McDonald and McDonald v Papuan Construction Ltd [1964] PGSC 23; [1964] PNGLR 124 (15 November 1963)

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VENDOR AND PURCHASER - Contract for sale of Crown Lease - Offer and acceptance - Communication of acceptance - Whether sealing of contract of sale by defendant company operated as delivery - Whether delivery operated as communication of acceptance - Withdrawal of offer - Employment of common solicitor.

On 27th July, 1963, the plaintiffs executed at the office of their common solicitor a contract for the sale to the defendant company of a Crown Lease. D.L., a Director of the defendant company, was present at the time and he informed the plaintiffs that for the company to enter into the contract the company seal would have to be impressed on the contract of sale in the presence of a co-director, L. D.L., thinking L. was in Port Moresby and that he could procure his signature and the cheque for the deposit payable under the contract, left the office promising to return later in the morning with the deposit and the contract duly sealed by the defendant company. In fact D.L. had some reservations about the contract and was determined not to have his company enter into it until he had obtained his co-director�s approval. D.L. did not return that day or subsequently and he did not forward the contract duly sealed or a cheque for the deposit. When taxed by the solicitor and the plaintiffs about the delay he said he had been unable to contact his co-director, L. On the afternoon of 8th August he received a letter from the solicitor which stated, inter alia, that in view of the defendant company�s failure to pay the deposit the plaintiffs were �not prepared to continue with the contract�. However on the morning of the same day the contract had been impressed with the company seal and signed by D.L. and L. though it had not been delivered physically to the plaintiffs or the solicitor. After receipt of the letter D.L. called on the solicitor and handed him a cheque for the deposit. He later obtained possession of the leasehold premises. In an action by the plaintiffs for, inter alia, recovery of possession of the land.

N2>(1)�� the document signed by the plaintiffs on 27th July, was only an offer to sell on the terms set out in the document;

N2>(2)�� the sealing of the document by the company did not operate as a communication of acceptance and therefore a contract did not come into existence at that time.

N2>(3)�� the fact that the parties had a common solicitor at the time of the sealing of the document by the defendant company did not bring a contract into existence at that time;

N2>(4)�� the letter received by D.L. on 8th August, amounted to a withdrawal of the plaintiffs offer to sell and thereafter there was no offer in existence for the defendant company to accept. Accordingly the plaintiffs were entitled to recover possession of the land.

The issues raised by the pleadings and by the evidence and the arguments of counsel are sufficiently set out in the judgment hereunder.

MINOGUE J:� This is an action brought by the plaintiffs against the defendant for recovery of possession of land at the Six-mile claimed to be owned by the plaintiffs and of which the defendant, through its Managing Director, Mr. Donald Lawton, has been in actual possession since 14th August last.

This case affords yet another example of the difficulties and expense which can arise from the employment by two parties to a sale of a common solicitor. Whilst I appreciate the difficulties in this Territory where there are so few legal practitioners and the fact that the conveyancing scale of costs allows for the employment of a common solicitor, yet I cannot but feel that had two solicitors been employed in this case a much clearer appreciation of the legal problems involved would have emerged. The parties may well have been demonstrably at arms length at a much earlier stage and the obligations on the part of the prospective purchaser may well have been more clearly realised than in fact they seem to have been.

In opening the plaintiff�s case, Mr. Kilduff, who appeared with Mr. Cory for the plaintiffs, informed me that the issue before the Court was whether there was default on the part of the defendant to pay the deposit due under the Contract of Sale between the parties made on the 27th July, 1963, and whether that default entitled the plaintiffs to treat the contract as being at an end and, consequently, entitled them to rescind the contract. Mr. White, for the defendant, agreed that was the substantial issue to be tried. The matter was pleaded in that way in the pleadings, except for paragraph 3A of the Statement of Claim which alleged the plaintiffs� entitlement to withdraw and subsequent withdrawal of the offer of sale said to be contained in the contract. However, during the trial matters took quite a different turn and I think it desirable at the outset to set out the facts and my findings on the evidence.

On the 27th July, 1963, the plaintiffs had assigned to them such rights of ownership as their mother, Mrs. Gertrude McDonald, had in approximately 1 acre of land being part of Portion 404, District 8, in the Central District of Papua. In the plaintiffs� amended statement of claim they were described as the registered assignees of this piece of land, which was further described as the whole of the land comprised in a granted application for a Crown Lease No. 2942 (F) and as these facts were admitted in the defence I did not further pursue the fact of registration and assumed that for all practical purposes the plaintiffs are the legal owners of the Crown Lease.

For some days prior to 27th July, 1963, Mrs. McDonald had been in negotiation with Mr. Lawton for the sale of this leasehold interest and from a letter written by Mr. Lawton to Mr. Kilduff, who was then acting as solicitor for both parties, it appears that at some time shortly prior to the 27th July, agreement was reached on the major terms of a Contract of Sale which was to be entered into. It was apparently in Mr. Lawton�s mind that a contract would be prepared and that he would come into Mr. Kilduff�s office at 8.30 a.m. on the morning of the 27th July, prepared to pay a cash deposit of �500 on a total purchase price of �2,500 for the land in question, the buildings erected thereon and the furniture contained in those buildings. Mr. Kilduff prepared a document styled Contract of Sale and this document was tendered in evidence. It was expressed to be made between the plaintiffs, on the one part, as vendors, and the defendant, on the other part, as purchaser. No evidence was given before me as to fore-knowledge of the defendant that the plaintiffs were to be substituted for Mrs. McDonald as vendors but no point was made of this at the trial and it is clear to me from the general tenor of the evidence that Mr. Lawton was aware of the arrangement made between the plaintiffs and their mother, Mrs. McDonald was about to depart the Territory for Brisbane and was anxious to have the transaction completed as quickly as possible.

Mrs. McDonald and the plaintiffs arrived at Mr. Kilduff�s office at some time prior to 9 a.m. on the morning of the 27th July, perused the engrossed Contract of Sale and were satisfied with its terms. The document was in a not unusual form for a Contract of Sale of land and after setting out the agreement to sell and to purchase and describing the land and the furniture, the subject matter of the contract in Clause 1, went on in Clause 2 to provide:

(b)�� The balance of purchase money �2,000 to be paid by the Purchaser to the Vendors by half-yearly instalments of �250 each, the first of such instalments to be paid on the�� day of�� , 196� , and thereafter such half-yearly instalments shall be paid on the�� day of�� , and�� in each year until the whole of the purchase money has been fully paid.�

Then follows a provision for the better securing of outstanding purchase moneys and Clause 3 of the document provides that the purchaser shall have vacant possession of the property sold on payment of the deposit. Clause 7 provides:

�If the Purchaser shall fail to comply with those (sic) conditions or any of them all moneys which the Purchaser shall have paid to the Vendors on account of the purchase price shall be absolutely forfeited to the Vendors and the Vendors shall be at liberty to rescind the Contract or to sue the Purchaser for breach of contract or without any notice to the Purchaser to resell the property by public auction or private contract together or in lots for cash or on credit and upon such other terms and conditions as he may think proper and with power to vary or rescind any contract of sale; buy in at auction and resell, the deficiency (if any) arising on such sale and all expenses of sale shall be recoverable by the Vendors from the Purchaser as liquidated damages.�

By Clause 10 the vendors agree to execute a transfer assignment or other assurance to the purchaser of the property sold on payment of the deposit money in full and by Clause 11 time is made in all respects of the essence of the contract.

Mr. Lawton arrived at Mr. Kilduff�s office at some time after 9 a.m. and was handed the document to peruse. Some discussion took place as to the inconvenience of making payments of instalments due on the 27th day of the month and all parties present agreed that the 1st day of the month was better and with the approval of all parties Mr. Kilduff inserted the words �First�, �February�, the figure �4� and the words �First�, �August� and �February� in the blank spaces in Clause 2 (b).

Mr. Lawton then referred to Clause 7 and expressed the view that if he paid the money and defaulted he would lose the whole of the moneys paid. He asked could the document be altered so that he might be able to obtain refund of moneys which he had paid. Mr. Kilduff suggested that if the words �purchasers equity excepted� were included Mr. Lawton�s money, or at any rate some part of it, would be returned on default. Mr. Lawton expressed himself satisfied with this suggestion and, with the agreement of the plaintiffs, these words were inserted in ink and initialled by the plaintiffs and him.

There is some conflict as to what next occurred and it may be this arises out of a misunderstanding. The plaintiffs allege that the arrangement was that Mr. Lawton was to take the contract, have it sealed with the Company�s seal and to return with the document duly signed and with the deposit later in the morning. A Mr. Luckie was a co-director of his in the Defendant company and I am satisfied that Mr. Lawton informed those present in Mr. Kilduff�s office that he had to have the seal of the Company impressed on the document in the presence of Mr. Luckie as well as of himself. I am satisfied too that he thought Mr. Luckie was in Port Moresby on that morning and that he could procure his signature and also the necessary cheque for the deposit. However, Mr. Lawton in his evidence stated that he had some reservations about the contract on that morning, that he wanted to discuss the terms with his co-director and to consider whether he should have a further clause inserted to deal with any requisitions or requirements that the Health Inspector may have made or requested with relation to the subject property. He further stated to me that Mr. Luckie had some qualms about the Company�s entering into this contract at all and it was never his intention to sign the contract on the 27th, at least not until he had discussed the whole matter with Mr. Luckie. It seems to be possible that in their anxiety to have the matter concluded as quickly as possible the plaintiffs assumed too much and that Mr. Lawton, although he in his turn really thought that no difficulties would arise, may well have led the plaintiffs to believe this to be the case. Nevertheless, he was quite determined not to enter into this contract until he had Mr. Luckie�s approval to all of its terms. I am satisfied that, had he so desired, he could have made the deposit of �500 available out of his own funds that morning, and the reason for his not doing so was his anxiety and determination to obtain such approval. He did not find Mr. Luckie, who appears not to have been in Port Moresby on that morning and, consequently, did not return to Mr. Kilduff�s office as he said he would.

On the following Monday, the 29th July, Mr. Kilduff spoke to him on the telephone and asked him what had happened. He was informed that Mr. Luckie was still down at Rigo and had not come up to Moresby and, consequently, he, Lawton, was unable to get the cheque signed. On being taxed with not raising that difficulty on Saturday he replied that that was the position and he would see the money was paid by Wednesday. To this Mr. Kilduff replied that he had not seen the McDonalds and did not know what their attitude would be. I should add that on the Saturday morning when Mr. Lawton left Mr. Kilduff�s office, he took with him the document and a copy thereof, both signed by the plaintiffs. On the 31st July, that is the following Wednesday, the plaintiff D. J. McDonald met Mr. Lawton casually in a store and was told that the money had not yet been paid as he was waiting for Mr. Luckie to come up from Rigo. He said he was expecting him that afternoon and that the money would be paid in at the latest by the following morning, i.e. 1st August. The plaintiff said he would tell the others, meaning I take it his brother and his mother, and no further conversation was had.

On the 6th or 7th August, Mr. Lawton called at the subject premises, at which Mrs. McDonald was still in residence, although awaiting daily for the departure of the m.v. �Bulolo� on which she was to sail. Mr. Lawton alleges that on the evening Mrs. McDonald gave him a key to the premises. However, I am not satisfied that this happened; I am satisfied that Mrs. McDonald was still of the view that the transaction was still on foot, although she knew the deposit had not been paid. Indeed, she taxed him with his failure to pay and he assured her that the money would be quite all right, saying further that he had not previously been able to get in touch with Mr. Luckie but that he had then done so. On that evening also Mrs. McDonald gave to Mr. Lawton a card dealing with the transfer of the telephone for him to fill in and an old electricity account so that he would have by him the reference number of that account.

In the early afternoon of the 8th August, the plaintiff R. J. McDonald came in with his mother to see his solicitor, Mr. Kilduff, and after some discussion left the office at about 3.15 p.m. armed with a letter which had been prepared for him by the latter. This is the letter a copy of which was in evidence Exhibit �B� and it reads as follows:

We write to advise that the Vendors, Robert James McDonald and Donald John McDonald, have instructed us to inform you that as you are in default under the Contract of Sale herein, that the Vendors will not proceed with the sale. You will remember that the Contract was signed by Mr. Bob and Don McDonald on Saturday, 27th July, and you took the original contract, plus the signed copy, and you indicated that you would have the Contract executed by your Company on that day and return it to our office at 11.30 a.m. that morning together with the cheque for �500 plus the Purchaser�s costs.

A fortnight has elapsed since that time and the deposit of �500 was to be paid on or before the 1st day of August, 1963, and, of course, there has been a failure to comply with that condition.

Under the circumstances outlined above, Mr. Bob and Don McDonald are not prepared to continue with the Contract and as you are in default, the fees incurred by Mr. R. J. McDonald and Mr. D. J. McDonald of �15 15s. 0d. should be paid by yourself together with the Purchaser�s costs of �7 7s. 0d., making a total of �23 2s. 0d.

I am satisfied that Mr. R. J. McDonald shortly thereafter saw Mr. Lawton, and handed him the letter. When Mr. Lawton read it he asked Mr. McDonald why he wanted to cancel the contract and was told in reply that he had not paid the deposit. Although with some doubt, I have come to the conclusion that the document had at some time before lunch on this day been impressed with the seal of the Company and the signatures of both Mr. Lawton and Mr. Luckie had been placed thereon. In the afternoon conversation Mr. Lawton told R. J. McDonald that the deposit had been paid earlier in the afternoon, which I am satisfied was not a fact, although it may well be that Lawton had left some instructions with his Accountant, one Lord, to pay it and believed those instructions to have been carried out.

At about 5 p.m. Mr. Lawton arrived at Mr. Kilduff�s house and handed him a cheque for �500. The latter took the cheque stating that he would pay it into his Trust Account pending the determination of the legal position, having previously stated to Mr. Lawton that the McDonalds would definitely not go on with the contract and he was in default with the deposit. The document, which was by this time executed by all parties, was not handed over, presumably on the advice of Mr. Powell, a solicitor whom Mr. Lawton had consulted earlier in the day.

At about 6 p.m. in the evening Mr. Lawton came out to the house on the subject land and asked the plaintiff R. J. McDonald whether he would carry on with the contract, to which the latter, replying for both his brother and himself, stated that they would not. More conversation then took place as to taking the matter to Court and a few minutes later Mr. Lawton returned and formally asked for the keys of the house and these were refused to him. Lawton threatened Court action to which R. J. McDonald replied �that�s fair enough Don but you shouldn�t have played around so much.�

On or about 10th August, the plaintiffs arranged to let a Mr. Smith take possession of the subject land as a tenant for a weekly rental of �7 10s. 0d. On the 14th August, in circumstances of which I am not aware, Mr. Lawton took possession of the premises and still remains in possession. The writ in this action was issued on the 15th August.

What legal consequences flow from these facts? As is apparent from the pleadings the plaintiffs� advisors took the view that there had been a contract executed on the 27th July, 1963, and the defendant�s advisors subscribed to that view, at any rate to the extent that there was a contract executed which was binding on the plaintiffs. That this was a continuing view of the plaintiffs� advisors is apparent from both the letters of the 8th August and the 14th August, Exhibit �E�, a letter written to Mr. Powell requesting delivery of possession of the premises by the defendant and categorically alleging breach of contract in not having paid the deposit. But in my opinion at no time on the 27th July was there a contract in existence, albeit the plaintiffs signed the document intending to enter into a contractual relationship with the defendant. But that intention was clearly conditional upon the defendant executing the document and paying the deposit of �500 and from Mr. Lawton�s attitude on that morning it is clear to me that, whatever the plaintiffs may have thought, the parties were not in fact at that moment ad idem. So that in my view the document signed by the plaintiffs amounted to no more than an offer to sell on the terms set out in the document.

Do the events of the 8th August show an acceptance of the offer so as to form a binding contract between the parties? If they do no reason has been adduced to me why the defendant should not have the relief claimed in its counterclaim for specific performance.

Mr. White strongly urged upon me that the mere fact of the sealing of the document by the Company on the morning of the 8th August, is itself to be regarded as a delivery by the Company to the plaintiffs and, so he urged, delivery in this context signifies an actual physical delivery which is normally effected by an exchange of parts. In his submission there was no need to communicate the acceptance of the offer contained in the document to the plaintiffs because, as I understood him, the formal �delivery� operated as a communication. He further urged that the parties having at the time of the sealing of the contract a common solicitor, there came into existence a contract properly executed by both parties. In support of these propositions he referred me to Beesly v. Hallwood Estates Ltd.[xcv]¹; Xenos v. Wickham[xcvi]²�and Smith v. Mansi[xcvii]³.

Xenos v. Wickham[xcviii]⁴�does not, I think, support the propositions for which he contends. True enough in that case the sealing of a policy of insurance was held to import delivery to the insured, although the document had at no stage come physically into his possession. But in that case the real point was whether an agent of the insured, who had clear authority to effect the insurance on his behalf, had authority to cancel such insurance. It was a well known practice in shipping insurance at that time for the insurer to hold a policy unless and until called for by the insured. The case was not really argued on the question of offer and acceptance but rather on the question of whether the defendant was bound by the deed which he had properly executed. It is clear that the insured in making his proposal for insurance regarded the execution of the policy as in itself the conclusion of a contract requiring no notification to him of acceptance of his offer. Beesly v. Hallwood Estates Ltd.[xcix]⁵1 was really a case dealing with the binding quality and effect of a deed and although it did decide that a deed having been duly signed and delivered did not require physical delivery or exchange with its counterpart to make it effective, I do not regard it as any authority for the proposition that there need be no communication of the acceptance of an offer if that acceptance be made by deed. I am not to be taken as deciding that the document in question in this case is a deed but, even assuming it to be so I do not think that that helps the defendant. It may be that the Company seal having been duly affixed to the document, the defendant was bound if the plaintiffs chose to hold the defendant to the contract, but it is another thing to say that the plaintiffs are similarly bound. Nor can I see any evidence of agency in Mrs. McDonald to receive the acceptance of the offer if the conversation between herself and Mr. Lawton on the 6th or 7th August could be regarded as containing such an acceptance. In any event I could not be satisfied that that conversation contained any such acceptance. All that Mr. Lawton says as to it is that he told Mrs. McDonald that the contract would be signed on the 8th August and the money would be lodged. Her recollection was that there was still some difficulty about obtaining money and he was waiting on the signature of a cheque by his wife as Mr. Luckie was still unwilling to put any more money into the Territory.

Nor do I think that Smith v. Mansi[c]⁶�is of assistance to the defendant. In the particular circumstances of that case it is clear that a contract had been signed by both parties and there was no need for an exchange of parts to make the contract binding. There was a clear acceptance of the offer and the question of the communication of an acceptance did not really arise.

It has long been settled law that the acceptance of an offer must be notified to the offeror and that until such notification the offeror is at liberty to withdraw his offer. Of course, he may dispense with notice if he thinks it desirable to do so. In the circumstances of this case I cannot see any such dispensation. Indeed, the events of the 27th July, lead me to the conclusion that the acceptance of the offer was to consist of the return of the contract, duly sealed, by the defendant Company and the payment of the deposit of �500. Had this been done on the morning of the 8th August, by physical delivery to the office of Mr. Kilduff it may well have been that then all parties would have been bound by the terms of the document. For Mr. Kilduff was, for all that I can see, clearly enough the agent of the plaintiffs to receive such a communication of acceptance. But the position changed drastically and materially with Mr. R. J. McDonald�s visit to him in the afternoon. Although he was mistaken as to the true legal position, I am of the opinion, none the less, that the tender to Mr. Lawton of the letter which he composed amounted in reality to the withdrawal of the plaintiffs� offer of sale. And thenceforward there was no offer in existence to be accepted. The letter shows a confusion in thinking but at the same time it shows quite clearly an intention not to proceed with any contractual relationship.

Mr. White further submitted that the plaintiffs were estopped by the pleadings in this action from departing from the allegation that there was a contract in existence. Although at first sight this argument had some attraction it cannot, in my opinion, succeed. Albeit somewhat obscurely pleaded paragraph 3A of the amended statement of claim does in my view raise the issue upon which the main argument proceeded and the allegations in that paragraph were squarely met by paragraph 5 of the defendant�s amended defence. There was no question of Mr. White being taken by surprise because it should have been obvious from his own client�s version of the facts that there was no contract concluded on the 27th July, and indeed Mr. White came into Court ready to urge on his client�s behalf that the sealing of the document on the morning of the 8th August constituted the conclusion of the contract.

In the result the plaintiffs succeed in their action and are entitled to judgment for possession. As I indicated during argument the claim for damages in respect of the drawing of the contract is misconceived and cannot succeed. There was also before me a claim on the part of the plaintiffs for what I suppose would be damages for trespass but the evidence on this aspect of the case was meagre and Mr. Kilduff quite properly in my view abandoned his claim.

Accordingly there will be judgment for the plaintiffs for recovery of possession of the land the subject matter of this action.

Judgment for Plaintiffs for recovery of possession; Plaintiffs to recover costs (other than costs of and incidental to Statement of Claim, Defence and Counterclaim and of Reply and Defence to Defendant�s Counterclaim).

[xcv](1961) 1 All E.R. 90.

[xcvi](1867) L.R. 2 H.L. 309.

[xcvii](1962) 3 All E.R. 857.

[xcviii](1867) L.R. 2 H.L. 309.

[xcix](1961) 1 All E.R. 90.

[c] (1962) 3 All E.R. 857.

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Supreme Court of Papua New Guinea

McDonald and McDonald v Papuan Construction Ltd [1964] PGSC 23; [1964] PNGLR 124 (15 November 1963)

Papua New Guinea Law Reports - 1964