Contracts - General contractual principles - Construction and interpretation of contracts - Other matters - Departure from literal meaning of words - Contract liable to rectification pleaded as defence to action for conversion.

Judgment ID Number: [2004] TASSC 63

STUART MURRAY CUTHBERT and KATIE JO-ANNE CUTHBERT v PETER DAVID ROBERTS and PETA VICTORIA ROBERTS

1 This is an appeal from a decision of a magistrate pursuant to the Magistrates Court (Civil Division) Act 1992, s28. It arises out of a conveyancing transaction. The respondents were the owners of a farm. They sold it to the appellants. The appellants completed their purchase and moved onto the farm. There was a silo on the farm. The learned magistrate found that it was a chattel, rather than a fixture. That finding is not challenged on this appeal. Well after settlement, the respondents demanded the silo from the appellants, who refused to give it up. The respondents subsequently sued the appellants in the Civil Division of the Magistrates Court for $4,800 by way of damages for conversion of the silo. The appellants counterclaimed, alleging breaches of the contract for the sale of the farm. The learned magistrate found in favour of the respondents on both their claim and the counterclaim. He gave judgment for $4,775 on the claim and dismissed the counterclaim.

2 The respondents' case was that, prior to the execution of the written contract for the sale of the farm, it was orally agreed between the male vendor and the male purchaser that the silo, which had a neighbour's grain in it, could be left on the property and collected later. The learned magistrate accepted the male vendor's evidence that such a conversation took place. No challenge is made to that finding. However, the subsequent written contract contained the following clause as to items not included in the sale and left on the property:

9.1 Prior to completion the Vendor must remove from the Property all items not included in the sale.

9.2 For any trespass or damage to, or loss of any items left on the Property more than seven (7) days after completion:

(a) the Purchaser will not be liable to compensate the Vendor; and

It is common ground that the silo was not one of the chattels that was included in the sale. The appellants contend that cl 9 superseded any arrangement made orally in relation to the silo. In particular, they contend that cl 9.2(a) resulted in them not being liable to compensate the respondents for the loss of the silo. The learned magistrate made a finding to the effect that the respondents were entitled to recover possession of the silo pursuant to a separate agreement that was entered into prior to the written agreement for the sale of the farm. The appellants contend that no such finding was open to the learned magistrate because the respondents had claimed only damages, and had not sought rectification of the written contract.

3 Little or no attention seems to have been given in the proceedings at first instance to the question of what consideration could have been given by the vendors in return for the purchasers' promise to allow the silo to remain after settlement and be removed at a later date. On the basis of the evidence before the learned magistrate, the vendors' act of entering into the principal contract - that for the sale of the farm - is the only consideration that they could have given for the purchasers' promise. In Heilbut Symons & Co v Buckleton [1912] UKHL 2; [1913] AC 30 at 47, Lord Moulton said the following:

"It is evident, both on principle and an authority, that there may be a contract the consideration for which is the making of some other contract. 'If you will make such and such a contract I will give you one hundred pounds,' is in every sense of the word a complete legal contract. It is collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract."

I think it is implicit in the finding of the learned magistrate that there was a separate agreement between the parties as to the silo that that agreement was a collateral oral contract of the type described by Lord Moulton in the passage I have quoted.

4 Rectification is an equitable remedy that will be granted in appropriate cases when the words of the written instrument do not accurately reflect the intentions of the parties. In Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450 at 461 Denning LJ said:

"In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract but by an error wrote them down wrongly."

5 The learned magistrate was alert to the provisions of cl 9. He referred to that clause early in his reasons for judgment. It is evident from his findings as to the conversation concerning the silo and the judgment for its value that he was satisfied that it was the intention of both the vendors and the purchasers at all material times that the vendors should have an enforceable contractual right to retrieve the silo after settlement, whether seven days had elapsed since the settlement or not. In my view the learned magistrate made all the findings of fact necessary for rectification to be an available remedy, had it been sought, and had the Magistrates Court been invested with the jurisdiction to grant that remedy in this case. In fact the Magistrates Court (Civil Division) Act, s9(f), enables it to grant rectification of a written contract only "where the value of the subject matter of the contract does not exceed the prescribed amount". Since the value of the land and chattels that formed the subject matter of the relevant contract exceeded $20,000, the learned magistrate would not have had jurisdiction to grant rectification if it had been sought in the proceedings before him.

6 It is very important to note that the remedy of rectification effects the reform of instruments, not contracts. In Mackenzie v Coulson (1869) LR 8 Eq 368 at 375, James VC said:

"Courts of Equity do not rectify contracts; they may and do rectify instruments ...".

7 I think it must follow that, although the parties' written instrument (ie the written contract) contained a clause that purported to extinguish the respondents' contractual rights in respect of all chattels left on the property for more than seven days after completion, the parties' true contract, as distinct from their instrument, had no such effect in relation to the silo. In the light of that analysis, I do not think that the respondents' failure to obtain an order for rectification of the instrument from a court of appropriate jurisdiction was an impediment to the awarding of damages for the conversion of the silo. The respondents did not sue on the written instrument, nor on the contract that it purported to embody. They sued in tort for damages for conversion, contending as part of their case that there was a collateral oral contract as to the late removal of the silo. I see no reason why rectification needed to be sought in order for damages to be awarded for conversion in those circumstances.

8 The learned magistrate did not specifically address the argument that, by entering into the written contract with cl 9 in it, the parties extinguished any earlier oral agreement or arrangement as to the silo. However, I think it is implicit in his reasons for judgment that he was satisfied that it was the intention of the parties, when they entered into the written contract, that its terms would not preclude the respondents from recovering the silo more than seven days after settlement, and having an enforceable legal right to do so. Such a conclusion was open to him. I therefore reject the grounds of appeal whereby the appellants contended that the learned magistrate erred in awarding damages in respect of the silo.

9 The measure of damages in conversion is the full value of the thing converted. On the hearing before the learned magistrate, counsel for the respondents tendered without objection evidence that the cost of a new silo, inclusive of GST, would be $4,620 plus freight. The amount claimed by them as the value of the silo was $4,500. The learned magistrate made a finding that the silo was worth that amount. The second respondent gave evidence that the silo was in perfect condition. In cross-examination, the first respondent said that silos are things that do not depreciate much. The learned magistrate accepted those pieces of evidence. His reasoning and finding as to the value of the silo was as follows:

"The claimants' evidence indicates that the price of a new equivalent silo is $4,620, the value of the silo in question is alleged to be $4,500. Given that, and considering the evidence of Mrs Roberts to the effect that it was in perfect condition, and Mr Roberts' evidence of little depreciation, I find its value to be that claimed, namely $4,500."

10 Ground 4 of the notice of appeal asserts that the learned magistrate erred in assessing damages "when in fact the silo the subject of the proceedings was second-hand and at least of ten years of age and in failing to take into account the evidence before him that a silo of comparable age and condition was worth no more than $1,900.00."

11 The first appellant gave evidence to the learned magistrate that he had been to an auction about five weeks previously at which a silo very similar to the one in question had sold for $1,900. Mr McElwaine, for the appellants, submitted that that was the only evidence as to the value of a second-hand silo, and that the learned magistrate ought to have assessed damages in the sum of $1,900. However, there was a dispute between the parties as to the size and condition of the silo on the property. The respondents' evidence was that it was a 25-ton silo in perfect condition. The appellants' evidence was that its capacity was an estimated 15 tons and that it had rust and dents in it. The learned magistrate rejected the evidence of the appellants as to the size and condition of the silo, and accepted that of the respondents. The first appellant's evidence that a silo very similar to the one in question had sold at auction for $1,900 was therefore of little value to the learned magistrate. At best, it was evidence of the price fetched by a silo that might well have been rusty, dented, and substantially smaller than the one in question.

12 However, the first respondent conceded at the beginning of his cross-examination that the silo in question was probably somewhere between 8 and 10 years old. If, as found by the learned magistrate, the silo was worth $4,500, it was worth only about 2.6% less than a brand new one. With all due respect to the learned magistrate, I think the figure of $4,500 is so close to the new price of a comparable silo that he must have erred in his assessment of the value of the silo in question, having regard to the evidence of its age. I think the only appropriate course is for me to make my own assessment of its value, accepting for that purpose the learned magistrate's assessments of the credibility of the relevant evidence of the parties. Given that a new silo would cost $4,620 inclusive of GST, that silos do not depreciate much, that this one was in perfect condition, and that it was probably about 8 or 10 years old, doing the best that I can, I find that its value is $3,000.

13 In addition to his award in respect of the value of the silo, the learned magistrate awarded $275 damages in respect of expenditure wasted upon its attempted recovery. No challenge is made to that award. The judgment sum should therefore be reduced from $4,775 to $3,275.

14 The counterclaim comprised a number of components, only one of which is pursued in this appeal. By the written contract, the respondents agreed to sell to the appellants not only the farm but also a number of chattels that were listed in annexure B to the contract. One of the items in the list was "Kent wood heater".

15 The counterclaim included the following in relation to the wood heater:

(a) the property sold included the chattels listed in annexure 'B';

(b) the chattels in annexure 'B' comprised, inter alia, a Kent Wood Heater ...

13 It was an implied term of the agreement that the chattels listed in annexure 'B' were in good working order and condition or would be so on the date of completion of the agreement."

16 Both pars11 and 13 were admitted in the defence to the counterclaim. I do not understand why par13 was admitted, but it was. The appellants alleged that the respondents, in breach of the agreement, did not deliver the Kent wood heater referred to in annexure B on completion, and that they suffered loss as a result.

17 The first appellant gave evidence that there was a heater in the kitchen, covered by a wooden panel, and that he saw it when inspecting the property. He said that, after taking possession of the property, he and his wife removed the panel and discovered a burnt out Convaire heater. They replaced it with a Saxon wood heater which cost approximately $1,500, but obtained a quote for $1,315 for a Kent wood heater. The quote was tendered without objection. The second appellant said that it was an old wood heater without even a front on it. She said it could not be used because there was not even a door on it. The second respondent said in cross-examination that there was a heater tucked in behind a timber panel; that she and her husband never used it; that it was always concealed behind the timber panel; and that they understood it was a Kent wood heater. She did not dispute the proposition that there was no Kent wood heater on the property when the appellants took possession. The first respondent said that there was a wood heater in the house but that he was not too sure of its make.

18 In his reasons for judgment, the learned magistrate said the following in relation to this part of the counterclaim:

"I am satisfied that upon completion of the contract the same wood heater was present as was present when the property was inspected. Mr Cuthbert's evidence of claiming to see a brass fronted wood heater on inspection but finding a burnt out one upon completion involves the proposition that the claimants had taken a good one and replaced it with an unusable one. I reject that notion. Mrs Cuthbert said their inspection was 'rushed' and in any event the wood heater was behind a panel which had to be removed to see it. I do not accept that the defendant Mr Cuthbert saw anything behind that panel on inspection. I prefer the claimant's evidence, the essence of which was that when sold the same wood heater was there which had always been there."

19 The appellants were not alleging that the respondents had taken a good heater and replaced it with an unusable one. Their case was that the respondents had promised to sell them a Kent wood heater; that it was an implied term of the contract that the heater would be in good working order and condition on the date of completion; and that the only heater they received was neither a Kent wood heater nor in good working order and condition. Their evidence as to the brand and condition of the heater behind the panel was unchallenged, but the learned magistrate neither accepted it nor rejected it. If he had accepted it, he would have been obliged as a result of the admissions in the defence to counterclaim to find that the respondents had breached the contract, at least by failing to deliver a wood heater in good working order and condition, and to have assessed damages. The only evidence upon which damages could have been assessed was the evidence that a new Kent wood heater would cost $1,315, and that a new Saxon wood heater cost approximately $1,500.

20 It seems likely that there are various models of Kent wood heaters. The reference to a "Kent wood heater" in the written contract is ambiguous, in that it does not specify what model or type of heater is included in the sale. Extrinsic evidence is therefore admissible in order to ascertain the parties' intentions. From the evidence that I have referred to, it is apparent that the parties intended the wood heater behind the panel to be included in the sale, whatever brand it was. There was no evidence to suggest that another wood heater, or a different wood heater, was to be included in the sale. If the wood heater behind the panel was in fact a Convaire, rather than a Kent, that did not amount to a breach of contract. If, as the appellants asserted, the heater behind the panel was not in good working order and condition, that alone would have entitled them to damages in respect of it. Had the learned magistrate made a finding that the heater was not in good working order and condition, and that the respondents therefore committed a breach of contract, he would not have been able to award damages in respect of such a breach, other than nominal damages, because the evidentiary material before him was inadequate. There was no obligation to provide a brand new wood heater in good order and condition. There was no evidence as to the cost of repairing the wood heater, the cost of replacing it with a second-hand wood heater in good working order and condition, or the likely salvage value of the wood heater (if any). At best, the learned magistrate could have awarded nominal damages.

21 Because the learned magistrate made adverse findings as to the credibility of the appellants in relation to other issues, I do not think it is appropriate for me to accept their evidence in relation to the wood heater issue. I have the power to order a new trial of the counterclaim, limited to the issues relating to the wood heater, but I do not think it would be appropriate to make such an order because of the inadequacy of the evidence relevant to damages in respect of those issues. In the circumstances, despite the learned magistrate having erred in relation to the wood heater claim, I think the only appropriate course is not to order a new trial of the counterclaim.

2 That the judgment dated 16 September 2003 for the respondents upon their claim in the sum of $4,775 be varied by reducing the judgment sum to $3,275.