In this construction loan the borrower sought to draw down the whole loan and the lender sought to require all drawdowns to constitute less than 80% LVR pursuant to the standard progress payment regime in the industry.
There was nothing in the mortgage itself about drawdowns being less than 80% LVR. The lender alleged it was an implied term arising out of reference to stages in the letter of offer. The borrower argued that the decision of the High Court in Equuscorp Pty Ltd v Glengallan Investments (2005) 218 CLR 471 had direct application. In a joint judgment of Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ said as follows:
The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it.
Yet fundamental to the respondents’ case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.
… In the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case.
Notwithstanding Justice Campbell decided for the lender finding the agreement in question was partly written and partly oral and the oral component contained the 80% LVR term. His Honour gave the following reasons:
There is nothing in the letter of offer itself, or the mortgage document, which contains an express term limiting the payment of the Amount of Credit to payment by progress payments of 80% of the value of the property from time to time. However, the lender submits that the contract in question is one which is partly written and partly oral.
The parol evidence rule is a rule which states that oral evidence cannot be given to add to or contradict the terms of an agreement which is wholly in writing. However, before the parol evidence rule becomes applicable, the court must first decide that there is an agreement and that the terms of the agreement are wholly contained in writing.
In the present case, the loan approval was subject to a condition that the borrower pay the “stage valuation costs”. The letter of 12 August, the substance of which was communicated to the defendant, contemplated that there would be progress payments. The loan documentation itself contemplates that there will be progress inspections, when the loan is for the construction of a property. The conduct of the plaintiffs in applying for the first and second progress payments is consistent with there having been an agreement that payment would be made by progress payments of some sort.
If the plaintiffs’ preferred construction of the contract were correct, so that the whole of the amount of credit could be drawn down instantly, a situation which was commercially unusual, and where there was the potential for the defendant to be undersecured, would arise, if at the time of that draw down the construction work had not all been carried out. I say that there is a potential for that to happen, because it was a term of the loan that a guarantee be provided by Mr Warner, as well as a mortgage over the site where the building work was taking place, and the value of that guarantee is not disclosed in evidence. There is nothing in a term whereby the payment would be made by progress payments which in any way contradicts the express terms of the loan agreement. I am satisfied that it was a term of the loan agreement that the loan would be advanced by progress payments.