Practitioners dealing with options over land in proposed subdivisions should note that an option which by its terms cannot be exercised until the subdivision plan is sealed is not rendered illegal by statutory prohibitions on selling land before the plan is sealed.
Later decisions that cite Braham v Walker
Decisions cited by Braham v Walker
BRAHAM v. WALKER [1961] HCA 7; (1961) 104 CLR 366
Vendor and Purchaser
High Court of Australia
Dixon C.J.(1), Kitto(2) and Windeyer(3) JJ.
CATCHWORDS
Vendor and Purchaser - Option to purchase land - Validity - Legality - Grant before plan of subdivision sealed - Term of option &which had the effect of suspending exercise until plan of subdivision sealed - Local Government Act 1946 (Vict.), s. 568.
HEARING
Melbourne, 1960, June 2, 3; 1961, March 7. 7:3:1961DECISION
1961, March 7.2. The date of the option is 9th March 1955. At that date the defendant, a married woman, was entitled, presumably under a contract of sale with the registered proprietor or someone claiming under the registered proprietor, to obtain an estate in fee simple in some thirty-seven acres of land at the junction of Boronia Road and Mountain Highway near Scoresby. The land in question was contained within one certificate of title and apparently was used and occupied as one parcel. The particular part with which we are concerned formed about six acres with a frontage to Boronia Road. It was decided by or on behalf of the defendant to subdivide this area into three or four blocks. Under instructions from the defendant a survey was made; it was completed on 26th February 1955 and a tentative plan of subdivision was forwarded to the defendant on 4th March 1955 by the surveyor. This formed the basis of a plan of subdivision which was submitted to the municipal council and approved and sealed by its authority on 4th April 1955. The tentative plan showed three lots and the final plan four; the substantial difference being that what was the centre block of the tentative plan was divided into two lots in the final plan. On 9th March 1955 the defendant entered into a transaction with the plaintiffs expressed in three instruments. One was a contract for the sale by the defendant to the plaintiffs of the most westerly of the blocks, another was a sale of the middle block, which later became in substance the second and third blocks. The third instrument consisted in the option now in suit and related to the third or most easterly block, the fourth lot as it became in the plan sealed. There is some discrepancy in measurement and area between the first or most westerly block as described in the contract and as shown in the sealed plan of subdivision and that is true of a comparison between the block described in the second contract and what corresponded with that block in the sealed plan of subdivision, namely the second and third lots taken together. But that did not affect the block shown in the option, which substantially corresponds with the fourth block in the sealed plan of subdivision. The option in terms was expressed to depend on the fulfilment of the two contracts and it is plain that the three instruments formed several parts of what the defendant was prepared to regard as one transaction when she entered into it. The contract relating to the most western lot gave the area as two acres, a considerable overstatement as it turned out. The price stipulated was 800 pounds an acre and was payable by a deposit of 200 pounds and the balance within five years. This provision was elucidated by a special condition enabling the purchasers to pay off the purchase money in multiples of 100 pounds on any interest day. A printed note forming part of the contract stated that no plan of subdivision had been deposited in the Office of Titles Melbourne in respect of the land sold. A condition provided that the purchaser should be entitled to vacant possession upon acceptance of title and payment of the deposit. A printed special condition was altered so as to read "the purchaser shall admit the identity of the land sold with that comprised in the plan of survey hereinafter mentioned". There was a sketch plan of the land endorsed on the contract but it was agreed that measurements shown on the plan were approximate only. It was provided that if the municipality declined to approve of the survey plan of the land the contract should be cancelled and the purchasers should be entitled to a refund of all moneys paid under the contract. Finally there was a clause providing that the contract was conditional upon the purchasers completing the purchase of the land to be shown on the endorsed plan in accordance with the provisions of a contract of sale of even date therewith and made between the vendor and the purchasers. That contract is the second of the three instruments of 9th March 1955 which have been referred to. In most respects the terms of the contract were the same as those of the first contract. But the balance of purchase money was to be paid within thirty days of the date of contract or within seven days of the consent of the municipality to the survey plan of the lands sold by the contract. The purchase money was 800 pounds an acre and the area was in fact approximately two acres; the deposit was 200 pounds. The purchasers became entitled to vacant possession upon acceptance of title and upon payment of the whole of the purchase money. There was the same statement that no plan of subdivision had been deposited in the Office of Titles and the same condition as to the contingency of the municipality declining to approve of the survey plan, a contingency upon which the contract was expressed to be cancelled and the moneys paid by the purchasers were to be repaid. There was too a provision that the contract was conditional upon the purchasers entering into a contract of sale with the vendor of even date for the purchase of the block shown on the plan on the west side upon the terms and conditions provided for, that is to say the contract that has already been described. The provision went on to make the contract conditional also upon the vendor's granting to the purchasers an option for a period of three years of purchasing approximately two acres of land immediately adjoining the land sold by the contract on the east for the sum of 1200 pounds per acre. This option was granted and a few days before the end of the three years of its currency it was exercised but the vendor or optionor, that is the defendant, refused to carry out the purported contract resulting from the exercise of the option. The notice purporting to exercise the option was met by an acknowledgment from the defendant's solicitors which informed the plaintiffs that the solicitors had been advised by counsel that the option constituted an illegal contract under s. 568 of the Local Government Act 1946 and that in these circumstances their client was unable to enter into a contract, that is as the option stipulated for. The two contracts for the more westerly parcels of land were of course as much open to an objection of illegality as the option which bore the same date, but these contracts had long since been completed and the plaintiffs had become registered proprietors of an estate in fee simple in the respective lots which the contracts covered. Why the defendant should perform these contracts and two years later object to carry out the option is left by the evidence to conjecture. (at p373)
3. The option was a document under seal bearing the date 9th March 1955 like the two contracts. Although it was under seal it was expressed as given for a consideration of 1 pound: perhaps that was thought to remove the objection of voluntariness, if that were considered an objection to equitable remedies. The defendant having acknowledged the consideration proceeded : "I do hereby grant unto the purchasers (who had been named by the document) an option to purchase all that piece of land (describing it by reference to the endorsed plan) upon the following terms". The terms that followed were of two kinds. The first kind prescribed the period for the exercise of the option, the rate per acre of the purchase price, the requirement that the purchasers should enter into a contract with the vendor prepared by her solicitors in the form or as near as circumstances permit of the two contracts of sale of the same date. The terms of the second kind were concerned with the two contracts of sale of the western blocks. They were contained in the last clause, which provided that the option should only be exercisable by the purchasers provided they complied with two conditions. First they must complete the contract for the purchase of the piece of land sold by what is the contract secondly mentioned above ; that is to say the contract for the middle parcel of land providing for cash in a month or within seven days of the municipality's consent to the plan of subdivision. The second condition was that the purchasers should not be in default under the further contract of sale ; that is to say the contract for sale of the most westerly parcel of land under which the balance of purchase was to be paid within five years. (at p374)
4. Before turning to the legislation under which it is said that this option is illegal it is desirable to examine the precise effect of the option when it was granted. It formed the third part of a transaction to be carried out under these instruments. Clearly it was intended that the grantor of the option, the vendor of the other two parcels of land, should be bound but bound only upon the contingency occurring of the municipality approving, that is sealing, the plan of subdivision. The option was as much subject to this condition or contingency as the contracts : for the option was exercisable only if the defendants completed the purchase of the middle block, and that could not be done unless the plan was sealed. The final clause of the option says that the option shall only be exercisable "provided", that is "if", the purchasers completed the purchase of what may be called the middle block ; in fact it comprised two blocks as it turned out. Now the contract so to be completed clearly states that there is, at its date, no plan of subdivision, that the purchaser must admit the identity of the land sold with that comprised in the plan of survey thereinafter mentioned, and that if the municipality declines to approve the survey plan the contract shall be cancelled. It is clear therefore that the obligation of the vendor, whether under the contracts or under the option, depends entirely on the sealing of the plan. There is no point in asking whether the conditions of the contracts or one or other of them is precedent or subsequent. For plainly the purchaser under the contract for the middle block was not entitled to possession before he paid the purchase money and that meant at earliest, within seven days of the approval of the plan by the municipality. It was only then that the option could become exercisable. In other words before the option could be exercised the plan of subdivision must be sealed. The conditions were in fact all fulfilled before notice of the exercise of the option was given. Why in these circumstances should illegality form a defence to an attempt to enforce the option? The defendants answer simply that it does not matter how conditional contingent provisional or hypothetical a contract may be, upon a proper reading of the statute it makes the contract illegal if it is a contract contemplating the sale of land in subdivision and it is made before the plan of subdivision is actually sealed. Section 568 of the Local Government Act 1946 is the provision to which this intention is attributed by the defendants. It was amended by s. 26 of the Local Government (Amendment) Act 1954 (No. 5873) but the amendment is not relevant. By the Local Government Act 1957 (No. 6151) ss. 10 (c) and (d) however amendments were made expressly removing the prohibition against "sale" before the sealing of a subdivisional plan and providing for the validity of any agreement for such a sale but subject to an implication of a condition that the plan must be sealed within ninety days. The provisions of s. 568 as amended are now contained in the Local Government Act 1958, s. 569. It will be observed that the amended version, which is not retrospective and cannot therefore in any event govern this case, is concerned with the validity of an unconditional "sale" of land in subdivision before the plan of subdivision is sealed and adopts the device of implying a condition that the plan must be sealed within ninety days and, subject to that condition, of giving validity to the contract. But why should it be assumed that the provision contained in s. 568 ever extended to a contract the operation of which as a sale was by the very terms of the contract itself conditional upon the sealing of a plan of subdivision ; or in other words the operation of which as a sale was suspended until the subdivision was authorized in the manner required by law? The material provisions of s. 568 admit of a comparatively brief statement although the section itself is a long one covering various aspects of laying out new streets and subdividing land. It is a section which applies to cities towns and boroughs, as well as to parts of shires if declared applicable thereto by by-law : s. 561 (1) and s. 3 (2). In the case of land to which it applies where any person intends to subdivide the land into two or more parts he must give to the municipal council written notice in a statutory form of his intention. He must also submit to the council a plan : s. 568 (1). The plan must show the allotments into which the land is to be subdivided and many other particulars as to streets, drainage, lanes, reserves, means of access, levels connexions of new streets with other streets and so on : s. 568 (2). If after due inquiry and report the council is satisfied about the various matters it may cause the plan to be sealed with the seal of the municipality : s. 568 (3) (5) (6) (7) (12) and (4). By s. 568 (9) a person is made liable to a penalty of not more than 50 pounds if he neglects or omits to give the required notice or to submit the plan or makes or lays out a new street etc. before the plan is sealed or (and upon this the defendants place much reliance) sells conveys or transfers such land or any part thereof in allotments before such plan is sealed. The plan is to be lodged with the Registrar of Titles : s. 568 (11) ; cf. s. 97 of the Transfer of Land Act 1954 (No. 5842). If the council refuses consent to a plan of subdivision an appeal may be brought to a court of petty sessions : s. 569. (at p376)
5. When the foregoing provisions are considered with reference to the facts of this case no cogent reason appears for finding in them an intention to stamp with illegality any part of the transaction of which the grant of the option forms a step. In truth the provisions do not bear that construction. Of course the plaintiffs were or became persons who intended to subdivide the parcel of land into parts but they did give a notice and submit a plan as required by sub-ss. (1) and (2) of s. 568. They incurred no penalty under sub-s. (9) unless within the meaning of par. (d) of that sub-section they did "sell such land or any part thereof in allotments before such plan (was) sealed". For the plaintiffs it was said that by the option the defendant did not "sell" because among other reasons an option is only a contract not to withdraw an offer and not a sale subject to a condition that the optionee elects to purchase. This argument and the standing controversy which it reflects may be passed by, although perhaps the observation may be allowed that there does not seem to be much reason why parties if they choose may not throw an option into the form of a conditional contract of sale and not much reason why offer and acceptance in simple contract should form the basis of a contract under seal. But there is a very substantial reason why it may be said that the plaintiffs did not sell the land in allotments before the plan was sealed. The reason is that by the very conditions of the contract or contracts upon which the option depended the option could not become binding as a contract to sell unless and until the plan was sealed ; in other words it became a "sale" only when the plan was sealed and it was exercised. Neither in terms nor in policy did the provisions of s. 568 deny legality to such an option exercisable only if the plan were sealed. All that the option bound the defendant to do was to enter into a contract of sale with the plaintiffs if the option were exercised and that could only be after the plan was sealed by the council of the municipality. The purpose or principle discoverable in the provisions is to make the approval of a subdivision by the municipal council and the formal expression of that approval by the sealing of a plan a preliminary condition of the subdivision being carried into effect by contract or otherwise. The principle is completely observed and the purpose fulfilled by an option the exercise of which on its terms must be suspended until the plan is sealed. In terms it cannot be said that land is "sold" by such an option unless and until the plan is sealed. (at p377)
6. As an authority against such a conclusion the defendant relied upon the decision of this Court in George v. Greater Adelaide Land Development Co. Ltd. [1929] HCA 40; (1929) 43 CLR 91 ; (1930) ALR 72 reversing Murray C.J. (1929) SASR 199 ; applied in Adelaide Development Co. Pty. Ltd. v. Pohlner [1933] HCA 13; (1933) 49 CLR 25 . The facts of George's Case [1929] HCA 40; (1929) 43 CLR 91 ; (1930) ALR 72 are not stated very fully in any of the three reports referred to but from them together perhaps enough can be obtained to understand the situation giving rise to the decision. It was the purchaser and not the vendor who was sued and it was not a suit for specific performance but an action to recover an unpaid balance of purchase money. There can be no doubt that the land had not been transferred to the purchaser and it would seem that the action was based on such common law authorities as those cited and followed in Reynolds v. Fury [1921] VicLawRp 3; (1921) VLR 14 itself related to a balance of purchase money and not an instalment. The purchase price fixed by the contract was 1070 pounds payable by a deposit of 30 pounds and monthly instalments of 6 pounds. The purchaser (the defendant) had paid 156 pounds in all and the vendor sued for the balance, 914 pounds. A clause in the contract provided that should the purchaser make default in payment of any instalment of purchase money thereunder . . . as it becomes due . . . then at the option of the owner (presumably the vendor, the plaintiff) the whole of the purchase money and other moneys payable thereunder should immediately become due and payable to and recoverable by the owner. The defendant took a number of defences all of which failed before Murray C.J. who simply entered judgment for the plaintiff vendor for 914 pounds and dismissed a counterclaim on the part of the defendant purchaser for the 156 pounds he had paid. At the hearing of the defendant's appeal the Court called upon counsel for the plaintiff respondent to argue with respect only to the defence based upon the Town Planning and Development Act 1920 (S.A.), a defence which in the result this Court held to be an answer to the action. In support of the present appeal it is contended that the Court's decision upon that defence is an authority governing the construction of s. 568 of the Local Government Act 1946 (Vict.). The answer is that the statutory as well as the contractual instruments respectively governing the two cases are materially different. It is necessary to use the expression "statutory instruments" because in George's Case [1929] HCA 40; (1929) 43 CLR 91 the defence depended perhaps less on the statute than upon regulations made thereunder. Section 23 of the Town Planning and Development Act 1920 (S.A.) provided that it should not be lawful for any person among other things to subdivide any land into allotments or otherwise or resubdivide any existing allotment or parcel for building or any purpose or for any person to offer for sale or sell or convey transfer or otherwise dispose of any existing allotment or parcel of land except in accordance with the Act, an expression which included the regulations. A regulation required that any person desiring to offer for sale or sell etc. should cause a plan to be prepared showing the boundaries and complying with certain sections of the Act. The Town Planner might then issue a certificate of approval of a plan lodged with him. Then the owner must deposit the certificate and copies of the plan in the Lands Titles Office. A penalty was imposed by s. 44 on any person who subdivided disposed of or dealt with land in contravention of any of these provisions. As Murray C.J. said : "The vendor of subdivided land therefore who states in his contract that a plan of subdivision has not been deposited in the Lands Titles Office exposes himself to the consequences of having contravened the Town Planning and Development Act, whatever those consequences may be" (1929) SASR, at p 204 . With that question his Honour said he should deal later. It is in fact the question upon which Knox C.J., Isaacs and Starke JJ. differed from his decision. Apparently the Greater Adelaide Land Development Company Ltd. had been registered on 20th May 1925 and on that day had contracted to buy from the registered proprietor an area of land which, it seems, was already the subject of a subdivisional plan. The plan was lodged with the Town Planner on 25th May 1925. The company obtained a transfer of the land in August 1925 which was lodged for registration. It was registered on 23rd November 1925. The Town Planner said in August that he approved of the plan but the formal mounted plans were not lodged until 17th November 1925, copies were not sent to the Lands Titles Office until 22nd December 1925 and the Town Planner's Certificate of Approval for lodgment in the Lands Titles Office was not issued until 29th January 1926. It was lodged shortly afterwards. The contract sued upon was nevertheless entered into on 15th November 1925. Except for one phrase twice repeated the contract was a direct and unconditional sale on instalments. The phrase was "subject to the provisions of the Town Planning and Development Act 1920". It occurred first in the acknowledgment of the vendor's agent that he had sold the land for the named price "subject to the foregoing conditions and to the provisions of the Town Planning and Development Act 1920 being complied with". It occurred again in a provision giving the purchaser an option to pay off the balance of purchase money at any time "subject to the provisions of the Town Planning and Development Act 1920 in relation to subdivision of land hereinbefore described of which the said allotment is a part having been complied with". Murray C.J. considered that these provisions were enough to prevent the contract becoming absolute and finally binding until 29th January 1926. The High Court were of opinion that they did not save the contract from infringing upon the statutory provisions. Knox C.J. read the regulations as imposing an obligation to obtain approval before any lot was sold. His Honour proceeded to say "If the true meaning of the regulations be, as I think it is, that the steps prescribed must be taken before any sale or offer to sell an allotment is made, the provision in the contract that it was 'subject to the provisions of the Act being complied with' can have no effect, for the requirement of the Act and Regulations that the certificate of approval should be obtained and deposited with the plan before any sale of the land could lawfully be made could never be complied with in respect of this contract. For these reasons I am of opinion that the contract of 15th November 1925 contravened the provisions of the Town Planning and Development Act and was therefore illegal and invalid" (1929) 43 CLR, at p 98 . Isaacs J. construed the Act as prohibiting the making of a contract absolutely or conditionally (1929) 43 CLR, at p 101 . Starke J. concurred for reasons which while similar appear to hinge upon the fact that the Act rendered unlawful not only conveyances and transfers of allotments but also the acts of offering for sale or selling such allotments (1929) 43 CLR, at p 103 . One thing further should be said about the case. The Court held that as to no part of the sum of 156 pounds paid by the purchaser could he recover from the vendor upon the counterclaim. That was on the ground that he was a party to the illegal act. Yet it is clear enough that the greater part of this sum must have been paid after 29th January 1926 when the Town Planner's Certificate was lodged in the Lands Titles Office. The money was paid in expectation of a transfer which then and thenceforward might have been legally made. The illegality of the contract was a past fact : the contract could have been renewed at that time quite legally. Yet the statute was construed as precluding recovery of any of the money. (at p379)
7. The analysis of George's Case [1929] HCA 40; (1929) 43 CLR 91 which has been made shows that while there is an analogy between the statutory provisions which governed it and s. 568 of the Victorian statute, it is no more than an analogy : and there is no ground for construing that section by reference to the statutory provisions of South Australia which governed George's Case [1929] HCA 40; (1929) 43 CLR 91 . Further the respective contractual instruments and the respective transactions are quite different. It follows that the decision in George's Case [1929] HCA 40; (1929) 43 CLR 91 should not lead the Court to give to the statute, the instruments and the facts of the present case anything but their natural meaning and effect and legal operation. (at p380)
8. Accordingly for the reasons that have been given the appeal should be dismissed. (at p380)
KITTO J. I am of the same opinion and have nothing to add. (at p380)
WINDEYER J. I too entirely agree in the judgment of the Chief Justice. (at p380)
ORDER
Appeal dismissed with costs.