Contracts - the Consequences of Communications and Obligations to Complete

A recent Supreme Court of Queensland decision reinforces the fact that contracts are binding and that not all forms of communication form part of contract transactions.   

The matter concerned involved a Put and Call Option Deed (the Deed) which had been executed by the parties in relation to a parcel of land on the Gold Coast.  The findings of this case provide a reminder that where one party to a contract, intimates to the other that it no longer needs to fulfil a contractual obligation, the other party may choose whether or not to use that information. 

In this case the seller tried to avoid its contractual obligation by advising the purchaser that it had not met its mortgagee's terms and the mortgagee would not consent. The seller relied on this as justification for the termination of the Deed.

The Deed required a deposit to be paid by the purchaser however this was not paid on time and a later attempt to pay the deposit was not accepted by the seller.

The Case was brought to Court by the purchaser as it sought a caveat over the land and completion under the Deed.  The seller claimed that the Deed did not exist because it did not have the mortgagee's consent and it sought to have the caveat removed. 

The Court noted that whilst the fact that the purchaser's failure to pay the deposit by the due date would normally constitute a breach of an essential term and give the seller the right to terminate in this case it did not.  The Court held that the communication by the seller to the purchaser, that it was unable to meet its mortgagee's conditions and therefore the purchaser did not need to make the deposit, was unnecessary.   

The Court referred to a prior judgement where it was noted that if one party communicates to the other that it is useless to fulfil an obligation and the other party acts on that information, "the party to whom the information is given is dispensed from a nugatory tender performance".

The purchaser's action was successful.  The case is a useful reminder of conveyancing practice and that parties should act honestly and reasonably with each other and respect contractual obligations.

For further information contact:
Paul de Silva
T (07) 3292 9720
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