MacDonald v Robins

[1954] HCA 5

High Court of Australia|1954-03-04|Before: Taylor JJ, Virtue J

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Source facts

Court

High Court of Australia

Decision date

1954-03-04

Before

Taylor JJ, Virtue J

Source

Original judgment source is linked above.

Judgment (27 paragraphs)

[1]

High Court of Australia Dixon C.J. Webb and Taylor JJ. MacDonald v Robins [1954] HCA 5

[2]

This is an appeal from a judgment of Virtue J. decreeing that a contract formed by the exercise of an option be specifically performed. The option is contained in an unregistered lease in which the plaintiff respondent and his brother are lessees and the defendant appellant is the lessor. The subject of the lease and the option is a station called "Lochada" at Perenjori in the Bowgada District of Western Australia, an area of about 302,987 acres held by the defendant under three pastoral leases.

[3]

The defendant appellant relies upon two grounds for her contention that she is not bound to sell and transfer the property as a result of the purported exercise by the plaintiff respondent of the option. The first is that the option is subject to the due observance of the covenants of the lease and that this condition precedent to its exercise was not satisfied because the plaintiff's brother transferred his interest as co-tenant to the plaintiff, a thing which, according to the defendant's contention, was a breach of covenant. The second ground is that the purported exercise of the option was not in accordance with the requirements of the provision conferring the option because the notice was not given by both brothers as lessees. The defendant is a widow who, with the help of a son, was attempting in 1945 amid the difficulties of the time to carry on Lochada station; she resolved to dispose of it as a going concern. The plaintiff and his brother were desirous of buying it but they were unable at the time to find sufficient money. In these circumstances it was arranged that they should lease the property from the defendant for six years with an option of purchase exercisable during the lease. It was anticipated by both parties that the option would be exercised. The price was fixed at £8,000. The parties executed a lease dated 14th March 1946. The term was six years from 1st March 1946 expiring on 29th February 1952, and it contained an option of purchase exercisable at any time during the term on one month's notice in writing. The instrument was not registered under s. 151 of the Land Act 1933-1948 W.A. nor was it submitted to the Department of Lands and Surveys for approval under s. 143. The two lessees, however, went into possession, worked the property, paid the rent reserved to the defendant as lessor and discharged her obligations for rent under the pastoral leases to the department, which, in at least one receipt for rent, described them as "unregistered holders for" the defendant.

[4]

The plaintiff and his brother worked the station under a partnership agreement into which they had entered on taking the lease, but by a deed dated 28th March 1951 the partnership was dissolved as from 31st December 1951. The plaintiff bought out his brother's interest in the partnership for £7,000. The defendant had done the financial and other business of the station with the Perth branch of Dalgety & Co. Ltd. and through that house had disposed of the wool and bought and sold livestock. The lease required the plaintiff and his brother to dispose of wool and livestock through Dalgety & Co. and to obtain their approval of stud rams, but the company remained the defendant's business advisers and agents. In the beginning she told the plaintiff that they always did her business and that he was to discuss the transaction with them, and afterwards she said that he could refer everything to them and they would protect her interest. This course the plaintiff adopted, though at times he did mention some matters to her personally. The brothers made improvements on the land relying upon their right to purchase the property and this she as well as Dalgety & Co. knew. The dissolution of partnership was discussed with that company, who were fully informed of the terms and were told that the plaintiff intended to exercise the option. Dalgety & Co., however, were unwilling to provide the money for the purchase by the plaintiff of his brother's share and he went to another pastoral company for the purpose. After the deed of dissolution, with the knowledge of Dalgety & Co., he went on spending money on the property on the footing that he would exercise the option and he was permitted to do so. No suggestion was made that the lease or the option had been forfeited by the transaction with his brother. The plaintiff notified the defendant by a letter dated 15th January 1952 of the exercise of the option. The letter began by referring to the option as contained in the lease which it went on to describe, naming the parties and identifying the pastoral leases and the chattels comprised therein. The letter then proceeded to state that the interest of the plaintiff's brother in such option of purchase had been sold and transferred by him to the plaintiff. The letter concluded that in terms of the clause, specifying it, by which the lease conferred the option, the plaintiff gave the defendant formal notice of the exercise of such option of purchase. Then followed the date and the plaintiff's signature. The lease expired on 29th February 1952 and on that day the defendant's solicitors requested to see the document by which the plaintiff's brother had in the words of his letter "sold and transferred" the option to the plaintiff. On 13th March 1952, the defendant's solicitors expressed her refusal to recognize the plaintiff as a purchaser and to execute the transfer to him, which in the meantime had been tendered.

[5]

In support of the position which the defendant so adopted, reliance is first placed upon the condition precedent to which the option is subject. The condition precedent is expressed in the covenant in the lease by the defendant, which confers the option, by the words "the lessees having duly observed performed fulfilled and kept all the covenants conditions agreements and stipulations herein contained or implied on their part to be observed performed fulfilled and kept". No doubt these words make it essential to the right to exercise the option that the lessees' covenants in the lease "have been so observed and performed that there is no existing right of action under them at the time when the" option comes to be exercised, cf. per Mellish L.J., Finch v. Underwood [1] ; Bastin v. Bidwell [2] ; Wilson v. Stewart [3] . Moreover it is immaterial that the forfeiture arising from the breach of covenant has been waived as a breach of condition: Finch v. Underwood [1] ; Wilson v. Stewart [4] . But the question is whether the covenant upon which the defendant depends in this appeal was broken. It is a covenant by the lessees not to transfer assign sublet or part with the possession of the land without the consent in writing of the lessor first had and obtained. Now the consent in writing of the defendant as lessor to the agreement of dissolution was not sought or obtained. What is said to be a breach of the covenant is the making over to the plaintiff of his brother's interest in the lease and the surrender by him to the plaintiff of sole possession of the land. But the deed of dissolution did not assume to vest in the plaintiff his brother's legal interest in the term of years. It contained no words of assignment or transfer. After reciting the partnership and the fact that the parties thereto held a lease of Lochada station containing an option of purchase and that the parties had agreed on the sale to the plaintiff of his brother's share in the partnership, the deed began by expressing an agreement that the partnership should cease on 31st December 1951. The second clause then provided that the brother should sell and the plaintiff should purchase as from that date all the one-half share of the former in the business and in the assets thereof (including the benefit of the lease and the option of purchase therein contained) in consideration of £7,000. That is all there is by way of assignment. If the lease was operative to create a term of years, the clause amounts at most to an equitable assignment of the brother's interest in the term. An assignment by one co-tenant of his share in the demised premises operating at law, as distinguished from equity, to vest his share in his co-tenant would constitute a breach of such a covenant as the present against transfer or assignment of the land. At all events it has been so held: Varley v. Coppard [1] ; Horsey Estates Ltd. v. Steiger [2] ; Langton v. Henson [3] . In the last case, as in Varley v. Coppard [1] the co-tenants themselves took by assignment and a reason given for the result was that the one co-tenant by assigning to the other destroyed the privity of estate between himself and his landlord. It may be remarked that in the case of lessees, parties to the lease, the liability on the covenants is not affected by the assignment. But probably this is an insufficient ground for distinguishing the decisions. An equitable assignment, however, is an entirely different matter. The privity of estate and the liability on the covenants of the lease all remain. Even when the entirety as distinguished from an undivided share in the term is equitably assigned there is no breach of such a covenant against assignment: Gentle v. Faulkiner [4] ; Martin v. Coultas [5] . It is also settled that for one co-tenant to retire from the possession of the demised premises and leave his co-tenant in sole possession does not amount to a breach of the covenant not to part with the possession of the land: Corporation of Bristol v. Westcott [1] . On the footing that the lease operated to vest a term of years in the plaintiff and his brother, it will be seen, therefore, that nothing in the dissolution of partnership would amount to a breach of covenant. But s. 143 of the Land Act provides that no transfer mortgage or sublease of any lease or licence under the Act shall be valid or operative until the approval in writing of the minister or an officer of the department authorized in that behalf by the Governor is obtained. Section 151 says that no transfer lease mortgage charge or other instrument shall be effectual to pass any estate or interest in any land under the operation of this Act until such instrument is registered in the Office of Land Titles or in the Department of Lands and Surveys as the case may be. On the failure to comply with either of these provisions an argument for the defendant appellant is constructed that a different meaning should be placed upon the covenant against assignment. It is said that it should be construed as relating to assignments giving no more than an equitable right, if that. The answer is that the instrument was drawn as a registrable document and cannot change its meaning because neither of the parties troubled themselves to submit it for approval and register it. No further point was made for the defendant appellant upon s. 143 or s. 151, possibly because of an apprehension lest the argument might react against her if the option were treated as outside the operation of the sections and notwithstanding Butts v. O'Dwyer [2] as severable, or possibly for other and more commendable reasons.

[18]

The ultimate question in the case is whether the notice to the defendant of 15th January 1952 is sufficient to amount to a use of this power. The answer depends, not upon the plaintiff's appreciation of the niceties of the legal situation in which he stood, but upon the character of the document and the information it conveyed. The first thing to be observed is that the notice explicitly states that the lease containing the option was between the defendant as lessor and the plaintiff and his brother (scil. as lessees). Then it is stated that the interest of his brother in such option of purchase has been sold and transferred to the plaintiff. The defendant is thus informed that the claim of the plaintiff to exercise the option was based on the transaction with his brother by which the option was "sold and transferred" to him. The defendant had not given her consent to any formal transfer of the brother's interest in the term, as she knew, and her agents doing her business were aware of the character of the transaction. They knew that the brother remained a co-tenant bound by the lease which included the option. It is not likely that they understood the legal consequences but they and the defendant must have understood from the notice that whatever these consequences were it was in virtue of the rights which ensued to the plaintiff that he proceeded to the exercise of the option. In doing so he expresses the fact that he gives the notice "in terms of paragraph (d) of clause 3 of the said lease". That is the provision conferring the option on "the lessees". He was therefore claiming to make absolute by the exercise of a choice belonging to him the contingent contract of purchase contained in the clause, contingent upon an election to be made by, or under the authority of, the two lessees. The contract of purchase contained in the clause was between the defendant as vendor and himself and his brother as purchasers. He showed the defendant by his notice that he claimed that the choice belonged to him because of the transaction with his brother. He made the election accordingly but it was an election in terms of the clause, and that is that the option should operate as a contract according to its terms.

[26]

I find myself, however, unfortunately in disagreement with the Chief Justice on the question whether the form of notice which was given in purported exercise of the option should be regarded as a proper and effective exercise of the option. I fully agree, of course, that the respondent was in a position to require his brother to join with him in exercising the option and, indeed, that, if necessary, the respondent was entitled to act in his brother's name as well as in his own in exercising it. But the matter cannot, in my opinion, be concluded by a favourable view of the respondent's right to act in his brother's place. A conclusion that there was an effective exercise of the option requires the antecedent finding that, having the right to act in his brother's name or place he did, in fact, do so. On the view which I have formed of the option clause, it contained a continuing offer to sell, addressed to the respondent and his brother jointly and the offer therein contained could, so long as they remained the "lessees" be accepted by their own act of acceptance or by the acceptance on their behalf of some person or persons having the appropriate authority. In either case the acceptance would be, in law, the act of the lessees. In my view, however, there was no acceptance or exercise of the option by the lessees. The facts indicate rather that the respondent did not intend to act in any way for his brother in exercising it. It is true that the notice expressly indentified the option which the respondent wished to exercise and also that the respondent indicated that he wished to exercise it. But it is also true that the notice alleged that the interest of the respondent's brother in the option had been sold and transferred to him. In these circumstances I do not think it is open to us to give to the notice the effect which it would have had if the respondent had purported or intended to act not only on his own behalf but also on behalf of his brother. No such case was made on the pleadings or at the trial and, indeed, the form of the notice seems to me to be inconsistent with any such intention on his part. He purported, as a person to whom his brother's interest in the option had been sold and transferred, to exercise the option on his own behalf. The fact was, of course, that his brother's interest had not been transferred to him and his brother was still, at law, jointly bound by the lessees' covenants and entitled to the benefit of the lessor's covenants. This circumstance was fatal to the respondent's primary contention but, notwithstanding, it was, as previously indicated, argued that since, under the terms of the lease, the option was exercisable by the lessees "and each of them" there had been a valid exercise thereof. At no time, however, was it claimed or suggested that the respondent purported or intended, in attempting to exercise the option, to act on behalf of his brother and himself. Indeed the notice itself rather indicates that he intended to act on his own behalf and no attempt was made to establish that he intended to act for himself and his brother jointly. In these circumstances it is, I think, impossible to hold that the notice should be regarded as one given on behalf of them both, or as one having the effect of investing them jointly with legal rights and imposing upon them joint legal obligations.