[1998] PNGLR 315

PAPUA NEW GUINEA

[national court of justice]

NING’S TRADING PTY LTD

V

ANZ BANKING GROUP (PNG) LTD

waigani: woods j
9, 23 March 1998

Real Property - Mortgagee sale - The nature of a mortgagee’s title - Preliminary negotiations and agreements - Not an enforceable contract until formal contract of sale executed.

Facts

The defendant advertised a certain property in Port Moresby or mortgage sale by tender. The plaintiff offered to purchase at a certain price, which was accepted by the defendant. Pending completion of the necessary sale documents, the plaintiff made certain inquiries with the defendant regarding the property. The defendant thereafter wrote to the plaintiff advising that it was deferring the mortgagee sale and eventually withdrew the sale. The plaintiff sued for specific performance claimed damages in the alternative.

Held

1.	That this was a mortgagee sale so the plaintiff was always on notice that the defendant did not have an unencumbered title to the land but merely a right to recover under the mortgage.

2.	Since negotiations had not been finalized and no formal contract for sale had been executed, there was no enforceable agreement: 

Brigers v Orr & Anor (1932) 32 W.N. N.S.W., distinguished on facts. Masters v Cameron (1954) 91 CLR 353 considered.

Cases cited

Brigers v Orr & Anor (1932) 32 W.N. N.S.W.
Masters v Cameron (1954) 91 CLR 353.

Counsel

P Payne, for the plaintiff.
D Lightfoot, for the defendant.

23 March 1998

Woods j. This is an action by the plaintiff for the specific performance of an alleged agreement for the mortgagee sale of a State Lease by the defendant to the plaintiff. Damages are claimed in the alternative. 

In May 1996 the defendant advertised property Allotment 17 and 18 Section 225 Hohola for mortgage sale by tender. A Mr Victor Seeto on the 31st May 1996 faxed to the defendant a note on a copy of the tender notice ‘A tender price of K130,000 is offered for this’ and signed it. He copied his business card on this as being with Ning’s Trading Pty Limited. On 13 June 1996 the defendant faxed to Mr Seeto a note stating ‘ We are considering your offer please provide evidence of finance in terms of our tender notice’.

Mr Seeto returned that fax the same day with a notation ‘Please contact AGC (Pacific) Ltd of our IBD standing with them.’ Mr Seeto on 3rd July wrote to the Bank on behalf of Ning’s Trading P/L with reference to contacting AGC re sufficiency of funds. On 15 June 1996 the Bank wrote to the plaintiff advising that the tender offer of K130,000 has been accepted. Reference was made to a 10 per centage deposit being required on signing of the sales contract. There was also a requirement of confirmation from the plaintiff’s bank that finance if required is available. The plaintiff was requested to advise the name of its solicitor and for details to arrange completion of the necessary documentation. Mr Seeto states that he advised the Bank verbally of his lawyer. Then following some discussions with an architect for possible development of the site Mr Seeto wrote to the bank about the correct area of the property and whether the minimum improvement covenant on the lease could be reduced. On 4 October 1996 the bank wrote to Mr Seeto advising that it is deferring further mortgagee sale action for the time being. On 10 October the bank again wrote to the plaintiff that the sale is not to proceed and that the bank is withdrawing the offer. Mr Seeto made various requests to the bank for advice as to the reasons for the withdrawal of the property from sale but received no reasons. 

The issue therefore in this case is whether or not there was an agreement for the sale of the subject land. The plaintiff claims that there was an unconditional agreement for the sale of the land following the confirmation by the bank of the acceptance of the tender price from Mr Seeto on behalf of the plaintiff. The defendant however submits that there was no final agreement by way of a signed contract of sale with all the terms and the parties, there was clearly some points to be considered as per the letter from Mr Seeto of the 20th August 1996, and further this was a mortgagee sale and therefore the mortgagor’s right of redemption still covered the situation and any agreement must still be dependent on these matters. 

In the case Masters v Cameron (1954) 91 CLR 353 the High Court considered the relevant authorities on agreements to sell subject to contract and said: 

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any one of three classes. (1) It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but no different in effect. Here there is a contract binding the parties to perform the agreed terms whether the formal document does or does not come into existence and also binding them to join in settling and signing the formal document. (2) One in which the parties have finally agreed upon all the terms of the bargain and intend no departure from or addition thereto, but yet have made performance of one or more of the terms conditional upon the execution of a formal document. Here there is a contract, which binds the parties to join in bringing the formal contract into existence and then carry it into execution. (3) One in which the parties do not intend to make a concluded bargain at all unless and until they execute a formal contract. Here there is no enforceable contract. What has been agreed on must be regarded merely as the intended basis for a future contract and not as constituting a contract. 

It must be relevant in the case before me now that the parties had conducted their negotiations in a casual vein, by handwritten faxes and notes on faxes. And then it was a matter of getting the formal details correct for the contract. The main terms of the agreement had been reached and settled, namely the price and the land, and in particular reference is made to the letter from the Bank of the 15th July 1996, and the plaintiff was waiting for the contract to sign and to pay the deposit. 

However does the fact that this was a mortgagee sale put the purchaser in any different situation? The law is quite clear that a mortgagor has a right of redemption right up to just before a mortgagee is about to complete a sale under the mortgage. However there is no evidence here that the Bank withdrew the property from sale on account of the mortgagor exercising his right of redemption at the last minute and this is not pleaded. On the evidence the Bank withdrew the property from sale for no reason. 

However another aspect of the nature of a mortgagee sale is that at no time right up to the withdrawal of the property for sale did the bank have any title to the land. The mortgage here is a mortgage under the Land Registration Act system, which is akin to the Torrens system. Under this mortgage there is no transfer of title to the land in the mortgage which used to be the system in what is called in conveyancing circles the Old System Title, rather there is only a right to foreclose on the property if the mortgagor breaches the terms or conditions of the mortgage. Under the s 74 of the Land Registration Act there is procedure for foreclosure, which can thereby extinguish the right in a mortgagor to redeem, and once it is noted on the Register then the right of a mortgagee to sell is clear and unencumbered. However in this case there is no evidence that there had been a notice of foreclosure endorsed on the title and at all times the bank had been referring in communication to the fact that this was a mortgagee sale so the plaintiff was always on notice. And the result of this is that the bank did not have an unencumbered title to the land, merely a right to recover under a mortgage. So any negotiations by the bank had to be conducted properly as the law clearly has to protect not just a purchaser but also the mortgagor of the property who still retains a right of redemption. It is noted that any authorities on the status of contracts involving mortgagee sales are concerned with the rights of the mortgagors and concern questions of a fair price or a fair value, or with the rights of purchasers to get an unencumbered title after the settlement. There are no authorities on the status of preliminary agreements vis a vis a mortgagee and a purchaser before a formal contract of sale has been executed. There is no doubt that legislation has carefully protected a purchaser after he signs a contract, and note that s 69 of the Land Registration Act is headed ‘Protection of Purchaser’ which like other legislation only gives that protection after contracts or transfers have been executed. Whilst it is noted that in the case Brigers v Orr & Anor (1932) 32 W.N. N.S.W. the Judge found that a purchaser was protected even though the conveyance had not been proceeded to completion, the facts in that case were that the purchaser had actually paid a deposit and entered into possession of the property. 

As I have already noted, this was a mortgagee sale and at all times the correspondence and negotiations emphasised that. So any purchaser was always on notice that the Bank as the vendor had no overriding title to the land but merely rights under a mortgage. I have been referred to no authorities where the preliminary negotiations or agreements in such a mortgagee sale have been found to be binding on a mortgagee. In this case whilst there seems to have been an agreement on the price, there was no formal document setting this out with the terms and conditions, no deposit paid, and actually there were certain questions raised about the area and conditions that attached to the land under the Land Act. The Bank in this case only had certain special rights over the land and such rights should of course be specially covered in the appropriate formal documentation.

I find that in such a mortgagee sale involving a bank the negotiations had still to be finalised with a formal contract and until such a formal contract is executed by the parties, there can be no enforceable agreement. 

I dismiss the claim by the plaintiff and order judgement for the defendant. 

Lawyer for the plaintiff: Blake Dawson Waldron.
Lawyer for the defendant: Carter Newell.