DEFAULT IN THE SALE OF LAND."

This paper assumes a valid and enforceable contract for the sale of land. Its purpose is to examine what happens when one of the parties to the contract fails to meet an obligation.

The subject is one that has not escaped the attention of com- mentators over the years, but there is some justification for dealing with it again. To begin with, the last few years have seen a rash of decisions involving default in the sale of land rather in the way that a number of cases during the depression years drew attention to the prob1em.l This new wave of litigation has not only emphasised the importance of this branch of the law, but it has also accentuated the difficulties that face courts in finding a reasonable solution with the machinery at their disposal. It will be suggested that legislation may provide the most satisfactory answer.

Sales for cash and sales o n terms.

Underlying the development in this country of the law relating to default is the presence of that somewhat indigenous creature, the terms ~on t r ac t .~

Land may be sold for cash, and by that I mean cash to the vendor whether it is the purchaser's own money or money which he has found from another source secured by a mortgage. In either case, the effect is the same, namely, the registration of a transfer from vendor to purchaser concurrently with payment of the purchase price. (For the purposes of this exercise, I also include a sale where the vendor is prepared to carry any balance by a mortgage back from the pur- chaser.) Generally, the purchaser will have paid a deposit and generally there is no question of his taking possession except after registration and payment. In the event of default by the purchaser, the vendor ,is sitting pretty in so far as he has not parted with title or possession and is holding the purchaser's deposit. The result is that if trouble arises, action is likely to come from the purchaser raiher than the vendor and the action is likely to take the form of proceedings for specific performance.

* A paper read at the 1964 Law Summer School of the University of Western Australia.

1 Several articles appeared in the AUSTRALIAN LAW JOURNAL of those years. They were later collected and edited by Mr. P. R. Watts in a volume entitled THE PROBLEM OF THE DEFAULTING PURCHASER, a book which is now out of print.

2 Indigenous to New Zealand as well. See GARROW, LAW OF REAL PROPERTY (5th ed. 1961) 195-196.

Land may also be sold on terms, in which case after payment I ' ~ of a deposit, the purchaser goes into possession and pays the purchase price over a period of time with no obligation on ;he vendor to transfer ' ~ title until the purchase price has been paid. In the event of default by the purchaser, action will most likely come from the vendor who

I ' must remove the purchaser in order to retake possession for himself or to effect a re-sale of the property. The action will generally take 1

the form of proceedings for rescission and ejectment.

Because of the rarity of the terms contract in England, and because of its prevalence in Australia, the law of this country relating to default in the sale of land has tended to develop along rather different lines from that which it has taken in England. This difference has not been just academic, one illustration being the question whether a vendor who has rescinded because of the purchaser's default can sue for damages as well. This right, which was affirmed by the High Court of Australia in 1933a is apparently still rejected in England.'

Why is it that the practice of land sales has differed in the two countries? Dr. Stoljar has suggested that "in England a purchaser would wish to acquire full title, if only to reconvey it to a mortgagee, and he would want this in order to discover immediately any possible defects in title" whereas "under the Tomns system in Australia the purchaser would know at once what sort of title he would ultimately acquire.""his no doubt is correct and a further explanation may well be the availability of finance from lending institutions and private lenders in the two countries. As a personal observation, the increasing availability of finance for home purchase in the last few years particu- larly from Federal sources does seem to have resulted in some falling off in the number of terms sales in Western Australia. They are still very much alive, however, and particularly popular as a means of selling subdivisional land.

Repudiation or anticipatory breach.

Before looking at the position when actual default occurs, it may be as well to make the point that one party to a contract may make it clear in advance either by express words or by conduct that he does not intend to perform his obligations. "Repudiation" is defined by VOUMARD as "a total refusal, without lawful excuse, to perform or to

3 In McDonald v. Dennys Lascelles Ltd., (1933) 48 Commonwealth L.R. 457 per Dixon J. (as he then was), at 477.

4 See Barber v. Wolfe, [I9451 Ch. 187. 5 The Defaulting Purchaser, (1956-1957) 30 AUST. L.J. 68, 69.

be bound by the contract, either wholly or in a substantial part, by one party before the time for performance arrive^."^

The other party may at his option accept this repudiation in which case he can sue for damages. Alternatively, he may refuse to accept the repudiation. Some of the earlier cases suggested that in the latter event he must wait until the due date for performance and then exercise whatever remedies are conferred on him by the ~ontract .~ However, the decision 'of the High Court in Turner v. Bladins made clear that he may immediately sue for specific performance.

The whole question is discussed by Mr. P. Moerlin Fox in his article Threatened Breach of Contract and its Resultss and will not be pursued further in this paper.

The terms of the contract.

When one party to a contract for the sale of land defaults in the performance of some obligation, it may be tempting to borrow the language of "conditions" and "wasranties" from the field of sale of goods to reach a conclusion as to what remedies are open to the injured

Party. Unlike some temptations, this one should be resisted. To begin

with, the use of "conditions" and "warranties", although of course sanctioned by the Sale of Goods Acts both in England and Australia, has led to confusion and has been the subject of criticism.1° Further- more, the terminology tends to obscure the fact that contracts for the sale of land are for the most part formal and usually give an injured party the same remedies whatever the nature of the breach. Paying all homage to the necessity of allowing parties to frame their agree- ments as they choose, this is an unfortunate feature of land contracts, particularly where there is a provision, as there usually is in Western Australia, which makes time of the essence. To give the admittedly innocent party the right to rescind on failure by the purchaser to pay an instalment of the purchase price on the exact date prescribed can result in considerable injustice which is not compensated for by the power of the courts to relieve against the forfeiture of moneys paid by the purchaser. It has led the courts to develop and extend the doctrine

6 THE SALE OF LAND IN VICTORIA (Melbourne, 1939) 485. 7 For instance, Johnstone v. Milling, (1886) 16 Q.B.D. 460 per Lord Esher

M.R., at 467. 8 (1951) 82 Commonwealth L.R. 463, at 472. 9 (1953-1954) 27 AUST. L.J. 511.

10 See for instance Reynolds, Warranty, Condition and Fundamental Term, (1963) 79 L.Q. REV. 534.

of waiver to protect the guilty party from the consequences of his own actions.

In Bettini v. Gye,ll Blackburn J. said: "~ah ie s may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfilment of such a thing a condition precedent, it will be one." This statement was referred to with approval by the High Court in Hoad v. Swan.12 while no doubt as a statement of principle it is correct, it is somewhat unreal to apply it to a printed form of contract filled in by a land agent and signed by the parties without any real regard to the effect of a "time shall be of the essence" clause.

Where the contract is silent as to the exact circumstances in which remedies can be exercised or what those remedies are, it is still necessary to examine the nature of the breach and see whether or not it goes to the root of the contract.13 If it does, the injured party may (subject to the rules relating to time which are mentioned shortly) elect to treat the contract as at an end, otherwise his remedy is damages with or without an action for specific performance.

In VOUMARD, THE SALE OF LAND:* will be found a classification of the acts and circumstances which may constitute a breach of con- tract, including those sufficient to justify treating the contract as at an end.

Provisions as to tirne.16

When default occurs, the speed with which the injured party can set in motion the remedies available to hi will depend upon whether or not the contract makes time of the essence. The contract may do so either by an express term to this effect or because it can be inferred from the language of the default clause. For instance, in Perry v. Sherlockl6 a provision enabling a vendor to rescind "without notice" was held to be equivalent to such a provision. "Of course, there may be contracts in cases where land is going to be used for the purpose of trade or commerce or where there is the element of fluctuation in value or where minerals may become worked out: in such contracts,

11 (1876) 1 Q.B.D. 183, at 187. 12 (1920) 28 Commonwealth L.R. 258, at 263. 13 See for instance O'Connor J. in Ray v. Davies, (1909) 9 Commonwealth L.R.

160, at 168. 14 At 488-490. 15 See generally on this aspect, VOUMARD, O p . cit. sup" 349-359, Fox, "Time

Shall be of the Essence", (1951-1952) 25 AUST. L.J. 106. Pinna, Time of the Essence, (1957) 107 L.J. 791.

18 (1884) 14 Victorian L.R. 492.

as the authorities show, there may be indications that time is of the essence of the contract, even though it is not in so many words stated to be of the essence of the contract."l7 Just what those indications may be is discussed in VOUMARD, THE SALE OF LAND,^^ and in 36 HALS- BURY'S LAWS OF EN GLAND'^ and no more need be said on thai aspect.

Even where there was no such provision, the common law took the view that performance on the due date was essential. Equity, however, considered that performance within a reasonable time was sufficient and the position of equity in this regard has been given statutory recognition in the Supreme Court Act 1935-1960, sec. 25 (8). The injured party then finds himself in somewhat of an awkward position. If the default is substantial in the sense that it goes to the root of the contract and it continues for an unreasonable time, he may without notice treat the contract as repudiated and at an end. What makes his position awkward is that he must make two assumptions. He must first be satisfied that the breach is substantial and he must be satisfied that it has continued beyond a reasonable time. Because of this, it is a wise precaution to give a notice in all cases. This aspect and the length of notice to be given are discussed by Mr. P. Moerlin Fox in his article "Time shall be of the Essen~e . "~~

But there are certain other comments which can usefully be made. In Smith v . Hamilton21 Harrnan J. said that he could find "no instance where so short a delay as one of a fortnight has been held to entitle either a vendor or a purchaser to rescind." Is this true as a generalisa- tion, or should some regard be had to the nature of the breach and whether the sale is for cash or on terms? With a terms sale and a purchaser who is in possession longer notice may be expected than in the case of a cash sale where failure to pay the balance might more readily be regarded as evidence of an unwillingness to complete the contract.

Again, where the default is the vendor's, the length of notice which a vendor may expect to receive when he has failed to make title may be quite different in the case of a sale of land under the Torrens system where the vendor (assuming he is the registered proprietor) can have little excuse for not transferring the land.

In re Burr's Contracta2 suggests that the English courts are

17 Per Morris L.J. in Williams v. Greatrex, [I9561 3 All E.R. 705, at 713. 18 At 356-357. 19 (3rd ed.) at 323-324. 20 (1951-1952) 25 AUST. L.J. 106. 21 [I9501 2 All E.R. 928, at 934. 22 [I9561 2 All E.R. 858.

prepared to take into account a fairly wide range of considerations in determining what is a reasonable period of notice, for in that case Danckwerts J. mentioned that "regard must be had to all the circurn- stances of the case, and to the practical considerations of the ability of the purchaser in the circumstances to find the money, having regard to reasonable behaviour as well as to mere conveyancing matters, though it is quite true that conveyancing difficulties may be some of the circumstance^."^^ In that case, a notice requiring completion by purchasers within 28 days was held unreasonable although the facts were rather special.

One's sympathy naturally is for the purchaser in those cases where he is genuinely trying to meet his obligation but there is a comment in Volume 222 of The Law Times24 which is well worth repeating. "The credit squeeze is no respector of persons. It grips vendors as well as purchasers and if purchasers find it hard to finance purchases of magnitude (and indeed often quite small purchases) vendors also are liable to have financial difficulties. They sell because they want the money, not infrequently to find another purchase. Indeed the number of persons are very few who sell land or indeed anything else, for the simple reason that they want to be rid of what they are selling. The whole purpose of a sale is to get money which may be badly needed."

Once again though, this comment has more ready application to a cash sale than to a sale on terms particularly one which has been on foot for some time.

Where time is of the essence, equity has no place except through the doctrine of waiver, the defence that the courts have erected for the protection of the party in default. The effect of the breach becomes a matter for the parties themselves and the position is governed entirely by the contract. If, as is usuaI1y the case, the contract provides that certain remedies are available in the event of failure to perform any obligation under the contract, the seriousness of the breach is immaterial. A gallant attempt was made by Hodges J. in Moroney v. R o ~ g h a n ~ ~ to water down these drastic consequences by holding that before a clause could entitle a party to treat the contract as at an end, there must have been shown an intention to repudiate. VOUMARD~~ suggests that this decision is inconsistent with the view of the High Court in Hoad v. Swan.27 In any event, on wha.t basis can the courts

23 Ibid, at 857. a (1956) 222 L.T. 63. 25 (1903) 29 Victorian L.R. 541. 26 Op. cit. supra, at 353. 27 (1920) 28 Commonwealth L.R. 258.

pass over a provision in a contract which one must assume the parties intended to have some significan~e.~~

There may, however, be room to manoeuvre where the contract does not provide specifically what remedies are available in the event of default. This is unlikely to occur where there is in fact a provision that time shall be of the essence, but it may arise. What is more likely and does often happen is that the contract provides only for default by the purchaser. This 'is true of Table A to the Transfer of Land Act 1895-1959 and is also true of many formal contracts whether pre- pared by solicitors or on land agents' printed forms. In those cases, does any delay however slight by the vendor in giving possession or transferring title justify the purchaser in treating the contract as at an end? In Hoad v. Swan,29 delivering the judgment of the court, Isaacs J. said: "Where parties have made such a stipulation as clause 21 ("Time shall be of the essence of the contract") without qualifying it, then it cannot be said, as it was said by Lord Blackburn himself in Mersey Steel and Iron Co. v. Naylor, Benzon @ Co.,aO that the breach does "not go to the root of essence of the contract." The test is instantly satisfied, and where that is so, the vendor, even if the failure is a trivial one, is entitled, as the Privy Council said in Brickles V.

SnellF1 to stand upon "the letter of his bond"." The reference to "the letter of his bond" assumes a clause pre-

scribing remedies in the event of default. Does it necessarily follow that if there is no such clause a distinction cannot be drawn between a breach which is substantial and one which is not? In other words can it be argued that the result of the breach is immediately to bring into operation such remedies as the injured party has at law, the nature of the remedies to be determined on general principles? Per- haps the answer is that by providing for time to be of the essence the parties are treating the due performance of all obligations under the contract as of such importance that any delay justifies treating the contract as at an end. The answer is not entirely convincing.

Waiver.

As was said by Mr. Moerlin Fox in one of the articles already rnenti~ned?~ "the right to take advantage of the condition as to time may be waived, either expressly or by conduct."

28 See Stoljar, Untimely Performance in The Law of Contract, (1955) 7 1 L.Q. REV. 527, at 530.

29 Supra, note 27. at 263. 30 (1884) 9 App. Cas. 434, at 444. 31 [I9161 2 A.C. 599, at 604. 32 Supra, note 15.

If all that can be shown is that a vendor has granted an extension of time for payment, it does not follow that a provision making time of the essence has been waived. In Holland v. W i l t ~ h i r e ~ ~ Dixon C.J. put it thus: "If time is an essential condition, to extend it does not waive the effect of the stipulation as a condition." The High Court of Australia took a similar view in Tropical Traders Ltd. v. G o o n ~ n . ~ ~ In that case the time for payment of the final instalment under a contract of sale fell due on 6th January 1963 but the appellant vendor told the respondent purchaser that it would not rescind before 14th January. Time was expressed to be of the essence. In the opinion of the High Court the vendor's action could not be said to be an election to affirm the contract but rather "the announcement of an intention to refrain from electing either way"36 until the instalment had been paid or 14th January had passed.

I t was also argued that the action of the vendor in accepting late payments of instalments in previous years amounted to a "waiver" of the clause as to time. The Court rejected this argument. In its view each acceptance of a late payment "operated, of course, as an election by the appellant not to rescind the contract for non-payment of the relevant amount on its due date."36 On the evidence it was not pre- pared to go further and hold that there had been "something promis- sory or some inducement to a belief in relation to future payments."36 Kitto J. accepted that "repeated acquiescence by one party to a con- tract in non-observances by the other of stipulations as to time may amount, when considered in the light of particular circumstances, to an assent to time being treated for the future as not of the essence." "But", he added, "it is not a valid general proposition that wherever some instalments are accepted late without demur the party accepting them is precluded in respect of later instalments from insisting upon the agreement that time shall be of the essence."36

An example of past conduct leading to an inference that time was no longer of the essence may be found in Bull v.

Once waiver has taken place a vendor "can, generally speaking, only rescind after he has given notice requiring performance within a specified reasonable time and after non-compliance with the notice."5s

33 (1954) 90 Commonwealth L.R. 409, at 415. M (1963-64) 37 AUST. L.J.R. 497. 55 Ibid., at 501. 36 Ibid., at 499. 37 [I9501 Victorian L.R. 377. 5s Fullagar J. in Can v. J. A. Berriman Pty. Ltd., (1953) 89 Commonwealth

L.R. 327, at 348-349.

Landlord and Tenant Act 1912.

This may seem an odd point at which to introduce a reference to the Landlord and Tenant Act 1912. The reason is this. Section 3 of that Act makes unenforceable a right of re-entry or forfeiture for breach of any covenant or condition in a lease unless certain formali- ties are complied with including notice to the lessee specifying the breach and requiring him to remedy it.

Section 3 ( 6 ) provides that "this section applies to any right or option to purchase any land where the purchaser is in possession of that land."

At first blush, the subsection has application only to a right or option to purchase contained in a lease. However, in Ballantyne v. StockleSQ where a purchaser was in default it was suggested that the subsection was not so limited and that it applied generally to contracts for the sale of land. Northmore J. mentioned the matter, saying with classic understatement: "The point is by no means free from doubt." He added: "I am inclined to the view that the subsection does apply, but as in the view I have taken of this case it is unnecessary to decide the point, I leave it open."

After nearly 40 years the point was raised again in Tropical Traders Ltd , v. Goonan40 where the respondent pleaded absence of notice as a defence to an action for rescission of a contract for the sale of land. The High Court held that section 3 had no application to a contract for the sale of land where a purchaser is in possession pending completion. Taylor J. took the view that subsection ( 6 ) extended the area of protection conferred by the earlier part of the section and that it had no application outside the relaiionship of lessor and lessee. In general, Kitto J. agreed with this opinion although he did not entirely discount the possibility that it may refer to a person in possession under an instrument, xiot a lease, "which entitles him at his election to bring into force a binding obligation upon the owner of land to convey it to him in exchange for money," and he instanced a share-farming agreement containing an option to purchase.

Thus the section may have some limited possibilities beyond the sphere of leases but it will not assist the defaulting purchaser. If it had been held to apply to such a person it would of course offer a substan- tial measure of protection although its precise application would result in many a judicial headache.

39 (1924) 27 West. Aust. L.R. 45. 40 Supra, note 34.

(a) Remedies available to vendor and purchaser.

(i) Damages.

Where one of the parties to a contract for the sale of land suffers loss through failure to carry out an obligation in the terms of the con- tract, that party has an action for damages. The measure of damages is for the most part that applicable to breach of contract generally and it is only necessary to refer briefly to some features peculiar to contracts for the sale of land:"

"Contracts for the sale of real estate, like other contracts for sale, cast on vendors a general liability for damages for non-fulfilment of a contract, subject only to an exception in a very special and limited class of cases, and that unless a case is brought within that special class, the general rule applies."42

The exception is the so-called rule in Bain v. FothergilPa whereby if a vendor is without fault unable to make good title, the purchaser cannot recover damages for the loss of his bargain. The reason for this rule was the uncertainty once surrounding the title to land. I t will not protect a vendor who deliberately abstains from making title for instance by not discharging a mortgage44 or by making no effort to clear off a caveatP6 The rule in Bain v . Fothergill has been discussed by the Australian Courts in several cases46 but I suggest that it really has no appIication to land under the Torrens system.47 It was designed to protect the honest vendor who might well find himself unable to make title. I t is anomalous now and at least so far as Torrens title is concerned the justification for retaining the rule has long since gone.

Where a saIe goes off due to the vendor's default the purchaser is entitled to recover the difference between the actual value of the land and the contract price, or more accurately so much of it as is unpaid. It is usually said on the authority of I n re DanieP8 that it is

41 The whole question is examined in MAYNE AND MCGREGOR ON DAMAGES (12th ed. 1961) and particularly in chapter 21. See also Moss, SALE OF LAND IN NEW SOUTH WALES (2nd ed. 1951) 169-173 and BULLOW, SALE OF LAND IN VICTORIA (Sydney 1957) 109-113.

42 In re Daniel, Daniel v. Vassal], [I9171 2 Ch. 405, per Sargant J. at 410. 43 (1874) L.R. 7 H.L. 158. The rule, however, was established as earIy as 1776

in Flureau v. Thornhill, 2 Wm. B1. 1078, 96 E.R. 635. 44 AS in Thomas v. Kensington, [I9421 2 K.B. 181. 45 As in Noske v. McGinnis, (1932) 47 Commonwealth L.R. 563. 46 For instance, Noske v. McGinnis, supra note 45, King v. Poggioli, (1922-23)

32 Commonwealth L.R. 222, Boardman v. McGrath, (1925) Queensland W.N. 8.

47 For the application of the rule in New Zealand see GARROW, op. cit. supra, at 233-236.

48 [I9171 2 Ch. 405.

the value of the land if it had been transferred in accordance with the agreement that is relevant. This is understandable in relation to a cash sale, but what if the vendor's breach arises under a terms sale and after the contract has been on foot for some time? I t may arise, for instance, because the vendor is unable to discharge a mortgage so as to give the purchaser an unencumbered title.

Whether a purchaser is entitled to recover as part of his damages any profit he would have made on the resale of the land or by its use in a particular manner depends on the rule laid down in Hadley v. Baxendalk9 that damages for special loss can only be recovered if the possibility of that loss was or could fairly and reasonably be inferred to have been within the contemplation of the parties at the time the contract was made as a probable result of a breach.50

Where it is the purchaser who is in default, the vendor may recover "the difference if any between the contract price and the present value of the property thrown back on his hands."51

(ii) Rescission.

Rescission is a remedy which may be available to either vendor or purchaser. Where it is the purchaser who has rescinded or is asking for rescission, he will usually be seeking the return of moneys paid and damages as well.

I t is the question of rescission by the vendor which has excited most comment and in Australia the comments have extended over many years. The subject has been wrung out by commentators to the point where there is little juice left.62 I t may serve some purpose to summarise briefly what stage has been reached in the development of this part of the law.

Much of the initial confusion was caused by a failure to analyse exactly what was involved in the concept of rescission. As has been pointed it may mean setting aside a contract which is voidable, for instance, because of fraud or mistake; it ma,y mean the termination of a contract at common law on the ground of default; it may mean

49 (1854) 9 Ex. 341, at 354, 156 E.R. 145, at 151. 50 Stolzenberg v. McWilliams, (1914) 10 Tas. L.R. 74; Diamond v. Campbell-

Jones, [I9611 1 Ch. 22. 61 Berry v. Mahoney, [1933] Victorian L.R. 314, at 322-323. 52 See, for instance, W~rrs , THE PROBLEM OF THE DEFAULTING PURCHASER;

VOUMARD, THE SALE OF LAND IN VICTORIA, 495-504; Stoljar, The Defaulting Purchaser, (1956-1957) 30 AUST. L.J. 68.

53 Bates, "Rescission", (1955) 19 CONVEYANCER and PROP. LAWYER 116.

the termination of a contract by mutual agreement; or it may mean the termination of a contract by relying on a provision to this effect in the agreement.

Rescission in the context of default in the sale of land normally means that the vendor is terminating the contract because such a power is conferred on him by the agreement for any breach committed by the purchaser.

I t was this lack of analysis and in particular the confusion between rescission in the sense of avoiding a contract and rescission in the sense of determining it which led to the doubt whether rescission by a vendor for default and a claim for damages would lie together. The - blessing of the courts has for some years been given to this alliance so that the vendor's right to damages is now clearly e~tablished.~~

The position was put clearly and concisely by Dixon J. (as he then was) in McDonald v. Dennys Lascelles Ltd.56 in these words: "When a contract which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not obse~ved an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach."

Twenty-one years later as Dixon C.J. he mentioned the matter again, saying: "Some suggestion was made . . . that once the contract was treated by the vendor as discharged he could not recover for breach. This notion, however, is based on a confusion with rescission for some invalidatory cause. I t is quite inconsistent with principle and has long since been dis~ipated."~~

Whenever default does occur the first enquiry must be into the terms of the contract and then into the vendor's actions to determine which particular remedy he is purporting to exercise because that may directly affect what he is entitled to recover even to the extent of excluding damages. I t may also be necessary to go further and deter- mine whether in fact at a given stage, for instance in reselling, the vendor is acting pursuant to the contract or independently of it.57

64 See VOUMARD, op. cit. supra, 497-498; Stoljar, The Defaulting Purchaser, supra note 52, at 72.

55 (1933) 48 Commonwealth L.R. 457, at 477. 56 Holland v. Wiltshire, (1954) 90 Commonwealth L.R. 409, at 416. 57 This type of problem arose in such cases as Hoskins v. Rule, [I9521 N.Z.L.R.

826; Holland v. Wiltshire, note 56 supra, and Coates v. Sarich, (1963) a decision of the Full Court of Western Australia, as yet unreported.

(iii) Specific performance.

The injured party may decide that instead of exercising his power to rescind, he will take action to enforce the contract by proceedings for specific performance.

The principles to be applied in deciding whether or not specific performance will be ordered have been examined on many occasions and do not need repeating here.68

Where the court instead of granting specific performance awards damages in lieu thereof pursuant to section 25 ( 10) of the Supreme Court Act 1935-1960 the contract concerned is notionally determined by the judgment awarding damages. The damages are of the same nature as common law damages for breach of contract, but the plaintiff is entitled to damages up to the date of judgment.6o

Specific performance is a remedy particularly appropriate to a purchaser so long as the vendor is still in a position to make title. I t is also available to a vendor although obvious difficulties may arise in enforcing judgment against a purchaser. I t is of some importance that the statement of claim and judgment are framed with care.80 If a defendant fails to comply with a judgment for specific perform- ance, the plaintiff may return to the court for a declaration that the contract has been determined and an assessment of damages for the loss of it.61

(b) Remedies available to vendor only.

When a purchaser defaults in the payment of an instaJment of the purchase price the vendor may instead of exercising any other remedy that may be available sue for the instalment due although in practice such a step would be unusual.

VOUMARD suggests that he may also sue for "the balance of pur- chase money."62 Put like that the statement may mislead because it rather suggests that by an action at law a vendor may obtain the same result as by proceedings in equity for specific performance. I suggest that before any such action will lie the vendor must first carry out his part of the bargain by tendering a registrable transfer.63 To that

6s For instance FRY, SPECIFIC PERFORMANCE OF CONTRACTS (6th ed.), WILLIAMS ON TITLE, (2nd ed. 1957) 743-747, VOUMARD, op. cit. supra, 510-513.

69 Bosaid v. Andry, [I9631 Victorian R. 465. See Palmer v. Lark, 119451 1 Ch. 182.

61 Bosaid v. Andry, [1963] Victorian R. 465, per Sholl J., at 482-483. Note also 14 ATKIN, COURT FORMS AND PRECEDENTS, 636-637.

62 VOUMARD, op. cit . supra, at 492. 63 See 2 DART ON VENDORS AND PURCHASERS (8th ed.) 851.

extent the vendor must do equity but it does raise a question whether by proceeding in that way the vendor may avoid the risk of failing in an action for specific performance because of 'delay or some other relevant consideration. Perhaps it is not as academic as it may seem.

(c) Remedies available to purchaser only.

Where it is the vendor who is in default, there is no difficulty in the way of the purchaser rescinding and obtaining the return of money which he has paid.

Where, however, the vendor has rescinded because of the pur- chaser's default, an entirely different problem arises. This is a subject which has enjoyed the attention of judges and writers for a number of years and it is not my intention to go over the same ground again. However, it may again be useful to indicate the stage which the law has reached.64

(i) Recovery of Deposit.

The general rule is that because a deposit is not only a part of the purchase price, but is also a guarantee for the performance of the contract, a vendor who rescinds for default may retain it.66 This may be as a matter of implication or because the contract so provides.66

However, at least since Ward v . Ellerton,8* the Australian Courts have indicated their readiness to look at the payment described as a deposit and to see if in fact it amounts to a penalty.

In Stockloser v . Johnsonas Denning L.J. said: "Again, suppose that a vendor of property, in lieu of the usual 10% deposit, stipulates for an initial payment of 50% of the price as a deposit and a part payment; and later when the purchaser fails to complete, the vendor re-sells the property at a profit and in addition claims to forfeit the 50% deposit. Surely the court will relieve against the forfeiture. The vendor cannot forestall this equity by describing an extravagant sum as a deposit, any more than he can recover a penalty by calling it liquidated damages."

64 The literature on the subject is copious. Attention is directed to WAITS, THE PROBLEM OF THE DEFAULTING PURCHASER, VOUMARD, op. cit. supra, 504-510, Stoljar, The Defaulting Pu~chaser: The Recovery of Deposits and Znstalmants, (1957-1958) 31 AUST. L.J. 510.

65 owe v. Smith, (1884) 27 Ch. D. 89, referred to in In Re Hwbin dec'd., [1957] Victorian R. 341.

66 See Hale J. in Coates v. Sarich note 57 supra. 67 [I9271 Victorian L.R. 494. 68 [I9541 1 Q.B. 476, at 491.

This statement was adopted by Monahan A.J. in Smyth v . Jessep6@ who held that equity will relieve against forfeiture if

( i ) the forfeiture clause is of a penal nature in the sense that the sum forfeited is out of all proportion to the damages, and

(ii) it is unconscionable for the vendor to retain the money. In that case, a deposit of 40% was held to be penal and the court was prepared to relieve against its forfeiture.

However, in these cases, much depends on the amount involved, the nature of the property, and the circumstances surrounding the purchaser's default. In re Hoobin d e ~ ' d . 7 ~ concerned the sale of a hotel on long terms and a deposit of £15,000 on a purchase price of £60,500 was held to be a true deposit and not a penalty.

In Coates v. Sarich71 the Full Court of Western Australia (Wolff C.J., D'Arcy and Hale JJ.) unanimously upheld the view of Mr. Commissioner Boylson that £1500 paid as a deposit on the purchase of a farm (the purchase price being £5500 payable over 16 years) was not penal and was forfeited to the vendor.

Hale J. suggested that "unnecessary difficulty has in some cases been introduced by treating a "deposit" as something special to be governed by peculiar rules. . . . The essential inquiry must, I think, always be whether the payment is a penalty or liquidated damages."

There is however justification for looking at the forfeiture of a deposit in a rather different light from the forfeiture of instalments for instance. In the former case forfeitability is judged not so much by what has happened and by what damage a vendor may have suffered. I t is judged by looking at the position when the pasties contracted to buy and sell. The forfeitability of instalments, it will be suggested, is judged by the events which followed rescission.

The "unconscionable" test suggested by Denning L.J. in Stock- loser v . JohnsonT2 is with respect uncertain and again in the words of Hale J., causes "unnecessary difficulty." I suggest that the correct approach is that taken by the Full Court in Coates v. Sarich namely to consider whether or not the "deposity' is penal.

I t also removes the complication introduced in Smyth v . JessepT8 when Monahan A.J. suggested that the penal nature of a "deposit"

69 [I9561 Victorian L.R. 230. 70 [I9571 Victorian R. 341. 71 Supra, note 57. 7 2 Supra, note 68. 78 Sufira, note 69.

is to be tested as at the date of contract but that the equity of restitution is to be tested by the conditions existing when it is invoked.

The decisions have left an area of uncertainty (and this is inevi- table) to the extent that when a contract of sale provides for a "deposit" in excess of 10% it is impossible to forecast with precision what attitude the courts will adopt to the forfeiture of such an amount.

If the court decides that a so-called deposit amounts to a penalty and decides to relieve against forfeiture, is its jurisdiction limited to ordering the return of the whole amount, or can it wield the blue pencil and order the return only of so much as it considers penal? The matter was left open in Mallet v. ]ones74 and also by Vaisey J. in James Macara Ltd. v. B a r ~ l a y . ~ ~

Since it appears that a vendor is required to bring a deposit into account if he pursues further remedies against a purchaser there is some argument for ordering a purchaser to forfeit so much as may properly be termed "deposit".

I t seems that a vendor cannot have his cake and eat it.76 If he seeks damages from the purchaser he must bring the deposit into account whether he is suing for a deficiency on resale77 or suing for damages after exercising an option to retain the property.78

(ii) Recovery of Instalments.

The purchaser's right to the return of instalments following rescis- sion by the vendor has been the subject of considerable litigation and even greater comment.79

Originally, a distinction was drawn between contracts which con- tained an express provision for forfeiture of instalments and contracts which did not, between cases in which the purchaser had gone into possession and cases in which he had not.

But the power of the court to relieve a purchaser against the forfeiture of instalments no longer turns on these criteria. The court has the power which it will exercise in certain cases.s0

74 [I9591 Victorian R. 122. 75 [I9441 2 All E.R. 31, at 32. 76 See, for instance, D'Arcy J. in Coates v. Sarich. 77 Mallett v. Jones, [I9591 Victorian R. 122, at 132; Zieme v. Gregory, [I9631

Victorian R. 214, at 219. See also Blonski v. Jammakowicz and Kowalski, [I9571 9 Dominion L.R. 66.

78 Zieme v. Gregory, [I9631 Victorian R. at 219-220. 79 For instance WAT~S, THE PROBLEM OF THE DEFAULTING PURCHASER; VOUMARD,

op. cit. supra, 505-510. 80 The cases are referred to in the references in footnote 79. The most im-

But what are the cases? In Stockloser v . Johnsons1 both Somervell L.J. and Denning L.J. formulated the criterion in terms of whether or not it was "unconscionable" to retain the instalments. However, this test is not the one referred to in many of the Australian cases. In any event, since unconscionability is largely to be judged by looking at the loss which the vendor has suffered, it seems preferable to place the whole matter on the basis of assessing the damage which the vendor has suffered arid ordering the repayment to the purchaser of instalments over and above that.

There is in some of the cases a suggestion that the power to relieve against forfeiture should be exercised on different principles depending on whether a vendor is seeking to recover damages over and above money which has already been paid to him by the purchaser or whether it is a purchaser who is seeking to recover money which he has paid in which case the "vendor only wants to keep money which already belongs to him."82 The validity of this distinction is open to question because it may often be just a question of who moves first, vendor or purchaser. If it is a question of granting equitable relief let that relief be granted on the same principles in both situations.

(iii) Recovery of Interest Payments.

In calculating what moneys the vendor is entitled to retain V O U M A R D ~ ~ suggests that "the vendor is entitled to interest on purchase money in lieu of an occupation rent for the period during which the purchaser has had possession of the property. He is therefore entitled to retain any interest payments already made and to receive credit for any arrears of interest."

This relation of interest to occupation rent is both arbitrary and unreal. The amount of interest paid by a purchaser depends on three factors, the amount of the purchase price, the size of the deposit he pays, and the size of the instalments. In these circumstances, any relation the interest payments may have to the value of the property as a rental proposition is entirely accidental. The authorities on the matter are not clear. In Mallett v . Joness4 Dean and Smith JJ. sug-

portant are Real Estate Securities Ltd. v. Kew Golf Links Estate Pty. Ltd., [I9351 Victorian L.R. 114; McDonald v. Dennys Lascelles Ltd., (1933) 48 Commonwealth L.R. 457; Berry v. Mahoney, [I9331 Victorian L.R. 314; Jeeves (N.S.W.) Ltd. v. Rogers Bros. Ltd., 119361 36 State R. (N.S.W.) 340; Stockloser v. Johnson, [I9541 1 Q.B. 476.

81 El9541 1 Q.B. 476. 82 Stockloser v. Johnson, supra, note 75, per Denning L.J. at 489. 83 Op. cit. supra, at 510. 84 Note 74 supra, at 132.

gested that the vendor "cannot have both an occupation rent and interest. . . . In cases where the contract provides for the forfeiture of instalments and the purchaser seeks relief in' equity against such forfeiture, it is common to allow relief on terms which include such rent." The court then referred to Berry v . Mahoneys6 and Hodder v . Watterss6 where this was done.

Once again a more equitable assessment would be achieved by an assessment of the rental value of the property, by taking into account that the purchaser "had the use and occupation of the (vendor's) asset."87

Having elected to rescind, the vendor cannot then claim interest which has not yet accruedss but he is entitled to interest which has accrued but has not been paid. There is not much authority on the latter point, but it seems implicit in the decisions in Nowak v . LintonsQ and Smyth v. J e s ~ e p . ~

Vendor and Purchaser Act 1878.

This may be the appropriate place to put in a plea for greater use of section 9 of the Vendor and Purchaser Act 1878.

While most of the provisions in the Act have application only to land under the general law, section 9 is of general application. I t offers a relatively cheap and quick way of obtaining a judicial decision on a "question arising out of or connected with the contract (not being a question affecting the existence or validity of the contract)".

The procedure is by way of originating summons and the court has power not only to decide the question submitted to it,B1 whether it be the vendor's right to rescind or the entitlement of the parties on default, but it may also grant consequential relief such as the return of moneys.02

Dangers for the terms purchaser.

While rather outside the scope of this paper there are two weak- nesses in the position of a terms purchaser which call for some atten- tion. They are mentioned only briefly.

85 [1933] Victorian L.R. 314. 86 [I9461 Victorian L.R. 222, at 231-232. 87 Coates v. Sarich, supra note 57, per Wolff C.J. 8s Nowak v. Linton, [1960] West. Aust. R. 2. 80. Zbid., at 3. Qo [I9561 Victorian L.R. 230, at 231. Q l As in Nowak v. Linton, note 88 supra. 92 There is a short account in CHESHIRE'S MODERN REAL PROPERTY, (9th ed.

1962) 636-7, and a longer account in 2 WILLIAMS ON VENDOR AND PURCHASER, (4th ed. 1936) 1064-1072.

( 1 ) It quite often happens that the vendor of land is not the registered proprietor but is himself a purchaser under a contract of sale. There may in fact be a chain of purchasers, so that if one earlier in the chain defaults and his vendor rescinds the remaining purchasers axe left with personal actions only.

(2) A purchaser under a terms contract cannot object if the land is encumbered by a mortgage so long as the vendor has the power to pay off the mortgage by the date fixed for completion of the contract.

The result may be default by the vendor under the mortgage and a sale of the land by the m~r tgagee .~~

Although the Sale of Land (Vendors' Obligations) Act 1940 prohibits the vendor of land from mortgaging or otherwise encumber- ing the land except under certain conditions, breach of the Act results in a penalty only.

Conclusion.

What has emerged from this paper, I hope, is that in certain respects the law has been unable to make adequate safeguards in this part of the field of vendor and purchaser relationships. The difficulty facing the courts is that this relationship is usually regulated by a formal contract albeit one on a printed form and there is a limit to how far the terms of a contract can be ignored or over-ridden.

There are I suppose two ways of trying to deal with the various problems that have been raised.

The more effective way is by legislation. With the volume of statutes growing in alarming proportions I hesitate to suggest another Act of Parliament. But there is a good case for legislative enactment particularly as this is a field in which people enter into contracts the exact terms and implications of which they often do not understand and cannot be expected to understand. The object of such legislation should be not to relieve the parties of their obligations, but to guard against unnecessarily hasty default action and to see that in the event of default the price paid by the guilty party is somewhere commen- surate with the loss suffered by the innocent party.

For some thirty years the Contracts of Sale of Land Act 1933 has operated in Queensland, having among its aims the protection of defaulting purchasers. However, the Act has been the subject of so much criticism, was described in Petrie v. DwyerQ4 as "remarkably ill-

08 The dangers are discussed by VOUMARD, op. cit. supra, at 90-93. 04 (1954) 91 Commonwealth L.R. 99, at 105.

conceived and remarkably ill-drawn," and has been so generally vilified that it seems safer to pass it by and look e l s e ~ h e r e . ~ ~

The Victorian Sale of Land Act 1962 is a comprehensive and innovating piece of legislation designed to regulate terms contracts for the sale of land in their many aspects. Rather strangely perhaps the Act does not deal with the position on default and to that extent offers no guide to most of the problems raised in this paper.

One of its aims, however, is to protect a purchaser under a terms contract and one of the methods it employes is to give such a purchaser the right to call for a transfer at any time on giving a, mortgage to secure the balance of the purchase price and interest. I t also prohibits a vendor from mortgaging the land after contract. This is such an over-simplified picture as to be scarcely accurate, but it is the concept involved which is interesting and which protects purchasers against some of the dangers m e n t i ~ n e d . ~ ~

Another method which has obvious limitations is that tried recently in New South Wales. In that State a new standard form of contract of sale has been approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales. I t naturally coven much more than the question of default but there are some interesting terms in the standard form which, for instance, require a vendor to bring proceedings for damages within 12 months of default, limit the forfeitable deposit to 10% and exempt instalments from forfeiture. (However, the vendor is permitted to retain the instalments as security for any deficiency on resale or against damages, provided action is brought within 12 months.) Once again, this is an over-simplified picture but it gives some idea of what can be done.97

In Western Australia which has no background of approved standard forms the solution seems to lie in legislation. What follows are broad suggestions as to what that legislation might do.

1. Enable a purchaser at any time, or perhaps after he has paid a percentage of the purchase price, to call for a transfer and mortgage back.

95 See McPherson, Contracts of Sale of Land Act 1933, (1962) 4 QUEENSLAND L.J. 167.

96 Various comments on the Sale of Land Act 1962 can be found in the Law Institute Journal of Victoria particularly in Vol. 36, at 513, and Vol. 37 at 53, 106, 111, 226, 331, 333, 366, 414, 415.

97 The approved contract of sale is examined in Tebbutt, Contract for Sale of Land in New South Wales-the Old and the New, (1962) 3 AUST. LAW. 17, 40, 53.

2. Prohibit a vendor from mortgaging the land except under certain conditions.

3. Require a vendor to give notice before rescinding a contract on the ground of default. This raises at least three questions.

(a) What period of notice should be given? The important thing is that a purchaser should be given at least some warning.

(b) Should notice be required for any breach or only for breaches other than the payment of money?

(c) Ought the parties be allowed to contract out of such a pro- vision as, for instance, a lessor and lessee may contract out of section 4 of the Landlord and Tenant Act 1912?

4. Limit the amount of deposit which is forfeitable.

5. Alternatively, empower the court to relieve a purchaser against the forfeiture of the whole or any part of a deposit.

6. Empower the court expressly to relieve a purchaser against the forfeiture of instalments except to the extent that the vendor has suffered any damage.

JOHN TOOHEY ."

B.A. LLJ. (Western Australia): Barrister and Solicitor of the Supreme Court of Western Australia.

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