LIFTON INVESTMENT LTD. v. PANG CHOR YING ANNIE

Headnote

Agreement for sale and purchase of flat - Time of the essence - Vendor to deliver items of furniture set out in schedule to Agreement on completion "without any addition of purchase price" - Purchase price $2.14m - Furniture worth $9,000 missing on day fixed for completion - Purchaser refused to complete unless vendor willing to perform - Vendor rescinded for failure to pay balance of purchase price - Action by purchaser for specific performance.

HELD: following Camberra Investment v. Chan Wai-tak [1989]1 HKLR 568 at 574C, obligations under the agreement were concurrent and mutual. When it became clear that vendor was unable or unwilling to perform fully her obligations under the Agreement, the purchaser was entitled to withhold performance and bring action for specific performance, for an order to complete, if necessary with abatement of purchase price.

IN THE COURT OF APPEAL

1992, No. 166
(Civil)

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J U D G M E N T

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Litton, J.A. delivering the judgment of the court.

1. This appeal turns on the proper construction of a sale and purchase agreement, dated 17 February 1990, in which the appellant was the vendor and the respondent the purchaser.

2. In clause 1 of the agreement, "the Property" was identified as Flat C on the 31/F of Glory Heights together with a carparking space and an undivided share of the land on which the building was erected.

3. The purchase price was $2,140,000 of which $1,926,000, being the balance, was payable on completion. Time was, in every respect, to be of the essence of the contract.

Clause 8 of the agreement is in these terms:

"8. A. Vacant possession of the Property including such furniture, fixtures and fittings (if any) more particularly described in Part VIII of the Schedule hereto shall be given to the Purchaser on Completion.

B. (a) It is hereby agreed and declared that the Vendor will sell and the Purchaser will purchase the Property together with the said furnitures, fixtures and fittings now installed in the Property without any addition of purchase price.

(b) The Vendor shall deliver and hand over to the Purchaser the said furniture, fixtures and fittings mentioned in sub-clause (a) hereof in good repair and condition on the date of delivery of vacant possession to the Purchaser as mentioned in sub-clause A hereof (fair wear and tear expected).

(c) The Vendor warrants that none of the furniture, fixtures and fittings mentioned in sub-clauses (a) and (b) hereof is subject to any hire-purchase lien or credit sale agreement and that the same are free from encumbrances of all descriptions and that the Vendor is the legal and beneficial owner of the same. This Sub-clause (c) shall survive completion of the purchase."

4. Part VIII of the Schedule sets out five items of furniture, fixtures and fittings including one refrigerator and one table with four chairs.

5. The day fixed for completion was 15 March 1990 and the purchaser's obligation was to deliver the balance of the purchase price to the vendor's solicitors before 5 p.m. that afternoon.

6. What precisely took place on 15 March 1990 is now of no importance except this : the refrigerator, the dining table and the four chairs which were included in the sale were no longer in the flat because they had, prior to 15 March, been removed. That was discovered by a director of the purchaser, when on 15 March, he received the keys as part of the process of completion and found these items of furniture missing. The outcome was that the balance of the purchase price, although tendered in accordance with the agreement, was recalled by the purchaser's solicitors who made it plain that the purchaser was not prepared to complete whilst the vendor was in breach of her obligation to deliver the refrigerator and the furniture to the purchaser on the date fixed for completion.

The outcome, on the judge's findings, was this:

(i) The vendor was unable to deliver the purchaser all the items of furniture set out in Part VIII of the Schedule to the Agreement, and

(ii) the purchaser refused to pay the balance of the purchase price amounting $1,926,000, as set out in Part IV of the Schedule to the Agreement.

7. As the judge found, the purchaser was not evincing an intention to repudiate. On the contrary, the purchaser was asserting that it regarded the contract as still subsisting and that the vendor was under an obligation to fulfil the bargain by delivering to the purchaser the items of furniture as specified in the agreement.

8. The response of the vendor to the purchaser's refusal to pay the balance of the purchase price was to cause her solicitor to send a letter the next day giving notice of forfeiture of the deposit in the sum of $214,000 paid under the agreement. Although the terms of the agreement were not specifically referred to, the vendor's solicitors were, in effect, invoking the provisions of clause 10 of Part A of the 2nd Schedule to the Conveyancing and Property Ordinance (adopted as part of the agreement by incorporation) whereby the vendor was entitled to rescind the agreement and forfeit the deposit in the event of the purchaser failing to comply with the terms of the agreement: here, Part IV of the Schedule to the agreement, which obliged the purchase to pay the balance of $1,926,000 by 5 p.m. on 15 March 1990.

9. By writ dated 10 April 1990 the purchaser sought an order for specific performance of the agreement and a further order that the vendor should "forthwith return the said furniture to the plaintiff".

10. The question before the judge was, quite simply, whether the purchaser was entitled to act as it did. The judge concluded that the purchaser was so entitled because, as he put it, by failing to deliver the missing items of furniture on the date fixed for completion, the vendor could not say that she was "ready, willing and able to complete the contract in accordance with its terms; accordingly she was not entitled to demand completion by 5 O'clock".

Case for Vendor

11. On behalf of the vendor, counsel submits that the judge was wrong because the real and substantial object of the sale was "the property" identified in Part V of the Schedule to the Agreement; the furniture was merely incidental to the sale; and clause 8(B)(b) of the agreement says that those items of furniture were to be delivered to the purchaser "without any addition of purchase price". The evidence before the judge was that the value of the missing items came to no more than $9,000: a minute percentage of the purchase price. The parties, as counsel argues, could not have contemplated that, by the vendor failing to deliver one or two items of furniture, the purchaser could have withheld the whole of the balance of the purchase price amounting $1,926,000. The position, as counsel submits, might be tested in this way: assume that all the items of furniture were in the flat on the day fixed for completion, but the vendor was in breach of clause 8(B) in that one or two of the items of furniture were not "in good repair and condition"; for instance, a leg was missing from one of the chairs. Would this have entitled the purchaser to have withheld the whole of the balance of the purchase price? The answer, says counsel, must be NO, because the "sale" of the furniture and of the real estate were severable; any breach of the terms concerning the sale of the furniture amounted only to a breach of warranty and did not relieve the purchaser of its obligation to pay the balance of the purchase price. At the most, the breach of warranty sounded in damages.

Case for the Purchaser

12. Counsel for the purchaser counters this argument as follows: assume that some of the furniture was extremely valuable - or, at least, valuable to the purchaser because of the particular use to which the flat was intended to be put - is the purchaser compelled to complete even though he has only got part of his bargain?

Construction of the Agreement

13. There are strong arguments on both sides and, as it seems to us, the matter can only be resolved by going back to first principles. The agreement of 17 February 1990 comprises the whole bargain as between the parties, and it must be construed as a whole. Although "the Property" as described in Part V of the Schedule is the flat, the carparking space and the undivided share of the land and building, there is an undoubted obligation falling on the vendor to deliver to the purchaser all the items of furniture identified in Schedule VIII. The contract is not "severable", as counsel for the vendor contends. The vendor's obligation on completion was to deliver possession of the flat, the carparking space and the items of furniture specified in Part VIII. The obligations under the agreement were concurrent and mutual: see Camberra Investment v. Chan Wai-tak [1989]1 HKLR 568 at 574C. The performance by the vendor of her obligations triggered those of the purchaser, and vice-versa. When it became clear to the purchaser that the vendor was unable to fully discharge her obligations under the agreement, the purchaser was entitled to withhold its performance.

14. Counsel for the vendor argues that what the purchaser should have done in the circumstances of this case was to have tendered the balance of the purchase price less $9,000. In our judgment, this argument is unsound. Nothing in the agreement obliges the purchaser to make an estimate of the value of the furniture, and risk not tendering the correct amount on 15 March 1990. Confronted with the vendor's inability or unwillingness to deliver the missing items of furniture, the purchaser was entitled to say to the vendor: "When you fully discharge your obligation, I will discharge mine". That was precisely the effect of the writ which the purchaser took out on 10 April 1990, requiring specific performance of the agreement. If it should transpire that the vendor was unable to discharge her obligation fully - because, for instance, the furniture has been stolen or destroyed - then the court, in the exercise of its equitable jurisdiction, would order specific performance with an abatement of the purchase price, to reflect the value of the missing furniture. This is a remedy which a court of equity is entitled to give : it is not to be translated into a contractual obligation falling on the shoulders of the purchaser, in anticipation of the vendor's default, on the day fixed for completion. To give effect to the agreement in this way is to make the respective obligations clear-cut and unambiguous - which is what the parties have done by the terms of their own agreement. The vendor's argument of "substantial performance" is to introduce an ambiguity into the contract which the words used do not permit.

15. This approach finds an echo in Arcos v. Ronaasen [1933] AC 470, at p.479 where Lord Atkin said:

"It was contended that in all commercial contracts the question was whether there was 'substantial' compliance with the contract: there always must be some margin: and it is for the tribunal of fact to determine whether the margin is exceeded or not. I cannot agree. If the written contract specifies conditions of weight, measurement and the like, those conditions must be complied with. A ton does not mean about a ton, or a yard about a yard".

16. To avoid the harshness of this conclusion the remedy is simple. Instead of making the obligation to deliver the furniture, fixtures and fittings part of the vendor's obligation on completion under the agreement, the parties could have entered into a separate sale and purchase agreement, say, by an exchange of letters, selling those items for, say, $10,000. This would have made it plain that these items formed no part of the consideration under the agreement. They did not do so.

Conclusion

17. In our judgment, the judge had reached the right conclusion in this case and the appeal should be dismissed. There should also be an order nisi that the appellant pays the costs of the appeal.