CORBAN v LEVETT SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY P, MEAGHER and BEAZLEY JJA 18 June 1996, 22 October 1996 [1996] NSWCA 120 CONTRACT — Whether binding and enforceable agreement for sale of land — Whether intention of patties to be bound — Terms of correspondence between the parties — Whether oral contract Contract for sale of land — Appeal against finding by judge in Equity Division that no binding agreement for sale of land — Appellant owned land at Balgownie and claimed binding agreement to sell land to respondents — Evidence of conversations between parties on agreement as to price and amount of deposit — Subsequent payment of deposit by respondents — Contracts prepared but no exchange of contracts took place Whether binding and enforceable agreement for sale of land — Whether intention of parties to be bound — Terms of correspondence between the parties — Whether respondents estopped from denying existence of contract — Held: appeal dismissed, there was no contract-for the sale of the land because the respondents did not intend to enter a binding agreement unless and until contracts were formally exchanged. The estoppel argument fails because the appellant did not reasonably form and act on the opinion that a binding contract existed. Masters v Cameron (1954) 91 CLR 353 applied. GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1987) NSW Conv R55-324 applied. ORDER Appeal dismissed with costs. Mahoney P In 1991 Mr Corban owned land at Balgownie. He claimed that a binding contract was made to sell the land to Mr and Mrs Levett. Mr and Mrs Levett claimed that no binding contract was made. Mr Corban sued Mr and Mrs Levett claiming specific performance, damages, and other relief. On 12 November 1992 Brownie J held that no binding contract had been made. His Honour dismissed Mr Corban's proceeding. He made an order in relation to the sum paid by Mr and Mrs Levett as deposit. Mr Corban has appealed to this Court against his Honour's judgment. Mr Hammerschlag, who has appeared for Mr Corban, has, in his submissions, advanced two central contentions: that, on 16 August 1991, an oral contract was made between the parties; and (alternatively) if no such contract was made, Mr and Mrs Levett are estopped by their conduct from denying that such a contract was made. The other matters argued by Mr Hammerschlag and by Mr Warren, for Mr and Mrs Levett, depend essentially upon those two submissions. 1. WAS THERE A BINDING CONTRACT?: The submissions made by the parties and the thrust of them distinguished in effect between three stages in the progress towards a binding contract: a general factual consensus, an agreement in fact, and a legally binding contract. Mr Warren's submissions were to the effect, I think, that what occurred was the first 2 UNREPORTED JUDGMENTS or second of these; Mr Hammerschlag's submissions suggested that what occurred was a legally binding contract. In my opinion no legally binding contract was made. Mr Corban was interested in selling the relevant land but does not appear to have been anxious to do so. He had engaged, directly or indirectly, an agent and authorised that agent to "sell" the land. Whether the agent was Mr Taranto, who gave evidence at the trial, or a company with which Mr Taranto was associated need not be determined. At the trial it appears to have been assumed that the agent had authority not merely to find a purchaser but to "sell" the land by making a binding contract. That, I think is the effect of such evidence as was directed to the extent of the agent's authority. Prior to 16 August 1991, the agent had negotiated with Mr Levett in relation to the sale of the land. Mr Levett had in mind to purchase the land, remove what was on it, and build a house on it. Price was discussed between them. On 16 August 1991 discussions took place which Mr Corban has contended constituted an oral contract of sale. There were various accounts of what was then said. Mr Taranto, Mr Levett and Mrs Levett each gave evidence, and the evidence was contained in affidavits and in oral evidence given before the trial judge. Mr Corban was not present at the relevant conversations, ie, the conversations on which he has relied to establish the contract. But Mr Taranto communicated with him consequent upon what was said between him and Mr and Mrs Levett. There were discrepancies, of greater or lesser importance, between the evidence given by witnesses by affidavit and orally and between the various witnesses. For example, what was said by Mr Levett and by Mrs Levett as to the conversations and what took place differed in some respects. It was suggested with some apparent truth that what the witnesses said at one time was not consistent with what they said at another. Accordingly, it was necessary for the judge to determine which portion of the evidence he accepted and what conclusion he drew from that evidence. His Honour did not accept Mr Taranto as "a witness of truth, so much so that wherever there is a conflict between his evidence and the evidence of any other witness or any contemporaneous document, I prefer the evidence of that other witness or the account set out in or the inference to be drawn (from) that document". His Honour accepted Mr Levett as a witness of truth. He took into account that Mr Levett was dyslectic and "to all intents and purposes... illiterate". He was therefore unable to refresh his memory from documents. The judge concluded that "his recollection is faulty on some points" and that he had "sinned in the usual human way" by embroidering his story a little as he "perceived it appropriate in giving evidence" of what had happened. He concluded also that Mr Corban, Mrs Levett and Mr Levett Junior had also, as was human, embroidered their stories in the same way. Accordingly, I infer from his Honour's findings and the terms of his judgment that he did not accept the whole of the evidence of these witnesses and that, for the purpose of arriving at his conclusions upon the central matters in issue, his findings did not necessarily correspond precisely with what any of those witnesses said. In the circumstances to which his Honour referred and having regard to the evidence given by the witnesses, that was, in my opinion, a course which was open to him. URJ CORBAN v LEVETT (Mahoney P) 3 In arriving at his conclusions in this regard, his Honour was, in my opinion, relevantly in a position of advantage vis-a-vis this Court. His central conclusion was that the defendants "did not intend to enter a binding agreement unless and until contracts were formally exchanged". He did not spell out, step by step, how he arrived at this conclusion or the inferences or findings made from what the witnesses were recorded to have said. It was, I think, not necessary for him to do so. It was sufficient that he indicate the finding that he did. Having reviewed the evidence with the assistance of counsel and their submissions, I have come to the same conclusion. In my opinion, on 16 August 1991 the parties arrived at a general consensus that the property should be bought and sold for $200,000. But other matters were discussed. It was agreed that a drainage easement across the land was to be dealt with in a manner set forth in a diagram to which they referred. Reference was made to the date for settlement: 15 November 1991 was then adopted. And * was agreed that plans for the building of a house previously approved by the council were to be reapproved. These things at least were the subject of a consensus between the parties. There was reference also to a ten per cent deposit. They agreed that such a deposit "is to be released upon exchange of contracts to the vendor". After the conversation, Mr Taranto gave to Mr and Mrs Levett a receipt for $20,000 which they gave to him "being full ten per cent deposit on purchase of Lots 155 and 156 Brokers Road Balg pp $200,00 subject to contract". It is in my opinion plain that both Mr Taranto (who represented Mr Corban in the conversation) and Mr and Mrs Levett contemplated that formal contracts for the sale of land would be drawn up, signed and exchanged. This appears from the documentation to which I have referred. What Mr Levett said as to the conversation indicates that that was his contemplation of the way in which a contractual transaction, in his area or this, would be entered into. And, if the intention of Mr Taranto be relevant, it is to be inferred from the documents that he sent to Mr Corban and others at or about the time, that that was his contemplation. In fact, the solicitors for the parties went some distance towards the preparation of counterpart contracts. It appears that Mr and Mrs Levett signed a copy of such a document prepared for them by their solicitors. But no exchange of contracts took place. Faced with this evidence, Mr Hammerschlag's main submission was, I think, that an agreement was made between the parties which had as one of its terms that formal contracts should be entered into, signed and exchanged but that that agreement was to the effect that what was to be included in the documents to be signed and exchanged was no more and no less than was agreed in terms on 16 August 1991. His submission was to the effect that the parties contemplated that the solicitors would draw up a usual form of contract for the sale of the land, that they would include in that contract appropriately drawn clauses to the effect of what had been agreed between Mr Taranto and Mr and Mrs Levett on 16 August 1991, and that nothing more would be included in the contract. The evidence does not disclose what would have been the form of contract to be used in such an event: at least, the form of it was not explored in oral submissions before this Court. It does not appear whether, in using such a form, there were matters to be agreed upon, eg, in relation to apportionment of outgoings or other matters. It is not necessary to for me to pursue further the implications of that aspect of the matter. 4 UNREPORTED JUDGMENTS The terms of any consensus, agreement or contract made between the parties will depend essentially upon their intention and, special cases apart, no formula of words is to be treated as completely intractable. But, during the past fifty years and more, attention has been given, by courts and by those concerned with the sale of land, to the significance to be given to phrases such as "subject to contract" and to words indicating that there is to be a drawing up of contracts and an exchange of counterparts. If it was not the purpose, at least it was the effect of cases such as Masters v Cameron (1954) 91 CLR 353 to provide a measure of certainty as to the legal effect of negotiations between parties for the sale of land and as to the effect in law of the use of terms of that kind. In Masters v Cameron: at 360; the court referred to the three classes of contract which, or which mainly, may be intended by parties in negotiations of this kind. Their Honours then: at 362 et seq; considered the effect of terms such as those to which I have referred. Their Honours said: "The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: Farmer v Honan (1919) 26 CLR 183. Nor is any formula, such as 'subject to contract', so intractable as always and necessarily to produce that result: cf Filby v Hounsell (1896) 2 Ch 737. But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v The Marchioness of Ely (1865) 4 De GJ and S638; 46 ER 1066: 'if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation': at 646, 1069. Again, Sir George Jessel MR said in Crossley v Maycock (1874) LR 18 Eq 180: 'if the agreement is made subject to certain conditions then specified or to be specified by the party making it, or by his solicitor, then, until those conditions are accepted, there is no final agreement such as the Court will enforce': at 181, 182. This being the natural meaning of 'subject to contract', 'subject to the preparation of a formal contract', and expressions of similar import, it has been recognised throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract." More recently, the cases were considered by McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1987) NSW ConvR 55-324, 56,981. His Honour, in a judgment with which Kirby P and Glass JA agreed, said: "In New South Wales, real estate is ordinarily sold by signing and exchanging contracts in the form approved by the Real Estate Institute and the Law Society. Accordingly, even though the parties agree in writing that real estate is sold for a specified price, the presumption is that no binding contract exists, until 'contracts' are exchanged: Smith v Lush (1952) 52 SR (NSW) 207 at 212; Allen v Carbone (1975) 132 CLR 528 at 533." His Honour emphasised that "the decisive issue is always the intention of the parties" and, in the circumstances of the case before him, accepted that a binding contract was constituted by the terms of correspondence between the parties. In my respectful opinion, it is proper that the effect of the decision in Masters v Cameron be not unnecessarily qualified. It is in the public interest that, subject to the intention of the parties, there be in their negotiations such a degree of certainty as can be achieved. URJ CORBAN v LEVETT (Mahoney P) 5 There is in this, I believe, practical sense. A contract for the sale of land has incidents which are not ordinarily referred to in negotiations of the kind which took place in the present case. There are matters to which the attention of the parties will ordinarily be drawn by their solicitors when the solicitors come to determine the form of contract to be signed and exchanged. No doubt this was so in the present case. At least, the detail of arrangements to be made in relation even to the three matters to which attention was directed may require operative decisions by the parties and further negotiations between them. This was illustrated in the present case. One of the matters the parties had in mind was the removal of growths from the property. Mr Corban had, the day before the conversation, taken steps and to have some of the material removed. What was to be done, as contemplated on either side of the contract, was not the same. And there were subsequent discussions in relation to it. Were a written contract to be drawn up, it may be that matters of this kind would legitimately require attention and agreement between the parties. Mr Hammerschlag, for Mr Corban, properly placed emphasis upon what was said between Mr Taranto and Mr Levett as to a "deal" having been made as the result of their conversation. But the intent of this was essentially for the judge to determine. He could and no doubt did have regard to the fact that, in Mr Levett's understanding of contractual arrangements in his business of car dealing, a deal was not a contract until the contract was signed: at least, this was an interpretation which could be placed upon what he said. And this was, I think, the effect of the conversation on 16 August 1991. Thus, Mr Levett denied that he had said to Mr Taranto, "Sir, we have a commitment". He added, "I said to Mr Taranto, 'It's a deal subject to the condition to remove the trees'. And I didn't know about the pipes until me and my wife went back over to the property." (There was no reference to the trees in the written document of 16 August 1991). It was, as I have said, open to the judge to conclude that, though "deal" and the like were mentioned, what was said was not intended by Mr Levett, and did not convey to Mr Taranto, that the parties had then made a firm contract. I have come to the same conclusion. 2. ESTOPPEL: It is necessary to determine what is the estoppel claimed by the plaintiff and on what basis it is claimed. There was no formal pleading: the proceeding was commenced by summons and formal statement of claim and statement of defence were not directed. However, as is customary in the Commercial Division of the Court, the plaintiff set forth his claim as to the nature of the dispute, the issues likely to arise and (in summary) his contentions. The claim made was that "... the defendants are estopped from denying..." the matters there referred to. The basis of the estoppel is set forth in para3 and para4 of the plaintiff's contentions as in the summons. Those paragraphs are in the following terms: "3, Alternatively to the aforegoing, the defendants represented to the plaintiff, alternatively the parties to each other's knowledge acted, as between them, on the common assumption that: (a) The said work should be carried out by the plaintiff at its expense. (b) Once carried out the defendants would purchase the properties from the plaintiff as aforesaid. 4. Pursuant to the agreement, alternatively in reliance upon the defendants said representation further alternatively acting in accordance with the assumption between them the plaintiff at its expense: (a) Procured the diversion of the easement. 6 UNREPORTED JUDGMENTS (b) Procured the reapproval of the said plans. (c) Procured the removal of the trees nominated by the defendants and removed debris." There was, I think, no departure from the cases there detailed m the submissions made to the Court by Mr Hammerschlag, orally or in writing. Without limiting what has been said, I shall deal with this submission, in general, upon the basis that, upon a representation that a binding agreement existed between the parties, Mr Corban did "the said work", ie, work in relation to the drainage easement and the removal of trees. The estoppel question is to be approached, as the judge indicated, upon the basis that each party knew that a binding agreement would not come into existence until counterpart contracts were signed and exchanged. As I have indicated, it is clear that Mr and Mrs Levett were conscious that this was so. More doubt has been suggested as to the state of mind of Mr Corban. In the transaction, his son and Mr Taranto were concerned on his behalf. In my opinion the inference to be drawn is that Mr Taranto, his agent to "sell", was aware that no binding contract would come into existence unless and until signed counterparts were exchanged. It is not clear - there is, I think, no direct evidence - as to whether Mr Taranto told Mr Corban in terms that this was so. But Mr Corban did not, in his evidence, suggest that it was his subjective belief at the time that a binding contract had already been made. The inference I would draw from the evidence is that Mr Corban did not in fact believe that a binding contract had then been made but that he was assured by Mr Taranto that Mr Levett and his wife would in due course sign and exchange contracts for that purpose. Counsel, in written submissions, have examined in detail the evidence relating to these matters. I do not think that it warrants or a fortiori requires a conclusion other than that to which I have referred. If this be a correct assessment of the evidence, then the belief of Mr Corban and accordingly the representation that was made - insofar as it affected him - was not that there was existing a binding contract but that Mr and Mrs Levett would in due course being one into existence. It is upon this basis that the submissions as to estoppel are to be considered. The parties have pursued at length details of the law as to estoppel as it is now determined to be. It is no criticism of the industry of counsel that I do not pursue what they have said. My conclusion is that, however the law of estoppel be now formulated, it requires, in a case such as the present, that Mr Corban reasonably formed and acted on the opinion that a binding contract existed. As I have indicated, he did not do so. Upon this basis I am of the opinion that the appeal should be dismissed with costs. Meagher JA I agree with Mahoney P. Beazley J I agree with Mahoney P. Appeal dismissed with costs. Counsel for the Appellant: DJ Hammerschlag/ VF Kerr Solicitors for the Appellant: Kell Heard McEwan, Wollongong URJ CORBAN v LEVETT (Beazley J) Counsel for the Respondents: DL Warren Solicitors for the Respondents: Leo and Morrison, Wollongong