By Russell Cocks, Solicitor
First published in the Law Institute Journal
Determining whether negotiations between a vendor and a prospective purchaser have reached the stage where it can be said that a legally binding contract of sale of land has come into existence is a question that often occupies the attention of courts. The legal principles to be applied are rarely in dispute; it is the application of those well established principles to the particular facts of the case that causes contention and requires judicial determination.
In summary, a legally enforceable contract requires:
- writing;
- signing;
- offer;
- acceptance; and
- communication of acceptance
in an environment where it is possible to determine the:
- parties;
- property; and
- price.
Given the number of elements that comprise contract formation it is perhaps not surprising that the question comes before courts on a regular basis. Recently, Victorian courts at the opposite end of the legal spectrum have considered the application of these legal principles and reached opposite opinions as to whether a contract existed in particular circumstances.
Austlii has made the judgments of the County Court available for consideration and, whilst those judgments are of limited judicial significance, consideration of those decisions adds to an understanding of the underlying principles. Robles & Moser v Pigg [2014] VCC 1127 was an application for specific performance of a contract of sale of land by the purchaser. The essential issue was whether there was a contract that could be enforced, the vendor arguing that the negotiations between the parties fell short of the threshold requirements of a contract. There is no doubt that the factual circumstances had certainly reached the very tipping point of enforceability as the written document setting out all of the required information was in the hands of the vendor. The contract, signed by the purchaser, was emailed to the vendor. She responded to the agent by email stating, ‘I will accept the offer but I am having difficulty scanning the contract’. The agent advised the vendor that he would communicate the vendor’s acceptance to the purchaser and requested that the vendor return the signed contract by fax if scanning was a problem. The next day the vendor emailed the agent to say that she would not accept the offer and thereafter refused to proceed with the contract.
The vendor’s evidence was that she had not signed the contract and that her email was an indication of her future intention. If accepted, that meant that the crucial element of signing was absent and no contract existed. The judge rejected the vendor’s evidence and preferred to infer from the vendor’s email that the vendor had printed the contract, had signed it and then discovered the difficulty in relation to scanning the signed document. That being the case, all elements of a contract were satisfied and the purchaser was entitled to specific performance.
Alternately, the judge accepted that the vendor’s ‘signature’ on the email of ‘Jessica’ constituted sufficient signing of the contract for the purposes of s 126 Instruments Act 1958. It is well accepted that the ‘signature’ that needs to be found can be found in a document ‘outside’ of the formal contract document and s 9 Electronic Transactions (Victoria) Act 2000 now means that the signature can be ‘found’ in a document created and transmitted digitally. Over 500 years we have moved from a wax seal, through a formal signature to the present position of acceptance of an informal digital signature.
At the opposite end of the legal spectrum, the Victorian Court of Appeal also considered the question of the requirement of a signature on a contract of sale of land in Update P/L v. Commissioner of State Revenue [2014] VSCA 218. Imposition of liability to pay a tax is often referrable to an event that takes place between taxpayers, sometimes determining which of those taxpayers will be liable to pay the tax or whether tax will be payable at all. Therefore the principles relating to contract formation are relevant to determining tax liability.
One such example is the imposition of liability to pay growth areas infrastructure contribution (GAIC). This case concerned an appeal by a purchaser of land against the imposition of GAIC as a consequence of the purchase. GAIC was only payable if the contract came into existence after a certain date. The purchaser sought to argue that the contract was in existence prior to that date but faced the difficulty of establishing that a binding contract existed notwithstanding that the vendor had not signed. With respect, it can only be the fact that the tax approached $1 million that enticed the purchaser to argue that an unsigned contract could be enforceable. The purchaser sought to rely on months of negotiations and ultimate acceptance by the purchaser of the vendors’ longstanding terms to establish the contract, but nevertheless fell at the signature hurdle as the vendors had not signed the contract prior to the relevant date. No surprise there.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.