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You Can't Always Rely On Your Lawyer's Signature
 
Several months after contracting to buy six beach resort units, as well as the resort’s management and letting rights, Fred Sutton had second thoughts about his company’s purchase. No matter that the seller company had already made some post-contract concessions: a price reduction on the rights contract, and extensions of time for finance and the completion date of both contracts. Each contract was conditional on the other, so a valid termination of one meant the consequential crashing of the other. Because the signed, sealed and delivered contracts appeared binding, with everything in place for settlement, the lawyer was not hopeful. But, in the course of anxiously looking for any less-than-obvious loopholes, he mentioned what he was about to his secretary. “I have a vague recollection,” she volunteered, “that the disclosure statement was unsigned when the draft contracts arrived.” “I think I made a note,” she added. When her boss revisited the files, he was delighted to discover that his secretary (bless her precautious heart!) had made more than a note. This law office veteran had actually fixed a stick-it-note (with the words “not signed by seller”) on this critical document, then she had taken a photocopy of the duly noted signature-less disclosure statement. Section 206 of the relevant state statute requires unit sellers to give prospective buyers, before they enter into contracts, a statement “signed by the seller or a person authorised by the seller” disclosing financial and other details about the body corporate. A buyer may cancel a subsequent contract anytime before settlement if the seller has not complied with this section. Sellers (agents and lawyers) beware! Here the seller’s lawyer had sent Sutton’s lawyer a letter enclosing the proposed units contract, the proposed rights contract and a detailed disclosure statement. None of these had been signed, apart from the letter (which the seller’s lawyer had signed). After some minor amendments had been agreed to Sutton signed all three documents. These were then returned to the seller’s lawyer who, after the seller had signed and dated the contracts and disclosure statement, forwarded them to Sutton’s lawyer. Clearly, in Sutton’s lawyer’s opinion, Section 206 had not been complied with before either contract was entered into. So he promptly terminated each contract and requested the refund of his client’s deposits. No way, protested the ambushed seller and its startled lawyer. Section 206 had been complied with, the lawyer ingeniously argued, because his signature on the covering letter was an effective signing for that purpose. He also maintained in the alternative that, on a proper construction of the section, there had been substantial compliance with its requirements. Before long the matter went before the Supreme Court, with barristers putting both parties’ respective arguments. No facts were in dispute. The legal issue was simply whether the lawyer’s signing of his initial letter was, in the words of the judge, “done with the authority of the seller and was sufficient to verify the unsigned document.” While the text of that letter was consistent with the lawyer’s being authorised to prepare the contracts and secure their execution, there was no conduct by the seller, nor any circumstance, inferring the lawyer had actual or ostensible authority to bind his client to the terms of the enclosed disclosure statement. (This document may, in fact, have been prepared by search agents.) His Honour then ruled that the proper construction of section 206 was determined by its being part of the statute’s consumer-protection safeguards. Thus, because of the “centrality of the disclosure statement to the contractual rights and obligations of the parties”, the statement had to be “a legal and binding act of the seller”. This required “personal verification” by the seller, or by someone else specifically authorised in that regard. Neither scenario applied here, so the judge’s ruling was that both contracts had been validly terminated. The “substantial compliance” argument was similarly dismissed on the basis that the section’s consumer-protection purpose called for a strict approach to its terms. Fred Sutton, hardly a consumer ever in need of protection, is now a happy man - unlike his seller’s lawyer who is probably being sued for negligence. (This true story, with names changed, ran first in Australian Property Investor Magazine's Real Estate Escapes column.) To post your comment on this item, please return to
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OPINION
