The Facts
Vendor and purchaser enter into property contract following auction
The vendor listed a commercial property for sale in South Yarra, Victoria as mortgagee in possession.
The vendor and purchaser entered into a written contract of sale on 24 February 2005 following a public auction of the property held that day.
The written contract provided for a purchase price of $4,562,000, with a deposit of $400,000 payable on signing. The balance was payable 45 days from the day of sale, or earlier by mutual agreement.
The purchaser provided the vendor with a deposit cheque for $400,000.
Later that day the vendor’s agent banked the cheque with a request for special clearance.
Purchaser’s deposit cheque dishonoured and vendor rescinds contract
The following day, the bank notified the agent that the cheque had been dishonoured, and the vendor issued a notice of rescission to the purchaser.
The notice of rescission required that the default in payment be remedied within two days of service of the notice.
When the default was not remedied, the vendor rescinded (ie cancelled) the contract, and sold the property to another buyer for $4,562,000.
The vendor then commenced proceedings against the purchaser to recover the $400,000 deposit.
Expert commentary on the court's decision
Always ensure you put all of the terms of an agreement in writing, and that your lawyer has reviewed the agreement before signing.”
Supreme Court rules in favour of the vendor
In Owenlaw Mortgage Managers v Baird [2007] VSC 521, the Supreme Court of Victoria ruled in favour of the vendor, Owenlaw Mortgage Managers.
The court ordered the purchaser, Mr David Baird, to pay Owenlaw the outstanding $400,000 deposit.
Court prefers vendor’s evidence to purchaser’s
The court stated that vendor’s right to the unpaid deposit simply turned on the facts and that those facts were unequivocally clear in establishing Owenlaw’s right.
The court found Owenlaw’s witnesses to be honest, and their evidence to be persuasive and consistent with the terms of the contract of sale as executed by the parties.
As against this, the court found Mr Baird and his witnesses to have given false and unreliable evidence that was inconsistent and improbable.
Court finds no verbal agreement for 5% deposit
The court accepted Owenlaw’s evidence that it did not agree to a 5% deposit and rejected Mr Baird’s evidence to the contrary.
In the court’s view, had Owenlaw agreed to a 5% deposit, it would have been noted or written on the contract.
Further, Mr Baird’s evidence of a verbal agreement for a 5% deposit was contradicted by the written terms stipulating a $400,000 deposit and the cheque provided to Owenlaw in the sum of $400,000.
The court rejected Mr Baird’s evidence that he told Owenlaw the cheque would bounce if it was cashed too quickly. In the court’s view, had Mr Baird really said that, then Owenlaw would not have accepted the cheque and would have asked the agent to go out to the underbidder (ie the bidder who made the second highest bid at the auction).
The court also rejected Mr Baird’s evidence that a replacement cheque for a 5% deposit had been tendered to Owenlaw and had been refused.
Always put full terms of agreements in writing
It is so important to ensure that agreements are in writing, and that they are not ambiguous.
It is so common for a dispute to arise because of a conversation that one or both parties have misconstrued.
Unfortunately, unless there is physical, objective evidence that the court can consider, the court only has the oral evidence given by examination and cross-examination at a final hearing.
If you are a nervous public speaker, then your oral evidence in the witness box might be the failure of your case. Particularly in recent times where evidence has been given over audiovisual links, and the sound quality or internet connection are not perfect, your oral evidence may be fatal to your case.
Always ensure you put all of the terms of an agreement in writing, and that your lawyer has reviewed the agreement before signing.
Be mindful of legal implications of bidding on behalf of another party
At the auction, Mr Baird was bidding on behalf of another party.
As the successful bidder, he signed the contract personally, adding the words “and/or nominee” after his name.
No nomination was ever made, and the court pointed out that even if there had been a nomination, Mr Baird would have remained liable for payment of the deposit.
Before bidding at an auction on behalf of another party, you should always seek legal advice to ensure that you take appropriate steps to protect yourself from potential liability.