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Signed Contracts Not Always Binding

12 September 2014

Maria and Wendy Hurt were having difficulty paying their mortgage. They thought that selling their property and buying a cheaper one without a mortgage might solve their problem. They approached an accountant, Mr Toilolo, for help. Mr Toilolo came to see them at their home with a contract signed by Hokitika Property Limited to buy the property for $790,000. This price was up to $260,000 less than what the property was really worth.

Wendy told Mr Toilolo that the price wasn’t high enough, but because she was in a hurry to get to work she signed the contract and asked Mr Toilolo to hold onto it until they had time to consider it. Maria also signed the contract. They asked Mr Toilolo to try and get the price up. After the contract had been signed by both of them and Wendy had left for work, Mr Toilolo left the house to take a phone call. He came back into the house and told Maria that he had good news – Hokitika had agreed to increase the price by $5,000 to $795,000. Mr Toilolo changed the price to $795,000 and took the contract away for Hokitika to sign. Maria and Wendy did not sign at the increased price.

 

Is the signed contract to sell for $790,000 binding?

A contract for the sale of land is not enforceable unless it is in writing and is signed by the party against whom it is to be enforced. Although it was clear that Maria and Wendy had not signed the contract at $795,000, was there a binding contract in place for the sale of the property at $790,000? The contract had been signed by everyone at $790,000.

Hokitika’s lawyer tried to enforce the contract and argued that the moment that Maria and Wendy signed the agreement, there was a binding contract. The judge in this case disagreed and pointed out that acceptance of an offer must be communicated to the other party for a binding contract to come into existence. The judge found that there had been no communication to Hokitika that Maria and Wendy had accepted the offer of $790,000. Mr Toilolo had only communicated to Hokitika that Maria and Wendy were willing to sign a contract at $795,000.

The judge summarised the legal position as follows:

a) Maria and Wendy signed an agreement for $790,000 but that was not communicated to Hokitika so there was no binding agreement to sell at $790,000;

b) Hokitika offered $795,000 but that was never signed by Maria and Wendy and therefore no agreement to sell at $$795,000 came into existence.

 

A just result

Wendy is a solo mother with four young children and Maria is her mother. They had borrowed from a finance company to pay the mortgage. The directors of Hokitika were accountants who stood to gain a substantial profit from the transaction. Mr Toilolo would make $5,000 for arranging it. Many people would think that Hokitika sought to take advantage of Maria and Wendy’s vulnerable situation and that the law delivered a just result in this case.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles.  Keep an eye out for next month’s column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law.  With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.   Find out more about us at www.nwm.co.nz