WHERRY v WATSON SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, PRIESTLEY, and HANDLEY JJA 5 December 1990, 14 March 1991 [1991] NSWCA 301 APPEAL FROM: POWELL J — EQUITY DIVISION SALE OF GOODS — cheque for "deposit" accepted on sale of Bentley motor car — cheque not honoured on presentation seller treats dishonour as entitling him to rescind — purchaser brings proceedings for specific performance — whether payment of "deposit" sufficiently important feature of contract to justify seller's rescission — court holds it was. UNPAID SELLER — purchaser argues that seller was an unpaid seller within s41(1)(a) of Sale of Goods Act and that as such, rights limited to those stated in s42 — held s42 rights additional to whatever other rights arose under contract of sale. Mahoney JA I agree with the judgment of Priestley JA. In this case, what the seller purported to do was to terminate the sale or agreement for sale for breach. His letter of 22 August 1990 made clear to the buyer that the contract was at an end. The essential question is therefore whether there was a breach which entitled to seller so to do. In principle, such a breach may arise in the present context either if the due payment of the deposit is a condition of the sale or agreement or if the failure to pay it may be treated as a fundamental breach or a repudiation of the sale or agreement: see generally Benjamin's Sale of Goods paral 137 et seq. I agree with Priestley JA that in the circumstances of this case, the due payment of the deposit, by the meeting of the cheque in due course, was a matter of basic importance in the transaction. It is not necessary to determine whether the due payment of a deposit on the sale of goods is, in general, a condition of the transaction, in the sense referred to in Brien v Dwyer (1978) 141 CLR 378. In the present case, the failure in that regard was either a failure of a condition or a fundamental breach of the sale or agreement. On that basis, the seller was entitled to do what he did. I agree with the orders which his Honour has proposed. Priestley JA In August 1990, Mr RJ Watson, the owner of a 1963 S3 Bentley, decided to sell it. He advertised it for sale in the Sydney Morning Herald on Saturday 18 August 1990 for $35,000. By 31 August 1990 he had become the defendant in two sets of equity proceedings brought by two different plaintiffs each claiming to have bought the Bentley from him by a binding contract. One plaintiff was Mr KJ Wherry and the other Classic Auto Search Pty Limited ("Classic"). Powell J heard the two cases together. He dismissed Mr Wherry's claim that he had on 18 August 1990 made a contract to buy the Bentley from Mr Watson which remained valid and enforceable. In Classic's case, he held that it had made an agreement to buy the Bentley on 23 August 1990 which ought to be specifically performed. Mr Wherry appealed. Mr Watson did not appeal against Classics judgment against him, despite the possibility thus left open that he might become simultaneously subject to orders to hand over the Bentley to two different buyers. 2 UNREPORTED JUDGMENTS There was some discussion of this possibility, in which the solicitor for Classic took part, before this court. The upshot of this discussion was that the court was left to deal with Mr Wherry's appeal as the only matter before it. The court granted leave to Classic's solicitor to address the court if he wished. Mr Watson recognised that if Mr Wherry's appeal succeeded, Mr Watson would then have to take such further action as he might be advised in order to resolve his situation. The events which took the parties to court began on 18 August 1990 and continued during following days. Mr Wherry saw Mr Watson's advertisement on 18 August, rang Mr Watson, and with a friend went to his home at about 10.30 am that day. After taking the Bentley for a drive and talking to Mr Watson, the following events and conversation took place, according to Mr Wherry's affidavit of 30 August 1990: 2. See 'Wherry: What is the best price you would take for it? Watson: $35,000. I might take $25,000 in a month's time if I've still got it, but right now it is $35,000 as there have been quite a few phone calls. Wherry: You're firm on your price I understand. If I agree to purchase it for that figure and gave you a cheque for a deposit now, would you mind waiting a couple of weeks for the balance when I receive the proceeds from another car which I have sold? Watson: 'It would break my heart' he said laughing. 3. I then shook hands with the Defendant and said words to the effect 'Right, you have just sold it." Without any discussion concerning the amount of the deposit to which I had referred, I then wrote a cheque for the sum of $3,000 in favour of the Defendant and handed it to him and said words to the effect 'Would that be alright?' The Defendant looked at the cheque and said 'Yes, that's fine. You know that it is sold "as is". That is what George Sevenoaks said to me when I bought it from him' or words to that effect. I then said 'OK We had better sign something setting it out.' 4. There was no other discussion between us concerning the deposit, the amount thereof, the cheque or the banking thereof. As it was a weekend I did not have with me a cheque book in relation to my normal office operating account with Westpac Banking Corporation and accordingly I had borrowed from my wife a cheque book relating to our joint household account with Chase AMP Bank, and it was from this account that I wrote the cheque. 5. The Defendant then went inside and obtained a sheet of paper and a pen which he gave to me and I proceeded to write out a receipt. Halfway through my doing this the Defendant said words to the effect: "You had better put your name on it so I know who I have sold it to.' The Defendant then read and signed the receipt and wrote his telephone number on it and then said words to the following effect: 'Remember I want to keep the number plates'. I then added the last line to the receipt." The receipt was in the following form: "Received the sum of $3000 being deposit on Bentley S3 Reg No RW 769 Chassis B604 CN balance $32,000 (total $35,000) to be paid in approx. 2 weeks. Car sold as is, unencumbered, from Keith Wherry, 34 Joubert Street, Hunters Hill. RJ Watson (Sgd) 498 3036 Home 18 8 1990 No. Plates to be retained." URJ WHERRY v WATSON (Priestley JA) 3 An affidavit from Mr Wherry's friend, Mr JM Ireland, described the same events and conversation as follows: B.S eae Wherry: "Well Dick, it's a good original car. What would be your best price?' Watson: 'The price is $35,000. I might take $25,000 in a month's time, but today it's $35,000.' Wherry: 'All right then. I would like to buy it. Would you be prepared to wait two weeks for the money. I have just sold a car myself and am due to be paid at the end of the month, so we could say payment within a fortnight. I'll leave you a deposit today. Would that be all right?' Watson: 'It would break my heart!' Wherry: 'I'll pay the balance when I pick up the car within two weeks." Watson: 'That's fine.' 6. The plaintiff then wrote out a cheque. I noticed that the cheque was from the Chase AMP Bank. There was further conversation as follows: Wherry: 'We had better write this down, have you got a bit of paper.' Watson: 'Yes.' (The defendant then went inside and obtained a piece of paper and returned). 7. The plaintiff then wrote out something on the piece of paper which I did not read. Both the plaintiff and the defendant signed the piece of paper. When this was being done the following was said: Watson: 'You'd better write your name down so I know who you are.' At this point I interjected as follows: Ireland: 'Keith, have you got one of your cards?' Wherry: 'No, I haven't got one with me.' 8. At this point the plaintiff shook hands with the defendant and there was conversation to the following effect: Wherry: 'Well, Dick you've sold your car.' Watson: "Yes, I'll be sorry to see it go.'" Mr Watson also filed an affidavit, sworn 7 September 1990. His memory of the conversation with Mr Wherry of 18 August appears to have been much the same as that of Mr Wherry. The only reference to the conversation by Mr Watson in his affidavit, in which he replied to Mr Wherry's affidavit, was in the following paragraph, which indicates the extent of the disagreement: 11. "As to para2 of the plaintiff's affidavit, at no time did I say 'I might take $25,000 in a months time if I've still got it'. I did not say 'It would break my heart'. On Saturday morning the plaintiff said to me 'I give you the deposit now and I can't settle up within a couple of weeks until my other car is sold.'" Mr Quattrocchi, a director of Classic, arrived at Mr Watson's home shortly after Mr Wherry and Mr Ireland had left. He swore an affidavit, 30 August 1990, setting out his account of events. When he arrived at Mr Watson's home, Mr Watson told him the Bentley had been sold an hour ago and that he had "received a deposit for $3,000". Mr Quattrocchi left his business card and asked Mr Watson to let him know if there was any change. On Monday 20 August 1990 Mr Watson banked Mr Wherry's cheque and paid a fee to obtain a special clearance on it. He did not get the answer to his request for a special clearance until Wednesday 22 August 1990. In the meantime the cheque had been presented to Mr Wherry's bank who marked it "present again in three days". The fate of Mr Wherry's cheque was due to a mistake by his bank, 4 UNREPORTED JUDGMENTS not any inability or disinclination to pay. Mr Watson did not know this when his own bank told him on 22 August 1990 that Mr Wherry's cheque had been dishonoured. Later on the same day Mr Watson posted a letter to Mr Wherry which he received during the following day, Thursday 23 August 1990, which said: "RE SALE OF S3 BENTLEY I wish to advise that I have withdrawn the abovementioned vehicle from sale. Please find enclosed your cheque which was returned to me to be presented again." In the morning of 23 August Mr Watson rang Mr Quattrocchi and told him the Bentley was back on the market. Mr Quattrocchi then went to Mr Watson's home and agreement was reached for the sale of the Bentley for $37,000. Upon getting Mr Watson's letter of 22 August on 23 August, Mr Wherry replied by certified mail on the same day. He apologised for his cheque's not having been paid, said it was due to a mistake on the bank's part and enclosed a bank cheque in Mr Watson's favour for $3,000 together with another cheque for $20 to cover any fees charged by Mr Watson's bank. He then said that he expected to be in a position to forward the balance of the purchase money to Mr Watson at the end of the next week or early the week after. At the time of writing this letter Mr Wherry did not know of Mr Watson's sale to Classic. He was told of this on the following day, Friday 24 August, when Mr Watson rang him having received Mr Wherry's letter of 23 August and the enclosed cheque. In the course of this conversation Mr Watson told him that he had sold the car to another buyer from whom he had taken a deposit. Mr Wherry then, in substance, told Mr Watson that he would have to tell the second purchaser that the sale to Mr Wherry was proceeding. In the afternoon of Friday 24 August Mr Wherry received from Mr Watson a letter delivered by courier returning his two cheques and giving the name of his solicitor, Mr Nass, upon whose advice he was returning those cheques. Mr Wherry, himself a solicitor, then rang Mr Nass and told him he intended to take proceedings for specific performance. This conversation was followed by other conversations including some between Mr Wherry and Mr Quattrocchi. Mr Quattrocchi also maintained that he had a valid contract to buy the Bentley. At the subsequent hearing none of the persons who had sworn the affidavits I have mentioned was cross examined. There was later correspondence between the parties and their solicitors which does not seem to me to bear upon the question before the court and which I will not further mention, beyond saying that both purchasers maintained they had valid contracts to buy the Bentley. Mr Wherry filed his summons seeking specific performance on 30 August 1990; Classic filed its summons on 31 August 1990. Following the commencement of the proceedings orders were made having the effect that the Bentley should remain in Mr Watson's possession until the dispute was resolved. That remains the position pending this court's decision. The substance of Mr Watson's case was stated in two paragraphs of his affidavit of 7 September 1990: 7. "When I was informed the plaintiff's cheque had been dishonoured I assumed that he was unable to purchase the car and that the deposit had simply not been paid. I assumed that the car would have to be sold URJ WHERRY v WATSON (Priestley JA) 5 9. I sought a special clearance on the plaintiff's cheque as I wanted to be sure that this deal was 'fair dinkum'. When the plaintiffs cheque bounced the deal was off so far as I was concerned. I have been in business all my life and always understood that a 'dud' cheque negates a deal." These paragraphs show what I think would be the reaction of many business people to the situation with which Mr Watson was faced. The question for this court is whether his view of the legal situation was right. The trial judge held: 1, on 23 August Mr Watson sold or agreed to sell the car to Mr Wherry, and became a "seller" within s5(1) of the Sale of Goods Act 1923, and because the whole price was not then paid or tendered, also became an "unpaid seller" within s41(1)(a) of that Act; 2, an unpaid seller is not confined to the rights provided for by s42 of the Act; 3, the cheque for $3,000 was paid as a deposit; 4, in regard to the payment of a deposit, time is to be regarded as being of the essence; 5, payment by cheque is conditional only; 6, the dishonour of the cheque meant there had been no payment of the deposit; 7, Mr Wherry, though it was his bank's, not his personal, fault was thus in breach of an essential term of the agreement; 8, Mr Watson was thus entitled to terminate the agreement, and 9, the action he took effectively did so. In the appeal counsel for Mr Wherry said the trial judge erred in steps 2 and 4. Counsel for Mr Watson in an effort to cut off his opponent's argument at the knees, if not the ankles, said the trial judge erred in step 1. However I think this idea, strategically sound though it was, must fail. All the evidence points to an agreement having been made. Dealing then with the arguments for Mr Wherry, I agree with Powell J's point 2. The right of resale, conferred by s42(1)(c) of the Act, and also limited by the Act, is a right which the subsection says an unpaid seller of goods has "as such" and "by implication of law". While the words "by implication of law" may, when read with para(c), be rather mysterious, I do not think there can be any doubt that the words "as such" show that it is merely the status of unpaid sellerhood that gives rise to s42(1)'s rights; I see no sign in the section or the Act of any limitation of rights that an unpaid seller has deriving from his being a party to the contract, as distinct from being an unpaid seller. In regard to point 4, counsel for Mr Wherry disputed what Powell J said about the effect of a deposit by analysing a considerable body of case law that has dealt with the meaning of the word used in various transactions. I do not think it necessary to look at the present case through the haze of those decisions. To my mind the circumstances of the present case show quite clearly that the word "deposit" was not used as a term of art. What was being spoken of was the payment of a sum of money, by cheque, without which the sale or agreement for sale (I see no need to decide which) would not have been made. By whatever name it was called that payment was of basic importance to the agreement between the parties. Against this, counsel for Mr Wherry argued that the arrangements between the parties set up a mechanism for delayed payment which showed that the payment of the $3,000 was not regarded by them as a condition (in the technical sense) of the contract. Although it is true that the seller was prepared to wait a comparatively short time for the bulk of the payment for his car, this fact does not displace the very strong impression I have gained, from the evidence in the case taken with the nature of the transaction, that the agreement would not have been made without the $3,000 payment, conditional though it was. 6 UNREPORTED JUDGMENTS By this approach I reach the same point as the trial judge had reached at the conclusion of his step 4. Once that point is reached, the other steps all follow, and I do not understand them to have been disputed by counsel for Mr Wherry. I am therefore in agreement with the conclusion reached by Powell J. This makes it unnecessary to express an opinion on the other point argued in the appeal, whether the car in the case was of such rarity as to justify an order for specific performance of an agreement for its sale. In my opinion the appeal should be dismissed, the respondent's costs to be paid by the appellant. I would make no order for Classic's costs, even if there were jurisdiction to do so. The orders requiring the car to remain in Mr Watson's possession come to an end with the dismissal of the appeal. Handley JA I agree with the reasons for judgment of Mahoney JA and Priestley JA and accordingly that the appeal should be dismissed with costs. ORDERS Appeal dismissed. Respondent's costs to be paid by appellant. No order for costs of Classic Auto Search Pty Limited. Noted that orders requiring the goods to remain in respondent's possession come to an end with the dismissal of the appeal. RYN COUNSEL for the Appellant - RJ WEBB Counsel for the Respondent - IH BAILEY SOLICITORS for the Appellant - EDDY McAUSLAND and WALKER Solicitors for the Respondent - PAUL NASS TD TZOVARAS, Solicitor for Classic Auto Search Pty Ltd