In the recent case of Commonwealth Bank of Australia v Chamos [2012] NSWSC 1345, the borrower Mr Chamos argued that by virtue of the bank’s sign-off on his apartment development’s underlying pre-sale contracts the bank was implicitly saying that the contracts were enforceable as a matter of law.

The NSW Supreme Court said no. Despite the fact that Mr Chamos’s relationship banker, having had the pre-sale contacts reviewed by the bank’s lawyers, told Mr Chamos that the pre-sale contracts were “all fine”, the court accepted the bank’s argument that it was taking a subjective viewpoint, not an objective one.

In other words the bank was not making a general statement about the overarching legal validity of the pre-sale contracts, rather it was simply saying that, according to the terms of its loan approval of Mr Chamos’s development, the contracts complied with those terms.

So, just because a document or other thing is deemed to be acceptable to a counterparty in a private contracting sense does not mean that it has been “perfected” in a general law sense.

In the factual context of Mr Chamos’s case this may seems anomalous. Whilst he had made his borrowing arrangements with the Bank in NSW, the pre-sale contracts pertained to land in Queensland which would comprise the bank’s security. The bank therefore referred the contracts to Queensland lawyers for final review.

The borrower claimed that he believed that this inter-state referral amounted to the bank obtaining the imprimatur of a full legal sign-off, but the court declined to accept Mr Chamos’s evidence that this was his true state of mind at the time.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article