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The Requisitions Clause
By PETER BLANCHARD LL.M.
It is the duty of a Vendor of land or an interest in land to make out a good title to the property which he is selling unless his contract with the Purchaser specifically or impliedly limits his obligation in this regard. The burden on the Vendor is clearly stated by Hosking J. in Hayes v. Ross (No. 2): Now, upon the sale of real estate there is an implied undertaking on the part of the Vendor, except to the extent that the agreement for sale may modify the same, that he has a good title to the land proposed to be sold and if he fails to shovv a good title he cannot entitle himself to payment of the purchase money.
The Purchaser thus has the right to object to any defect in the title of his Vendor of which he was either not aware at the time of the contracting or (if aware) which he. believed that the Vendor was in a position to remove and would remove before settlement. A Purchaser is not precluded from raising objection to a defect in title merely because he knew of the defect at the time when he signed the agreement for sale and purchase. To be so barred he m.ust have known at that time not only of the existence of the defect but also of the Vendor's inability to remove it. 2
1 [1919] N.Z.L.R. 777, 780. 2 Ellis v. Rogers (1884) 29 Ch. D. 661; Wisely v. McGruer and Kerr (1909) 28 N.Z.L.R. 481.
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Where a Purchaser puts in a valid requisition and the Vendor does not give an answer or indicates that he is not prepared to give an answer and/or to comply the Purchaser may rescind the contract and is entitled to receive back his deposit provided that:
- The Vendor has been given a reasonable time within which to answer 3 and
- The requisition was one going to the root of the Vendor's title and was not simply a matter entitling the Purchaser to compensa- tion under the compensation clause in the agreement 4 and
- The Purchaser has given notice making time of the essence before attempting rescission. 5 Where these conditions have been met the Purchaser may proceed to rescind even where the Vendor was in fact in a position to give a satisfactory answer to the requisition but did not trouble to do so In ~he absence of a requisitions clause a Vendor who is faced by a valid requisition which he is unable to satisfy is in breach of his contract to deliver a good title. The Purchaser may, depending on the nature of the defect, pursue the usual contractual remedies. The Vendor has no me~ns of escape from the consequences and may be obliged to complete settlement whilst at the same time paying substantial damages to the Purchaser. He has in these circumstances no right to rescind simply because he is unable to comply with the Purchaser's requisition. Usually, however, the agreement for sale and purchase will contain a requisitions clause which constitutes a binding arrangement by the parties that the common law.position of the parties shall be varied. It is ~he purpose of this paper to examine the extent of that variation. The Real Estate Institute's approved form of agreement contains the following clause which may be taken as being typical of the form of requisition clause in use in New Zealand:
Any objections or requisitions on the title which the Purchaser shall be entitled to make must be stated in writing to the Vendors Solicitors within (number) days hereof (time in this respect being of the essence of the contract) and in default thereof the same shall be held to be waived and the title to have been absolutely accepted by the Purchaser. In the event of the Vendor being unable or unwilling to remove or comply with any such objections or requisitions the Vendor shall be at liberty notwithstanding any intermediate negotiations by notice in writing to the Purchaser to rescind this contract in which case the Purcha&er shall receive back the deposit without interest but shall have no
3 Smith v. Wallace [1895] 1 Ch. 385. 4 Ibid. See also Price v. Macaulay (1852) 2 De G.M. & G. 339; 42 E.R. 903. 5 Re Stone and Saville's Contract [1963] 1 All E.R. 353.
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there are four steps which must have been taken before the Vendor can terminate the contract: 12
- An objection to title by the Purchaser;
- An inability or unwillingness on the part of the Vendor to remove the objection;
- Communication to the Purchaser by the Vendor of the existence of the Vendor's inability or unwillingness;
- An insistence by the Purchaser on his objection. It is submitted that under the Real Estate Institute clause quoted above,13 which does not require insistence, the Vendor may rescind after the second of these steps. The other important effect of the requisitions clause is to limit the time within which the Purchaser may put in a requisition as to title. In practice most agreements for sale and purchase allow between seven and fourteen days for the making of requisitions. If a requisition is not stated in writing to the solicitor acting for the Vendor within that time period the clause provides that "the objection or requisition to the title of the Vendor shall be held to be waived and the Purchaser shall be deemed to have accepted the Vendor's title absolutely." Thus the Purchaser who fails to put in a requisition will have to take a transfer of a defective title and cannot raise the matter with the Vendor. Time is of the essence in the usual requisitions clause without express stipulation that this shall be SO.14 Where title is based on a Deeds system time is generally computed from the date of delivery to the Purchaser of a perfect abstract. In the absence of a time limit in the contract a requisition as to title must be made within a reasonable time after the delivery of the abstract. 15 It has been held that under the Torrens System there is no need for delivery of a formal abstract of title and the Purchaser cannot insist upon it. 16 It is necessary only for such information to be given as will enable the Purchaser to ascertain whether the Vendor has title or not. 17 One would have expected that under these conditions time would run from date of delivery of the information but agreements usually specify otherwise and the Courts have not ruled against a strict interpretation of the words. The usual New Zealand requisitions clause requires time to be computed from the date of the contract with time being of the essence.
In the recent decision of Murphy et. ux. v. Rae 18 Moller J. stated that
12 Duddell v. Simpson (1866) L.R. 2 Ch. 102, 109. 13 P. 2. 14 Oakden v. Pike (1865) 34 L.J. Ch. 620. 15 Spurrier v. Hancock (1799) 4 Yes 667; 31 E.R. 344. 16 Davidson v. Brown (1879) 5 V.L.R. 288. 17 Bodley v. McDonald (1901) 20 N.Z.L.R. 371, 372. 18 [1967] N.Z.L.R. 103, 113.
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where there was a strict time limit to be computed from the date of the contract the Purchaser was unable to put in a requisition as to title out of time upon the plea that his solicitors had not received a copy of the agreement until after the· time period had elapsed. The Purchaser was presumed to have known the provisions of the clause and, in the words of the learned judge, he "lost his right to repudiate the contract on any grounds involving a question of title (Williams on Title 3rd Ed. p. 527)" .19 This may work hardship on the Purchaser and it is submitted that it would be fairer if the rule were modified so that time ran from the date on which the Purchaser received, either from the description in the agreement or elsewhere, sufficient information to enable him to search the title. The rule might well be that a sufficient "legal description" (title reference and lot and deposited plan numbers) be supplied by the Vendor. In the agreement in Murphy v. Rae the property was described by its residential address which would not have enabled a search to be made if the records of the local body were inaccurate. The strict time limit does not apply at Common Law to things not mentioned in the abstract of title which may be the subject of requi- sitions after the stipulated time has elapsed. 20 In New Zealand, by analogy, late requisitions are permitted in respect of matters discovered subsequently ~o acceptance of the title i.e. which are not shown on the certificate of title. 21 An example is the situation which arises where a Purchaser is holding a section in a subdivision under an agreement for sale and purchase which provides for restrictive covenants in the form of a building scheme-e.g. to use the property for residential purposes only, not to build flats, not to build a dwellinghouse worth less than X. Because this is merely an agreement there will be no record of the covenants on the title which can be discovered by a searcher. If the Purchaser resells his interest and provides the new buyer with a legal description that buyer may relnain in ignorance of the agreement for the covenants. It is submitted that if he were later to learn of it-say, on being handed the prior transfer on the day of settlement-he would be able to put in requisitions and would not be bound by the· time limitation in the requisitions clause.
WHERE THE REQUISITIONS CLAUSE IS INAPPLICABLE A requisitions clause does not cover every dispute arising in respect of the title. Its scope is limited. Firstly, and most obviously, there may be certain requirelnents or claims made by a Purchaser which do not
19 Ibid. 113. The reference to Williams on Title does not directly support the conten- tion, for the learned author is discussing only the possibility of a Vendor's inserting into an agreement a clause restricting the obligation to present a good title. 20 Warde v. Dixon (1858) 28 L.J. ChI 315. 21 Hayes v. Ross (No.2) [1919] N.Z.L.R. 777, 785.
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only need not be raised within the time limit because they are 110t requisitions or objections on the title. Secondly, the Vendor's protection under the requisitions clause is usually limited to a defence against a defect of title. He receives no protection from a defect of conveyancing. In Williams on Vendor and Purchaser 3rd Ed. p. 175 it is said:
If the stipulation gives the right to rescind in case of insistence on a requisition or objection as to title only the Vendor will not be enabled to rescind if the Purchaser insists on some requirement which is a matter of conveyance, as the discharge of a mortgage. The wording of the Real Estate Institute requisitions clause is not wide enough to cover requisitions as to conveyance. 29 If it read "any objections or requisition as to the title, particulars, conditions or any other matter or thing relating or incidental to the sale" the clause would cover defects of conveyancing and would bring into operation in respect of these things the Vendor's right to rescind and the time limit. 3 0 A requisition is of conveyancing and not title where the Vendor on doing certain acts, which he can perform immediately and independently of the consent of others,will have the right to direct the conveyancing of the whole estate contracted for. 31 At this point the Vendor has made out his title; no-one can prevent him from transferring free of encum- brances and other defects but there are certain further matters to be attended to, such as the removal of a mortgage, which it is in the power of the Vendor acting alone to remove or to compel the removal of. In Kitchen v. Palmer^32 the Vendor had contracted to sell the legal estate but was found to have an equitable interest only. Because he could unilaterally have rectified the situation-albeit at great incon- venience-it was held that the defect was one of conveyancing and he could not set aside the contract. A similar result occurred where it was discovered that a Vendor's sub-lease had been mortgaged. 33 On the other hand the existence unbeknown to the Vendor of a right of way was a defect of title and rescission by the Vendor was allowed. 34 Unless the owner of the dominant tenement agreed to surrender the easement the Vendor was powerless. A third situation in which the requisitions clause is totally inapplicable is where there is not just a technical objection or defect in the title of the Vendor but rather the Vendor has no title at all to the property or a title which is wholly bad (which is another way of describing lack 29 In Re Jackson and Oakshott (1880) 14 Ch.D. 85. 30 In Re Deighton. and Harris's Contract [1898] 1 Ch. 458. It would also entitle a Vendor to rescind if a Purchaser raised a matter of mere misdescription. 31 Williams on Vendor and Purchaser 3rd Ed.. p. 170. 32 (1877) 46 L.J. Ch. 611. 33 In Re Jackson and Oakshott (1880) 14 Ch.D. 85. 34 Ashburner v. Sewell [1891] 3 Ch. 405.
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of title). This is not an objection to the title but to the absence of it. So where a Vendor held property upon trust during the life of X to pay the income therefrom to X and after the death of X to sell the property and, notwithstanding the trust, the Vendor purported to sell the property during the lifetime of X, he was not permitted later to rescind the contract when he discovered his mistake. The Court exam- ined the situation which would have arisen had the Vendor been trying to enforce the time limit. He had no title to the property which he could have compelled the Purchaser to accept yet, if the clause applied, the time limit would have worked against the Purchaser. Pollock B. said: It would be putting a most unreasonable construction upon the conditions of sale to hold that the Vendee by failing to object to the abstract of title not merely waived any requirement as to further information or further security which he might properly have enforced against a Vendor who had a valid title or one capable of being made valid but that he became liable to accept a title wholly bad when the very basis of the contract apart from the conditions of sale \vas that the Vendor was bound to give a good title.3 5 Therefore the Vendor was not allowed to rely on the requisitions clause. The Vendors in Cook v. Hill,36 whose title had a fatal flaw because of an unrevoked trust, were treated in the same way. 37 The decision of Moller J. in Murphy et ux. v. Rae^38 which has been discussed above 39 is open to criticism, it is respectfully submitted, on the grounds that if one adopts the assumption made by the learned judge the Vendor could be said to have no title to the property so as to exclude the operation of the requisitions clause and the time limit contained in it. In Murphy et ux. v. Rae the Vendor and his wife were joint owners of a house property. The Vendor contracted to sell the house and the Purchaser later attempted to repudiate the contract because (inter alia) Mrs. Murphy was not a party to the contract. Moller J. first held that on the evidence it was likely that the Vendor was acting as the agent of his wife and with her consent. Having reached this conclusion he put it aside and dealt with the argument relating to the strict time limit in the requisitions clause upon the assumption that no such consent on the part of Mrs. Murphy had been forthcoming. As has been seen above,40 the learned judge held that the time limit should be strictly applied. However, it is respectufully submitted that the learned judge overlooked the fact that the property was registered as a joint family home under the Joint Family Homes Act, 1964,
35 Want v. Stallibrass (1873) L.R. 8 Exch. 175, 185. 36 (1890) 8 N .Z.L.R. 570. 37 See also Bowman v. Hyland (1878) 8 Ch.D. 588. 38 [1967] N.Z.L.R. 103, 113. 39 P. 4. 40 P. 4.
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It seems therefore that it is not necessary for the Vendor to give reasons and this throws an added burden on a Purchaser who is attempting to show that the Vendor's reasons are not adequate. It should be noted that where the requisitions clause provides for the Purchaser to "insist" upon his requisition before the right to rescind arises in the Vendor (but not otherwise) the Vendor must give a reply (but not necessarily an answer) to the requisition i.e. he must inform the Purchaser that he is unable or unwilling to comply so as to give the Purchaser the choice of insisting on or retracting the requisition. 4 9 At no stage-whether or not insistence is an element-need he warn the Purchaser that he is thinking of exercising his right under the requisions clause. 5 0 In all cases, where reasons are in fact given by a Vendor they may be used against him. 51
The general equitable principles governing the right of a Vendor to rescind are stated by Viscount Radcliffe in Selkirk v. Romar Investments Limited: 52
... a Vendor... must not act arbitrarily or capriciously or unreasonably. Much less can he act in bad faith. He may not use the power of rescission to get out of a sale brevi manu since by so doing he makes a nullity of the whole elab- orate and protracted transaction. Above all, perhaps, he must not be guilty of recklessness in entering into his contract, a term frequently resorted to in discussion of the legal principle and which their Lordships understand to connote an unacceptable indifference to the situation of a· Purchaser who is allowed to enter into a contract with the expectation of obtaining a title which the Vendor has no reasonable anticipation of being able to deliver. A Vendor who has so acted is not allowed to call off the whole transaction by resorting to a contractual right of rescission.
On the other hand the Vendor's actions need not be "beyond critic- ism".53 Let us then examine the standard more closely. Firstly, a Vendor must not act capriciously. If he wishes to rely on the clause he "must show that if he proceeds to comply with a requisition he will be involved in expenses far beyond what he ever contemplated or be involved in litigation and expenses which he never contemplated and for avoiding which he reserved to himself the power of annulling the contract".54 Hence if the Purchaser can show that compliance with the requisition will not put the Vendor to any substantial labour or expense which the Vendor has not anticipated then the Vendor will be unable to rescind by use of the clause. What constitutes a substantial labour or
49 Turpin v. Chambers (1861) 29 Beav. 104; S4 E.R. 566. 50 Duddell v. Simpson (1866) L.R. 2 Ch. 102 cf. Gee v. Tahos [1963] S.R. (N.S.W.) 935 where there was a special clause under which an indication of intention had to be given. 51 Quinion v. Horne [1906] 1 Ch. 596. S2 [1963] 3 All E.R. 994~ 999-1000 (P.C.). S3 Grace v. Mitchell (1926) 26 S.R. (N.S.W.) 330. 54 Per Turner J. in Duddell v. Simpson (1866) 1 L.R. 2 Ch. 102, 107.
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expenses will vary with the value of the property. The need to spend $500 may allow the Vendor of a $2,000 section to terminate the contract but similar expenditure would probably have to be undertaken if the property were worth $200,000. In In Re Weston and Thomas's Contraet 55 the Purchaser requisitioned for the removal of a contingent encumbrance relating to some estate duty. Under the Estate Duties Act an application could have been made by the Vendor for the commutation of the duty which would have been payable only. if one or more of the Vendors survived to a certain date on which they would all have been over 90 years of age. The amount of duty involved was very small. The Vendor's answer was that he was not prepared to seek commutation but would execute an indemnity for the Purchaser. This the Purchaser would not accept whereupon the Vendor invoked the requisitions clause. The Court held that the Vendor was bound to discharge the encumbrance for there was no inherent difficulty delay or expense in· so doing. He could not use the clause in these cir- cumstances. Secondly, the Vendor will not be allowed to rescind under the requisi- tions clause where he knowingly misrepresented a defect in title to the Purchaser. He cannot use the clause in bad faith. 56 He must satisfy the Court that he has been genuinely in ignorance of s.ome material fact or document or under some mistaken notion that there was no defect. More than this, he must not have acted recklessly and thereby have encouraged the Purchaser to enter into the contract. There must be no failure of duty on his part and he must have omitted nothing which an ordinarily prudent man having regard to his contractual relations with other persons would have done. This rule was laid down in Re Jackson and Haden's Contraet 57 in which the Vendor had contrac- ted to sell land under a description so -vide that it covered the minerals contained in the land. He should have been aware that he had no right to the minerals. It was held that he could not rescind and that the Purchaser could insist on completion with compensation for the defect in title. Similarly, where a Vendor agreed to sell a house but did not actually have the legal estate the Court held that he had been imprudent to the point of recklessness in proceeding in the hope of obtaining it with the help of the executor of his wife's estate. 58 If, however, he has acted on the faith of a promise or representation by the proprietor of the legal estate that he will concur in the sale then the Vendor's action is not necessarily reckless even where he has failed to extract a binding
S5 [1907] 1 Ch. 244. 56 Nelthorpe v. Holgate (1844) 1 CoIl. 203; 63 E.R. 384. Sivewright v. Casey (1949) 49 S.R. (N.S.W.) 294. Orchard v. Taylor (1909) 10 S.R. (N.S.W.) 93. 57 [1906] 1 Ch. 412. 58 In Re Des Reaux and Setchfield's Contract [1926] 1 Ch. 178. See also Baines v. Tweddle [1959] 1 Ch. 679.
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waived it. 65 The Vendor has to elect forthwith whether to abandon the ship. If he makes an effort to save it and fails he must go down with it. Where the right to negotiate is reserved the Vendor's right of rescis- sion will not be lost even where he indulges in litigation with the Purchaser. 66 If he sees that the case is going badly he can still back out by means of the clause, though once a final judgment is given against him his right vanishes for intermediate negotiations are no longer being carried on. There can be no question of further negotiation once the Court has pronounced. If rescission was permitted at this juncture the Vendor could go happily into Court safe in the knowledge that he could nullify any decision against his interests. 67 Before judgment, however, the right to negotiate allows the Vendor to try all manoeuvres to satisfy the Purchaser without risking the loss of his right to terminate the contract.
CONCLUSION
The requisitions clause is an established part of conveyancing life. Rarely does an agreement for the sale and purchase of land not contain one. It serves a valuable purpose by preventing a Vendor from becoming inextricably enmeshed in a contract which he cannot fulfill without considerable and unexpected difficulty. If his actions have been prudent the clause will relieve him of his obligations unless they are not onerous, but if he has behaved improperly it will not operate. From the Purchaser's point of view the workings of the clause may often be annoying but although the restoration of the pre-contractual position may involve for him the loss of his bargain it must be remem- bered that at Common Law he can not recover damages for this anyway where the Vendor can not complete^68 and it is unlikely to result in great hardship for him such as may happen if a Vendor is forced to proceed. The widespread use of the clause is based on the feeling that the Purchaser should not be allowed to take advantage of an innocent Vendor's misfortune by rigourously following his remedies. But whilst the principle of the clause may thus be approved the following changes in its usual form are suggested to alleviate unfairness in its operation:
- The Purchaser should in all circumstances be permitted to claim from the Vendor the expenses of investigating title. The mistake is not his. He has probably been put to much time and effort in
65 Tanner v. Smith (1840) 10 Sim. 410; 59 E.R. 673; Morley v. Cook (1842) 2 Hare 106; 67 E.R. 44. 66 Isaacs v. Towell [1898] 2 Ch. 285. 67 Re Arbib and Class's Contract [1891] 1 Ch. 601. 68 Flureau v. Thornhill (1776) 2 Wm. B. 1078; 96 E.R. 635; Bain v. Fothergill (1874) 7 H.L. 158.
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his negotiations with the Vendor. He has incurred legal fees. Yet he. gets back only his deposit and must be out of pocket. In the United Kingdom where the investigation of a title can be a protracted and expensive business such a practice maybe justifiable. It may be based on the theory that where the land title system is relatively uncertain the risks must be shared or that where expense must be heavy it must not all be borne by an innocent Vendor. It is submitted that there is no merit in the rule in New Zealand where with rare exceptions the Vendor's title can be easily traced and established. The number of requisitions should be fewer; the legal fees involved should not be great. Hence the Vendor should bear the costs for it is difficult to see that much hardship will be worked.
- There should be a requirement that the Vendor must give the Purchaser an opportunity of withdrawing his requisition and must warn him that if he insists on it rescission will follow. The Vendor must give notice of intention to rescind. The Purchaser's present position is unenviable. He may be very eager to obtain a piece of land, but on searching the title he may find a defect in it-let us say, a limitation as to title recorded on the register. What is he to do? If he puts in a requisition in the belief that the Vendor will not have too much trouble in complying he may find that he has underestimated the expense involved for the Vendor. If the Vendor then elects to rescind, the Purchaser, who may have been willing to withdraw his objection and to have run the risk of taking a defective title in order to preserve his bargain, is not given the opportunity. What prejudice is there to the Vendor if he must give notice? It is worth noting that in New South Wales by virtue of S. 56 of the Conveyancing Act 1919-54 there is a statutory requirement which prevents rescission before the Pur- chaser has insisted on his requisition.
- The time within which requisitions have to be put in should run from the date on which the Vendor supplies the Purchaser with a legal description comprised of lot and deposited plan numbers and certificate of title reference. If this information were in the agree- ment the requirement would be satisfied automatically on signa- ture by the Purchaser. Where a plan has yet to be deposited time should run from the date on which the Vendor advises the Pur- chaser of the deposit. The Auckland Law Society's new form of agreement contains this modification and it is to be hoped that the practice will spread. It may be regarded as an extension of the principle that matters not mentioned on the abstract or occurring subsequently may be the subject of requisitions out of time, but a specific statement in the agreement will clarify the point.
