Man Loses Over $150,000 Due to Misunderstanding a Contract Term!

19 OCTOBER 2021
Man Loses Over $150,000 Due to Misunderstanding a Contract Term!

In a recent Supreme Court case a man negotiated to purchase a property.

It was agreed that the deposit was to be paid in two installments. Therefore, the contract included a clause that specified that the first installment was payable on exchange of contracts, and the second installment was to be paid "on the 4th month after the contract date".

The parties were all a bit unclear on exactly what those words meant. In a telephone conversation prior to the exchange of contracts the selling agent allegedly made a statement that the vendor was "not too concerned" about when the second installment got paid.

After exchange of the contracts and payment of the first installment of the deposit, the purchaser went overseas for a holiday.

While the purchaser was overseas, the real estate agent sent an email to the purchaser’s solicitors stating that the second installment was due on the 4th of August 2019. The purchaser replied by saying he was overseas but would return on the 6th of August and pay the deposit shortly thereafter.

The vendor's solicitor sent an email the following day to the purchaser’s solicitor terminating the contract. The vendor refused to transfer the property, asserting that the contract had been validly terminated. The purchaser took the vendor to Court seeking an order that the property be transferred to him.

The Court found that the vendor had legally terminated the contract because the phrase “on the 4th month after the contract date” meant on or before 4 August, not on or before 31 August. It decided that the vendor had given the purchaser a valid notice to pay, but in any case, the contract stated that time for payment of the deposit was “time essential”. The purchaser had failed to pay the deposit on time and therefore had breached an essential term. As a result the vendor was able to keep the entire first installment of the deposit of $150,000.00.

This case demonstrates at least two key points in property transactions. Firstly, that a contract should never have ambiguous term. And secondly that where clauses of a contract mention times or dates, it is crucial that you know whether or not “time is of the essence”.