Wilmott v Johnson [2002] NZCA 309; [2003] 1 NZLR 649 (12 December 2002)

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Wilmott v Johnson [2002] NZCA 309 (12 December 2002); [2003] 1 NZLR 649

Last Updated: 14 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 151/02

	BETWEEN	ROBERT MALCOLM WILMOTT and JANET MARY WILMOTT
		Appellants

	AND	PETER GORDON JOHNSON and LYNNE MARIE JOHNSON and HUBBARD CHURCHER TRUST MANAGEMENT LIMITED as trustees of the BEATRICE M TRUST
		First Respondents
	AND	GAVIN WILLIAM EASTWICK and MICHAEL CLARENCE WALKER as trustees of the HARRIS FAMILY TRUST
		Second Respondents

Hearing:	4 December 2002
Coram:	McGrath J Glazebrook J Baragwanath J
Appearances:	W N P van Vuuren for Appellants D M Lester for Respondents
Judgment:	12 December 2002

JUDGMENT OF THE COURT DELIVERED BY BARAGWANATH J

[1] The appellants (the vendors) challenge on appeal the decision of Fraser J delivered in the High Court at Timaru on 3 July 2002 holding that the first respondents (the Beatrice M Trust) are entitled to performance of a contract to purchase the vendors' land in priority to the claim of the second respondents (the Harris Trust) whose contract with the vendors is later in time.
[2] The case turns on what date the contract between the vendors and the Beatrice M Trust came into effect – 30 November 2001 or 3 December 2001.

The facts

[3] The vendors own a business property in Stafford Street, Timaru which in March 2001 they listed for sale with two local firms of real estate agents, Reid & Wilson Limited (represented by Mr Wilson) and Morton & Co Ltd (represented by Mr Morton).
[4] On 27 November 2001 Mr Wilson secured from Mr Johnson, a trustee of the Beatrice M Trust, execution of an agreement for sale and purchase of the property at a price of $650,000 in a form (7th ed (2) July 1999) approved by the Real Estate Institute of New Zealand and by the Auckland District Law Society. To the print of the agreement form had been added in typescript the names of the vendors as vendor and that of the “Beatrice M Trust” as purchaser. Mr Johnson signed his own name under the heading “Signature of purchaser(s).”
[5] Clauses printed on the form included clause 5.2 which permitted the purchaser to make objections or requisitions on or before the earlier of the 15th working day after the date of the agreement, the possession date, or the settlement date. Clause 8.2 provided that a LIM report was to be obtained by the purchaser at the purchaser’s cost and was to be requested by the purchaser on or before the fifth working day after the date of the agreement and the agreement was conditional upon the purchaser approving that LIM. And the definition clause 1.1(7) provided that any act done pursuant to the agreement after 5 pm on a working day should be deemed to have been done at 9 am on the next succeeding working day,
[6] Added to the print were typed terms which included:

• 14.0 This agreement is subject to the following:

(a) To the Purchaser’s Solicitor approving of the leases to McDonalds and Kimbyr Investments Limited within five (5) working days of this agreement being signed by both parties.

(b) To the Purchaser’s Solicitor approving of the title to both 238 and 240 Stafford Street CT 16K/715.

[7] On Thursday 29 November Mr Wilson took the signed agreement to Mr Clark of Petrie Mayman Clark, the vendors' solicitors. Mr Clark wrote in pencil above and adjacent to “Beatrice M Trust” “Bruce [Wilson] I prefer to see the names of the trustees shown as the purchaser” and gave the document back to Mr Wilson.
[8] Mr Wilson spoke by telephone to the solicitor for the Beatrice M Trust, Mr Vincent, who provided the names of the trustees of that trust. Mr Wilson thereupon wrote to the vendors' accountant, Mr Dellow:

Mark Clark has asked that the purchaser be in the names of the Trustees rather than just the “Beatrice M Trust”.

Would you please ask Malcolm and Janet to delete the “Beatrice M Trust” as purchaser and replace with:

PETER GORDON JOHNSON & LYNNE MARIE JOHNSON & HUBBARD CHURCHER TRUST MANAGEMENT LIMITED (TRUSTEES BEATRICE M TRUST).

This alteration will need to be initialled by both Malcolm and Janet.

Yours faithfully

[initial]

Bruce Wilson

[9] The next day, Friday 30 November 2001, the vendors went to Mr Dellow’s office and hand-wrote those names on the agreement against the printed word “purchaser”, deleted the reference to “Beatrice M Trust”, initialled the alteration and added their signatures as vendors. Mr Wilson then collected the agreement from Mr Dellow’s office and inserted the date “30 November 2001” on the first page of the document as its date. Mr Wilson then telephoned Mr Johnson, it seems to arrange for Mr Johnson to initial the changes.
[10] It is the case for the vendors, supported by the Harris Trust, that the signature by the vendors on 30 November concluded an agreement between them and the Beatrice M Trust. Accordingly in terms of clause 14.0(a) the five working days time limit for the purchasers' solicitors approval of the leases to McDonalds and Kimbyr Investments Limited thereupon began running. They claim that 30 November was also “the date of the agreement” which set time running for the purposes of obtaining the LIM report and making objections or requisitions.
[11] The initialling did not occur until the following Monday 3 December 2001 when Mr Johnson attended at Mr Wilson’s office and initialled the changes. Mr Wilson thereupon arranged for the original agreement to be delivered to the vendors’ solicitor, Mr Clark, with copy to Mr Vincent as solicitor for the Beatrice M Trust. It is the case for the Beatrice M Trust that there was no contract until this initialling had been concluded.
[12] On what has emerged as the critical point in the case - the significance of the initialling - the evidence was brief. Mr Wilson's account, in an affidavit sworn in support of an application to prevent lapse of a subsequent caveat by the Harris Trust noted against the title to the property, was that having collected the agreement from Mr Dellow late on 30 November 2001, the inclusion of the full names of the Beatrice M Trustees having been initialled by the vendors but not by the Beatrice M Trust:

At about 5pm on the 30th of November 2001 I called Mr Johnson by telephone and he preferred to leave his initialling until Monday the 3rd of December 2001.

He then recounted Mr Johnson's visit to Reid & Wilson Limited's offices on the Monday when the initialling occurred. Mr Wilson then dispatched the original to Mr Vincent on behalf of the Beatrice M Trust with copy to the vendors' solicitors as is customary.

[13] Asked in chief why the change was to be initialled he replied:

The contract had been amended... by the Willmotts and it was an alteration of the contract which we would automatically get initialled by the purchaser...any alteration is normally signed by each party of at least initialled. It is general real estate practice and is well accepted.

[14] The following passage is from his cross-examination on behalf of the Harris Trust:

What I am asking you about is what was in your mind at the time. I am going to suggest... that the reason you didn't follow up on obtaining the initials on the Friday afternoon was that you thought and [Mr Johnson] thought this was a done deal. That was the position wasn't it?... The offer was accepted on the Friday, certainly, there is no argument about that.

You didn't for a moment consider that the state of the bargaining was such that the Wilmotts could have withdrawn it did you?... No I don't think they could have withdrawn it.

That is why you were relaxed about getting initials on the contract and leaving that to the following Monday wasn't it?... Yes I suppose that's true.

[15] And in cross-examination on behalf of the vendors he accepted that when solicitors are presented with a real estate contract they will normally look at the front page to find out when the contract was signed.
[16] Mr Johnson in an affidavit supporting the caveat deposed:

On or about the 27th of November 2001 I made a conditional offer for the purchase of the premises. However the form of the Agreement was not acceptable to the [vendors'] solicitors as the Purchaser was described in the Agreement as the "Beatrice M Trust" rather than having the names of the Trustees inserted. The contract was amended to incorporate the names of the [trustees] and was signed and initialled by the [vendors] and returned to the agent to have the amendment initialled by me on behalf of the Trustees. The amendment to the Agreement was initialled by me... at approximately 10am on the morning of the 3rd of December 2001... the Agreement was concluded on the 3rd of December 2001 by my endorsement of the alteration...

[17] In his written brief for the trial he added:

The request that I initial the changes was made by the [vendors'] agent Mr Wilson. Personally I considered it important to initial the changes so that there was certainty as to the agreement. I did not see the initialling as a mere formality.... I accept that my solicitors worked on the basis that the contract had been made on the 30th of November... [and] that the parties concerned including myself had taken the 30th November date at face value but it is my personal view that finality was not achieved until I initialled the changes made by the vendors on the 3rd December.

[18] The notes of cross-examination by counsel for the Harris Trust record:

Bruce Wilson contacted you to tell you that he had [the vendors'] signatures on the contract?...Yes

...if we are to accept what you say about this contract...then it could have been withdrawn...at any time before you put your initials on it?... I am not sure about that. That would be a legal matter. I would take legal advice on that.

I... suggest... the reason why you didn't do anything about signing off the contract on the Friday was that you thought it was a done deal... ?... No... if Bruce Wilson the agent had said to me "I need you down at my office immediately " I would have gone but there didn't appear to be any urgency on that day to sign that contract off.

Because you thought you had it sewn up?... Yes I thought it was a contract.

You thought it was a contract signed and confirmed and if it had been suggested to you otherwise I bet you would have been down pretty quickly to secure the position, wouldn't you?... Yes

[19] To the question from counsel for the vendors:

When you initialled the contract, in your view were you authenticating the entire contract or just the hand written change?

he replied:

I was authenticating the purchaser's name.

There followed the exchange:

Counsel I am going to ask you to tell me what in your view is the date of that agreement?

Mr Johnson The date on the front page of the agreement is 30 November.

Counsel Are you telling me that is the date of the agreement?

Mr Johnson That is certainly the date of the agreement, yes.

[20] Re-examination emphasised the point that the first time Mr Johnson saw the change to the name of the purchaser was 3 December.
[21] Mr Clark had not been told that the initialling had not taken place until Monday 3 December 2001. Working from 30 November he calculated that the deadline for the first trust to confirm satisfaction of the leave approval conditions was 5 pm on Friday 7 December 2001.
[22] On Thursday 6 December 2001 the Harris Trust executed and submitted to the vendors a backup offer for $662,750 which was subject to a number of conditions including:

This agreement will come into effect immediately should the existing agreement on the property lapse before, or not become unconditional by, 5 pm Friday 7 December 2001.

That agreement was signed by the vendors. Mr Clark as their solicitor did not however see the agreement until after it had been signed.

[23] Shortly after 5 pm on 7 December 2001 Mr Clark, for the vendors, gave notice to Mr Vincent for the Beatrice M Trust, purporting to avoid the contract because of failure by the Beatrice M Trustees to confirm satisfaction of special condition 14.0. Mr Vincent in response at 6.01pm faxed Mr Clark stating:

We do not accept that the contract is at an end. We are instructed to confirm special condition 14(a) and (b).

[24] There followed correspondence by which the solicitors for the Beatrice M Trust asserted to the vendors’ solicitors that the contract was not concluded until 3 December 2001. They stated that the requirements for the LIM were waived and that the contract might now be treated as unconditional in all respects. The Harris Trust caveated the title; an application to prevent lapse of the caveat was succeeded by substantive proceedings by the vendors, claiming that the Harris Trust's agreement was binding upon the vendors and the Beatrice M Trust.

The decision of the High Court

[25] Fraser J concluded that the conduct of the vendors on 30 November in returning the document to their agent with the pencilled endorsement about the names of the trustees was itself a rejection of that offer. For the reasons stated in para [35] that cannot be so.
[26] The Judge held that:

Subject to the point taken by Mr Maling [for the Harris Trust] about the significance and effect of Mr Vincent’s action in supplying the names of the trustees on 30 November... my view is that the first agreement, as amended by [the vendors] on 30 November and signed by [them] on that day, was a counter-offer to sell to the [Beatrice M Trust].

He decided that the amendment made and initialled by the vendors evidenced their intent to regard the names of the trustees of the Beatrice M Trust as a material matter. They had failed, the Judge found “declined”, to accept an offer on the same terms from a purchaser known only as the “Beatrice M Trust”. He considered that the inclusion by the vendors of the names of the trustees of the Beatrice M Trust supplied by their solicitor Mr Vincent was a material variation, so that there was no agreement completed until Monday 3 December when the initialling on behalf of the Beatrice M Trust was added.

[27] He accordingly gave judgment in favour of the Beatrice M Trust.

The arguments on appeal

[28] The appellants’ argument was that at all material times the Beatrice M Trust maintained a continuing offer expressed in the document executed by Mr Johnson on 27 November 2001 to purchase the property on the conditions it contained; that their solicitor and agent Mr Vincent informed the vendors of the full names of the trustees of the Beatrice M Trust; and that the execution by the vendors of the agreement on 30 November 2001, which they had completed with the Beatrice M Trust’s authority by handwriting the names of its trustees, constituted the acceptance of the continuing offer, so that the contract came into effect immediately. The return of the document to Mr Wilson to be initialled by Mr Johnson, they submitted, is to be treated as a simple formality and as confirmation of an existing binding contract. That is how both sides saw the position. The fact that Mr Johnson did initial the agreement and returned it to the vendors with the date of 30 November unaltered, signified an acceptance of that date as being both the date of signature for the purposes of clause 14.0(a) and the “date of the agreement” for the purposes of the contractual timetables for securing the LIM report and for making objections or requisitions. Alternatively the failure to alter the 30 November date coupled with the act of returning the agreement in that form to the vendors constituted a representation and alternatively an election to the effect that the contract was entered into on the 30th, or was to be so treated for the parties’ purposes. Accordingly the Beatrice M Trust are estopped from asserting the contrary.
[29] The argument for the Beatrice M Trust was that the vendors’ return of the document to the Beatrice M Trust for the purpose of initialling the amendments signified that the contract would not be complete until the initialling had occurred. So it was incomplete until 3 December.

Discussion

[30] The crucial issue is whether the fact that the parties' arrangement included an additional initialling on behalf of the Beatrice M Trust prevented any contractual commitment from arising until that occurred.
[31] The position in law is that there is no distinction between a trust and its trustees. As stated in Commissioner of Inland Revenue v Chester Trustee Services Limited (CA 111/02, 14 October 2002) at page 13 paragraph 37:

A trust is not a legal entity distinct from its trustee ...

[32] It is of course unwise for any party to contract with a trust without knowing the identity of the trustees, and the vendors were prudently advised by their solicitor not to do so. But having ascertained that identity they were prepared to commit themselves on 30 November 2001 by writing in the trustees' names and adding their own signatures and in addition, as instructed by their agent Mr Wilson, initialled beside the addition of the trustees’ names.
[33] It may be that the vendors personally, like many others, were unaware of the absence of any distinction between a contract by a trust and a contract by its trustees in that capacity. But what was in the minds of the vendors is not material; what matters is what objectively took place between them and the Beatrice M Trust.
[34] At the point when the vendors signed the amended agreement and gave it back to their agent, Mr Wilson, to arrange the initialling by the first trustees, there had been in point of legal analysis:

• [a] An offer by the Beatrice M Trust expressed by Mr Johnson’s execution of the agreement on behalf of the trust. There is no dispute as to his authority to do so.
• [b] A commitment by the vendors to potential liability by their elaboration of the name of the trust and the addition of their signatures.

[35] We have noted at para [26] Fraser J’s conclusion that the conduct of the vendors on 30 November in returning the document to their agent with the pencilled endorsement about the names of the trustees was itself a rejection of that offer. We now give our reasons why that cannot be so. The agent was the agent of the vendors, so that communication was confined to parties on the vendors’ side of the transaction without reference to the Beatrice M Trust as purchasers. The law of contract is concerned with the conduct of contracting parties inter se, viewed objectively as it would be by an independent third party observer. What such observer is to be taken to have known of is Mr Wilson’s telephone call of 30 November 2001, to Mr Johnson representing the Beatrice M Trust, concerning the initialling of the document.
[36] There is some appeal in the vendors’ argument that a binding contract ensued at that point, when the fact of the vendors’ execution of the agreement was notified to Mr Johnson. It is common ground that "the Beatrice M Trust" and "Peter Gordon Johnson and Lynne Marie Johnson, and Hubbard Churcher Trust Management Limited (trustees Beatrice M Trust)" were in law synonymous. Hence the force in the argument that spelling out the trustees' details added nothing material and that the expression of the vendors' preparedness to be bound by adding their own signatures and notifying that fact should be treated as the point at which the contract was completed: see Raiffeisen Zentralbank Österreich AG v Crosseas Shipping Ltd [2000] 1 WLR 1135.
[37] But we are satisfied that it cannot succeed. It is conventional and frequently decisive to analyse dealings in terms of offer and acceptance. The offer by the Beatrice M Trust could have been accepted by the vendors simply by adding their names and executing the agreement. It was at first sight no more than an elaboration of the offer they had received to spell out the names of the trustees and to write those in before adding their own signatures. But in Carruthers v Whitaker [1975] 2 NZLR 667 this Court emphasised the importance of the principle stated by Lord Greene in Eccles v Bryan [1948] Ch 93:

Parties become bound by contract when, and in the manner in which, they intend and contemplate becoming bound. That is a question of the facts of each case...

[38] As the transaction would have appeared to the vendors when initially proffered by the Beatrice M Trust, they did not know precisely who were the proposed contracting parties and therefore whether it was wise to contract with them. When the information from Mr Vincent, a solicitor for the Beatrice M Trust, was communicated to the vendors that problem was substantially removed. They were clearly content to commit themselves to sell to the identified trustees.
[39] They were not however prepared to do so unreservedly. By their conduct of returning the executed agreement for initialling by Mr Johnson, they signalled that the transaction was not to be treated as concluded as at 30 November, but that the further act of the addition of the initialling by the trustees was required to confirm their willingness to be bound. Their act of initialling and returning the agreement in the circumstances is to be characterised, as it was by the Judge, as a counter-offer rather than as an acceptance.
[40] Another form of analysis is that described by Cooke J in Boulder Consolidated v Tangaere [1980] 1 NZLR 560, 563 which by applying

the test whether, viewed as a whole and objectively, the [evidence] shows a completed agreement.

Avoids:

...the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration

of which Lord Wilberforce spoke in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1974] UKPC 1; [1975] AC 154, 167; [1974] 1 NZLR 505, 510.

[41] Whichever way the case is viewed, having by their conduct signalled that was their position, the vendors cannot now resile from the requirement expressed at the time that the trustees must initial the addition of their names and argue successfully that the initialling on behalf of the Beatrice M Trustees was not material.
[42] What Mr Wilson as the vendors’ agent and Mr Johnson on behalf of the Beatrice M Trust individually thought was the significance of the initialling was never communicated to the other. Had they expressed agreement that the contract would come into force prior to the initialling on 3 December such agreement might have been effective. But uncommunicated belief can have no significance for the purposes of the law of contract unless it consists of common knowledge of some fact, which will thus enter the "matrix of facts" that in Prenn v Simmonds [1971] 1 WLR 1381 Lord Wilberforce showed may be considered on construction.
[43] The common practice of land agents was described by Mr Prier, called by the vendors as an independent expert. He had had 35 years experience in the real estate industry and had been President of the New Zealand Real Estate Institute. In his brief he deposed that:

It is generally understood by land agents that a sale and purchase agreement is not finally binding until signatures are in place and initialling or signatures on amendments have been completed by both parties...From the point of view of a real estate agent an alteration as to the identity of the purchaser is a significant change and one which a real estate agent would be careful to ensure was initialled or signed off by the purchaser.

Asked about the fact that the contract had been dated by Mr Wilson before Mr Johnson's initials were added he said:

I say [the agreement] it did require those initials before it came into full force and effect. I wouldn't dare proceed without those initials and I am sure Mr Wilson acted completely correctly as an agent [in requiring the initials].

[44] That evidence is important as being of common practice. It provides Mr Prier's response to the vendors' further point that Mr Prier also described the date as a key part of the contract which both signals to anyone picking up the contract when it was entered into and serves as the datum against which times for such events as making objections are to be measured. It was plainly his opinion that the contract should have been redated at 3 December. But the omission to do so does not affect his fundamental point that as a matter of established practice it is the time of final initialling that is determinative of when the contract was complete and not the date it bears.
[45] In this case such practice coincides with the view of the transaction taken by the Judge. It is legitimate when developing presumptions to consider policy factors. The public interest in encouraging a practice that makes for certainty and simplicity is apparent. We are of the view that the practice described by Mr Prier is an appropriate starting point when considering the facts of a particular case. Here it supports the result reached by the Judge. We see no justification for departing from it.

Estoppel

[46] Nor can any estoppel arise. Whether expressed as estoppel by election between the options of leaving the 30 November date or replacing it with that of 2 December, or as representing by the return of the initialled document that the date of signing was 2 November, the vendors' argument fails by reason of their knowledge through their agent of the essential fact that the Beatrice M Trustees had not initialled the agreement until the 2nd.

Conclusion

[47] It follows that Fraser J's conclusion was correct and that the appeal is dismissed. The Beatrice M Trustees are entitled to costs against the vendors which are fixed at $5000 together with disbursements and travelling expenses as agreed or, failing agreement, fixed by the Registrar.
[48] Counsel for the Harris Trust, having filed a cross appeal limited to the issue of costs and expressed to be relevant only if the appeal succeeded, was given leave prior to the hearing not to appear. The appeal having failed it appears that no other issue remains. But in case that is not so application may be made by memorandum within 7 days if that is not the case.

Solicitors
Petrie Mayman Clark, Timaru for Appellants
Saunders & Co, Christchurch for Respondents