r the vendr s slicitr fr frwarding t the cntractually specified depsit hlder Lss f the right t terminate fr failure t pay a depsit punctually A vendr s right t terminate a sale fr the purchaser s failure t pay a depsit is nly lst where there is sme cnduct by the vendr (r agent) satisfying the general law requirements fr waiver f their legal right. A vendr may be precluded frm terminating the cntract if it wuld be whlly unfair r uncnscinable. The express terms f the cntract may preclude the vendr frm terminating the K fr the purchaser s lack f punctuality Waiver f the right t terminate A right will be waived upn the peratin f: Cmmnwealth v Verawayen (1990) dctrine f electin between alternative incnsistent rights (eg, where ne party has the right t rescind ab initi r affirm); where a persn becmes fully infrmed f alternative legal rights and then exhibits cnduct which unequivcally indicates a final decisin (electin) t pursue ne f the rights and then cmpletely abandn the ther, this persn will nt subsequently be permitted t resile frm the chice made and exercise the right elected t be abandned 28
dctrine f estppel; Vendr may be precluded frm exercising a right t terminate fr the purchaser s failure t pay the depsit punctually where the vendr exhibited cnduct which encuraged the purchaser reasnably t assume that the right f terminatin wuld nt be exercised; the purchaser was induced by this assumptin t take sme actin that was reasnable in all the circumstances; and the purchased wuld be disadvantaged fr having taken this reliant actin if the vendr were nw permitted t exercise the right f terminatin which the vendr were nw permitted t exercise the right f terminatin which the vendr had earlier indicated the vendr freg. dctrine f variatin by a later cntract. In the case f electin and estppel, it is imprtant t remember that the cnduct f r knwledge acquired by an agent is attributed t the vendr. Acceptance f late payment as waiver Where the vendr (r agent) accepts late payment f a depsit, the vendr wuld nrmally be regarded as having elected t abandn the right t terminate the sale This will usually require that the vendr r agent knew that the depsit had nt been paid punctually, and such default generated alternative rights t terminate r affirm the sale. The cnduct f the vendr (r agent) in accepting the late payment with knwledge seems likely t be regarded as a manifestatin f a clear decisin t prceed with the cntract instead f terminating it Nte that there is a distinctin between where an agent has the authrity t receive a payment, and where the agent has authrity t accept late payment in waiver f the right t terminate. Cntractual prvisin precluding terminatin after the depsit has been paid A term t the effect f the fllwing was cnsidered by Yung J in Jsland v Mullaley Prperties (1993) If any f the depsit is nt paid n time r a cheque fr the depsit is nt hnured n presentatin, the vendr can terminate. This right t terminate is lst as sn as the depsit is paid in full. The fllwing was held: If late payment f the depsit is nt made directly t the designated depsithlder, the clause wuld nevertheless deem payment t have ccurred at the time when the purchaser s tender f the depsit is accepted by the vendr, vendr s agent r vendr s slicitr fr frwarding t the depsit hlder. When the clause perates t extinguish the right f terminatin fllwing an estate agent s acceptance f a late payment f the depsit, the clause is permitting the acts f the estate agent t have a legal effect which they wuld nt nrmally have had There is n psitive requirement that the depsit hlder r ther authrized persns accept receipt f payment Pre-cntract depsits Principles Smetimes a prspective purchase pays t a vendr, r the vendr s estate agent, a pre- cntract (r hlding ) depsit as a demnstratin f the purchaser s keen interest in buying the prperty. A pre- cntractual depsit paid by a purchaser is held by the depsithlder as trustee r agent fr the purchaser: Srrell v Finch [1977] If a pre- cntractual depsit is made, it is held by the estate agent fr the purchaser until exchange, and n exchange it wuld becme the depsit and as such wuld be held by the estate agent in accrdance with the terms f the K: Brien v Dwyer [1978] Purchaser can therefre recall the depsit up until exchange: Srrell v Finch [1977] Nte that vendr s engagement f an estate agent t find a purchaser fr the vendr s prperty des nt give the estate agent either implied actual authrity r apparent authrity t ask fr, r receive, a pre- cntractual depsit n behalf f the vendr: Srrell v Finch [1977] 29
Estate agent s rle in relatin t receiving a pre- cntract depsit: Srrell v Finch [1977] An estate agent is nt a mere instrument f the vendr, therefre, it is nly in very limited circumstances that the acts f the estate agent are attributable t the vendr (eg where estate agent makes representatins abut cnditin f prperty) Vendr s engagement f the estate agent des nt give the estate agent either implied actual authrity r apparent authrity t ask fr r receive a pre- cntractual depsit n behalf f the vendr When an estate agent receives a pre- cntract depsit, then at all times until the cntract is frmed, the depsit remains the prperty f the purchaser wh can recall it at will. After the cntract is made the cntract is held by the estate agent accrding t the terms f cntract r n behalf f the vendr if cntract silent When an estate agent defaults in returning a pre- cntract depsit the decisin as t whether the agent r purchaser shuld bear the lss depends n circumstances Vendr s liability fllwing misapprpriatin f a pre- cntractual depsit A vendr will nt nrmally incur liability t indemnify a purchaser fr the lss f a pre- cntract depsit misapprpriated by an estate agent: Srrel v Finch (1977) Tw distinct cnditins must be satisfied befre a vendr incurs liability t indemnify a purchaser fr the lss f a pre- cntract depsit misapprpriated by an estate agent: Srrel v Finch (1977) Purchaser must have authrized the agent t hld the pre- cntract depsit n behalf f the vendr; and The vendr must have given the estate agent actual r apparent authrity t receive such as sum n his r her behalf. An estate agent will nt have a received frm a vendr either implied actual authrity r apparent authrity t receive a pre- cntract depsit n his r her behalf merely because the agent was emplyed by the vendr t find a purchaser fr the latter s prperty: Srrel v Finch (1977) NB: One Australian decisin where it was suggested that a vendr culd be liable fr an estate agent s misapprpriatin f a pre- cntract depsit simply because the vendr had earlier given the agent actual authrity t receive the sum n his r her behalf: Srridimi v Cave [1964] Qd R 330 Recvery by the vendr f an unpaid depsit (frfeiture) Recvery while the cntract is still n ft A purchaser s failure t pay the depsit punctually will nrmally be an essential breach entitling the vendr immediately t terminate the cntract Hwever, the vendr may elect t keep the cntract n ft in the hpe that the depsit will be paid If the terms f the K make the depsit payable directly t the vendr (rather than a stakehlder) the purchaser s failure t pay the sum punctually will entitle the vendr t sue immediately fr the unpaid depsit as an verdue debt: Pacific Cmmerce Finance v Cleargate (1994) Where the terms f the depsit make the depsit payable t a stakehlder, recvery is mre difficult. There is n decisin n pint, but we can drawn n the fllwing principles: The nly effective legal path t recvery f the depsit is the vendr s cmmencement f an actin fr specific perfrmance f the purchaser s prmise t make the agreed mney payment t the stakehlder: Beswick v Beswick [1968]; Culls v Bagt (1967) By cmmencing an actin t recver the depsit, the vendr will have waived the right t terminate the sale fr the purchaser s failure t pay the sum at the time riginally prmised. Recvery after the cntract is terminated After terminatin f the cntract fr the purchaser s repudiatry breach, the unpaid depsit remains recverable: Bt v Ritevski [1981] Actins available fr pst- terminatin recvery f a depsit There are three bases n which vendrs wh have terminated a K fr the purchaser s breach might claim the amunt f an unpaid depsit: Scratus v K (1993) as a debt, the bligatin t pay which accrued befre, and survived, terminatin f the cntract as an element in a claim fr damages fr the purchaser s breach; 30
where a cheque fr the depsit has been given and dishnured, there is an actin n that debt. Relief against frfeiture f the depsit Principles Under the general law and under the terms f the standard frm cntract, the vendr has the right t frfeit r apprpriate the depsit t the vendr s use fllwing an electin t terminate the cntract upn the purchaser s default. In a rising market, hwever, the vendr may nt suffer any actual lss and in these circumstances the purchaser may seek relief against frfeiture. Relief against frfeiture f a depsit may be granted in equity t a purchaser where part f the depsit is nt a true depsit but perates as a penalty, in the sense that the sum frfeited is ut f all prprtin t the damage: Saunders v Lenardi (1976) In determining whether a sum is a penalty r liquidated damages, the circumstances must be taken as a whle and viewed at the time the bargain was made: Cates v Sarich [1964] Statutry jurisdictin given t Curt f Equity under s 55(2A) f Cnveyancing Act 1919 A vendr wh frfeits a depsit in strict enfrcement f his legal rights is nt t be deprived f it under s 55(2A) unless it is unjust and inequitable t permit him t retain it: Iucass & Tall v Victria Securities [1973] 31
Depsit: Cases Hwe v Smith (1884) Page 92 Brien v Dwyer (1979) Page 92 Facts Plaintiff purchaser and defendant vendr exchanged cntracts fr the sale f land n 27 February 1973 The dcument used was the 1972 versin f the standard frm cntract in use in NSW The depsit clause relevantly prvided that the purchaser shall upn the signing f his agreement pay as a depsit t the vendr s agent as stakehlder the sum f $1600 N depsit was paid at the time f exchange f cntracts but in March 1973, the estate agent received a cheque fr the sum, which was pstdated t 1 April 1973 and was the subject f a request frm the purchaser slicitr that it nt be banked withut further instructins On 10 May 1973, the estate agent was tld that the cheque shuld nt be banked and this was dne the fllwing day Later the same day, the vendr learned fr the first time that the depsit had nly just been paid and cmmunicated a decisin t terminated the K Held COA/HC Vendr entitled t terminate the cntract, althugh in HC their hnurs disagreed as t the precise time the depsit was t be paid Their Hnurs unanimusly f the view that the prmised time fr payment f the depsit had been essential, and that the vendr s cnsequent right f terminatin fr the purchaser s failure t pay the depsit punctually had nt been waived by either the vendr s persnal inactin fr the tw and a half mnths in which he was ignrant f such failure, r by the cnduct f the estate agent in tlerating the delay, which culd nt be attributed t the vendr. Nn- payment r late payment f the depsit is a breach f an essential term f the K by the purchaser, entitling the vendr t sue t either terminate the cntract and sue the purchaser fr the depsit and any ther damages, r t affirm the cntract and seek specific perfrmance f the cntract Srrell v Finch (1977) Page 101 Facts Finch instructed an estate agent, L, t sell his huse Unknwn t Finch, L was an undischarged bankrupt Srrell paid a 10% depsit f $550 t L, wh als received depsits frm 5 ther prspective purchasers L disappeared with the depsit and Srrell sued Finch fr its return Held HOL Srrel nt entitled t sue Finch fr the return f the depsit An estate agent is nt a mere instrument f the vendr, an estate agent is an independent persn wh is engaged t find an intrduce a willing purchaser and is usually t be remunerated n a cmmissin basis. An estate agent s actins are nt nrmally attributable t the vendr A vendr s engagement f an estate agent t find a purchaser fr the vendr s prperty des nt give the estate agent either implied actual authrity r apparent authrity t ask fr, r receive, a pre- cntractual depsit n behalf f the vendr When an estate agent receives a pre- cntractual depsit, then the depsit remains the prperty f the purchaser wh can recall it at will, until the cntract is frmed 32