Pre-Completion
Cases
Tempany v Hynes
[1976] IR 101
Neutral Citation: 1976 WJSC-SC 1351
Jurisdiction: Ireland
Court: Supreme Court (Ireland)
Judge: KENNY J., HENCHY J.
Case History: Reverses 1966 WJSC-HC 10
Reverses 1966 WJSC-HC 10
Kenny J.
The first argument for the plaintiff was that when the contract for salewas signed on the 26th of February 1974, the company became a trusteefor the defendant who became the owner of the entire beneficial interestin the lands and that the company did not own any estate or interest onwhich the two judgment mortgages of the 2nd of May 1974 and the 1st ofJuly 1974 could operate and so they would be removed from the folio onthe registration of the transfer to the defendant. A vendor who signs acontract with a purchaser for the sale of land becomes a trustee in thesense that he is bound to take reasonable care of the property until thesale is completed but he becomes a trustee ofthe beneficial interest to the extent only to which the purchase priceis paid. He is not a trustee of the beneficial interest merely becausehe signs a contract. This is made clear by Lord Cranworth in Rose v.Watson (1864) 10 H.L. Cas. 672. “There can be no doubt, Iapprehend, that when a purchaser has paid his purchase-money, though hehas got no conveyance, the vendor becomes a trustee for him of the legalestate, and he is, in equity, considered as the owner of the estate.When instead of paying the whole of his purchase money, he pays a partof it, it would seem to follow, as a necessary corollary, that, to theextent to which he has paid his purchase-money, to that extent thevendor is a trustee for him; in other words, that he acquires a lien,exactly in the same way as if upon the payment of part of thepurchase-money the vendor had executed a mortgage to him of the estateto that extent”. Until the whole of the purchase money is paid,the vendor has in my opinion a beneficial interest in the land which maybe charged by a judgment mortgage.
Some judges and writers of standard text books (Cheshire and Magarry andWade) who have dealt with this matter have stated that from the date ofthe signature of the contract (whether the whole or any part of thepurchase money has been paid or not) the purchaser is the owner of theentire beneficial interest in the land. Thus in Shaw v. Foster (1872) L.R. 5 H.L. 221 Lord Cairns said: “There cannot be theslightest doubt of the relation subsisting in the eyes of a Court ofEquity between the vendor and the purchaser. The vendor was a trustee ofthe property for the purchaser; the purchaser was the real beneficalowner in the eye of a Court of Equity subject only to this observation,that the vendor whom I have called the trustee, was not a mere dormanttrustee, he was a trustee having a personal and substantial interest inthe property, a right to protect that interest and an active right toassert that interest if anything should be done in derogation ofit” and in Lysaght v. Edwards (1876) 2 Ch. D. 499 theMaster of the Rolls (Jessel M.R.) said that the moment you have a validcontract for sale, the beneficial ownership passes to the purchaser.Both these statements are inconsistent with the clear principle statedby Lord Cranworth and are, I believe, incorrect. When a contract forsale has been signed the vendor becomes a trustee of the beneficialinterest to the extent that the purchase money has been paid.
This issue arose in re Kissock and Currie’s Contract (1916) 1I.R. 376, a decision of the Court of Appeal in Ireland, in which ajudgment mortgage had been registered against a vendor between the dateof the contract for sale by him and its completion. The sale was closedwithout any payment being made to the judgment mortgagee. A subsequentpurchaser objected to the title because he maintained that the judgmentmortgage was valid and this claim was upheld. The Lord Chancellor, SirIgnatius O’Brien said: “I think that from the point of view of thejudgment creditor…. his debtor had an interest in land after thedate of contract for sale and until completion capable of being affectedby the judgment”. If this case was correctly decided, as I thinkit was, the principle underlying it disposes of the puzzling concept insome of the other cases that such a judgment mortgage is valid whenregistered but ceases to be affective when the sale is completed becausethen the vendor’s interest is deemed to have passed to the purchaserfrom the date of the contract. I prefer the principle stated by LordCranworth.
Counsel for the plaintiff however relied on a passage in the judgment ofMr. Justice O’Byrne in In Re Strong (1940) I.R. 382 at PP401-402. It reads: “Under the general rules of law and equity,apart from the provisions of the Local Registration of Title (Ireland)Act 1891, the position as between a purchaser oflands, who has paid his purchase money but has not obtained aconveyance, and a judgment debtor [sic] who has registered his judgmentas a mortgage affecting such lands seems to be quite clear. Where acontract is entered into for the sale and purchase of lands the vendorbecomes a trustee for the purchaser and the latter becomes owner inequity of the lands subject to certain rights of the vendor to securepayment of the balance of the purchase money and to regain possession ofthe lands should the contract not be completed”. The firstsentence is dealing with the position of a purchaser who has paid thewhole of the purchase money and has not got a conveyance when a judgmentmortgage is registered against the vendor. The purchaser then takes thelands free of the judgment mortgage. The second sentence deals with theposition after a contract for sale has been signed and no part or partonly of the purchase price has been paid. The second sentence is, in myview, incorrect. The structure of the two sentences suggests that thesecond is explanatory of the first: it is not. It is restating the viewof Lord Cairns and of Jessel M.R. which I do not accept and which is notconsistent with what Lord Cranworth said.
At the date when the two post-contract judgment mortgages wereregistered on the folio the deposit only had been paid and theytherefore effected whatever beneficial interest the company had inthe lands. I therefore reject the argument that because a contract forsale had been signed, the company who were the vendors had no beneficialinterest in the lands which could be affected by the post-contractjudgment mortgages.
The next argument (though logically it should have been the firstbecause, if correct, it disposes of the four judgment mortgages) wasbased on s. 71 sub s. (4) of the Registration of Title Act 1964which reads:
“4. Registration of an affidavit which complies with the saidsections and this section shall operate to charge the interest of thejudgment debtor subject to û”
(a) the burdens, if any, registered as affecting that interest,
(b) the burdens to which though not so registered, that interest issubject by virtue of section 72 and
(c) all unregistered rights subject to which the judgment debtorheld that interest at the time of registration of the affidavit
and the creditor shall have such rights and remedies for the enforcementof the charge as may be conferred on him by order of theCourt”.
This sub-section appears in a section dealing with the registration andeffect of judgment mortgages on registered lands.Nothing corresponding to sub s. 4 is to be found in the Act of1891.
The plaintiff’s argument was that when the receiver was appointed, therewas an equitable assignment to the debenture holders of all the propertysubject to the floating charge and that the result of this was that theclaim of the debenture holders in relation to the lands in the threefolios ranked before that of the judgment mortgagees. The two mortgagedebentures created a specific charge on the lands in folio 9792 and afloating charge over all the other assets, present and future of thecompany and the effect of the appointment of a receiver under adebenture is that there is an equitable assignment to the debentureholder of all the property subject to the floating charge (Robbieand Co. Limited v. Whitney Warehouse Limited (1963) 3 All E.R. 613: Rother Iron Works Ltd. v. Canterbury Precision EngineersLimited (1973) 1 All E.R. 394 and C. Russell Murphy v. TheRevenue Commissioners (1972 No. 153 Sp) in which judgment was givenof the 7th of February 1974). “Right” is defined by s. 3 ofthe Act of 1964 as including “estate, interest, equity andpower”. The equitable assignment effected by the appointment ofthe receiver was, in my opinion, an unregistered right subject to whichthe company held the lands on which the debentures were not registeredat the time of the registration ofthe affidavits creating the four judgment mortgages. A judgment mortgageis a process of execution and the judgment mortgagee is not a purchaserfor valuable consideration (Eyre v. McDowell) 9 H.L. Cas 619).Counsel for the defendant said that the Court should not decide thisissue in the absence of the judgment mortgagees but when the defence ofthe title being too doubtful to be forced on a purchaser is raised, itis the duty of the Court to decide this question (Alexander v.Mills (1870) 6 Ch. App. 124: Nichols v. Ven Joel’sContract (1910) 1 Ch. 43).
In my opinion the claim of the debenture holders in relation to thelands in the three folios ranks before the rights of the four judgmentmortgagees and the vendor has shown a good title to all of the lands inthe three folios. It will be the duty of the Registrar of Title, whenthe transfer from the plaintiff and the company to the defendant, themortgage debentures and the appointment of the receiver are produced tohim, to cancel the entries of the four judgment mortgages which appearon the folios without proof of the payment of any sum in respect of anyof them.
Counsel for the defendant argued that specific performance was adiscretionary remedy and that the Court should not interfere with thedecision of Mr. Justice Finlay. The President refused specificperformance only because he thought the title was too doubtful tobe forced on a purchaser and as his view on this matter was incorrect,the exercise of his discretion should in my opinion be set aside. It isright to say, however, that the effect of the appointment of thereceiver does not seem to have been argued before him because he doesnot refer to it in his judgment.
The contrast provides for the payment of interest at the rate of 18%from the date fixed for completion which was the 28th of May 1974. InMarch 1975 the solicitors had agreed that one month’s interest onlywould be payable but the defendant repudiated the agreement which theyhad made and the plaintiff is not now bound by it. It would, however, beinequitable that interest should be payable from the date fixed forcompletion because the existence of the third folio had not beendiscovered on that date. In my opinion the order that the contrast oughtto be specifically performed should provide that interest at 18% shouldbe payable from the 23rd of January 1975 when the parties became awarethat part of the property of the company was registered on a thirdfolio.
The appeal should, in my opinion, be allowed and there should be anorder that the contract ought to be specifically performed with thevariation which I have suggested. There will be liberty to apply to theHigh Court.
JUDGMENT OF HENCHY J.DELIVERED the 1st day of June 1976
The issue in this appeal is, whether the defendant as purchaser of theland was entitled to repudiate the contract in the circumstances inwhich he purported to do so. If he was – and the trial judge so held -he has a good answer to the instant claim by the plaintiff as vendor forspecific performance of the contract. The dismiss of that claim in theHigh Court should in that event stand. Otherwise, this appeal by theplaintiff should succeed.
The relevant circumstances are briefly these. The defendant entered intoa written contract to purchase from the plaintiff a garage in Longfordfor £30,500. The property is registered property governed by theRegistration of Title Act, 1964. The registered owner was Tractasales (Longford) Ltd. and the plaintiffcontracted to sell as receiver of that company. In the presentproceedings it has not been questioned that, for the purpose of makingtitle, the plaintiff as receiver was entitled to stand in the shoes ofthe registered owner.
The defendant’s solicitor proceeded to investigate the title. Because ofdifficulties in the title (such as the discovery that the property wasregistered on three folios and not on two), the date for completion asprovided for in the contract passed without the parties being ready tocomplete. Eventually, all the legal difficulties that had arisen weresmoothened out, except for one: it transpired that subsequent to thedate of the contract two judgment mortgages had been entered on thefolios as burdens affecting the interest of the registered owner. Theplaintiff was advised that it was not necessary for him, in order togive a good title, to discharge those two post-contract judgmentmortgages by paying the amounts due under them, but the defendant’ssolicitor was reluctant to complete the sale on that basis.
After lengthy negotiations a compromise was reached by the solicitors.It was agreed that the sale would be closed subject to the retention of£4,500 on joint deposit receipt, out of the purchase money, for aperiod of six weeks, during which time an application would be made tothe Registrar of the Land Registry to register the defendant freed fromthe post-contract judgment mortgages. It was agreed that if thatapplication were not successful within the six weeks, the £4,500(which would have been adequate to discharge the amounts due to thejudgment mortgagees)would be released to the defendant so that he could discharge thoseburdens by paying off the judgment mortgagees. In agreeing to thatcompromise the plaintiff was being eminently reasonable. In effect, hewas saying to the defendant, “In order to give you a good title Iam not bound to discharge the amounts due on foot of the post-contractjudgment mortgages, but, to allay any fears you may have on that score,I shall put to one side out of the purchase money £4,500 for sixweeks, so that my opinion may be put to the test in the Land Registry,and if I am not proved right in that time, I shall surrender the£4,500 to you so that you may discharge the amounts due on thejudgment mortgages”. It is no wonder that the defendant’ssolicitor agreed to completion on that basis.
However, when the defendant and his solicitor turned up for theappointment with the plaintiff’s solicitor to close the sale, thedefendant flatly repudiated the basis on which his solicitor had agreedto close. He was prepared to close only if the £4,500 wasdelivered into his custody forthwith. The plaintiff, who was selling asreceiver for a debenture holder, could not agree to that. Although hissolicitor strongly advised him to complete the sale on the agreed basis,the defendant adamantly refused to do so. With that impasse the salebroke down. Hence the present proceedings for specific performance.
One thing is clear about the defendant’s conduct between contracting tobuy the property in February 1974 and repudiating the contract in March1975: he came to regret the contract he had signed and decided to getout of it one way or another. He lived in Dublin, and he had bought thisproperty with a view to developing it as a roadhouse and garage. But, ashe frankly admitted in evidence, for family and other reasons he foundthe move to longford undesirable, so from about September 1974 he wasresolved to repudiate the contract. The ground on which he eventuallyrepudiated it in March 1975 was but the particular pretext he fastenedon for that purpose. However, his motives are irrelevant if the groundof repudiation was sound in law.
When a binding contract for the sale of land has been made, whether thepurchase money has been paid or not, the law (at least in cases wherethe parties proceed to the stage of conveyance) treats the beneficialownership as having passed to the purchaser from the time the contractwas made: see, for example, Gordon Hill Trust Ltd v. Segall 1941 2 All E.R. 379. From then until the time of completion, regardlessof whether the purchase money has been paid or not, the vendor, in whenthe legal estate is still vested, is treated for certain purposes (suchas the preservation of the property from damage by trespassers) as atrustee for the purchaser. But, coupled with this trusteeship, there isvested in the vendor, pending completion, a substantial interest in theproperty. Savewhere the contract provides otherwise, he is entitled to remain inpossession until the purchase money is paid and, as such possessor, hehas a common law lien on the property for the purchase money; even if heparts with possession of the property, he has an equitable lien on itfor the unpaid purchase money; and he is entitled to take and keep forhis own use the rents and profits up to the date fixed for completion.It is clear, therefore, that between contract and completion the vendorhas a beneficial interest in the property which is capable of beingcharged by a judgment mortgage. See Megarry and Wade, RealProperty, 4th ed., p. 575; Williams, Vendor and Purchaser,4th ed., I. 545-7; Lewin, Trusts, 16th ed., pp. 153-4;Halsbury, Laws of England, 3rd ed., paras. 484-6.
When, therefore, as here, a judgment mortgage is registered as a burdenaffecting the interest of a registered owner after an enforceablecontract has been made to sell the land, what becomes affected therebyis the transient beneficial interest of the registered owner. S. 71(4)of the Registration of Title Act, 1964, stipulated that on registration of the judgment mortgage affidavit,the charge thereby created on the interest of the judgment debtor shallbe subject to the registered burdens, the burdens taking effect under s.72 without registration, and “all unregistered rights subject towhich the judgment debtor held that interest at the time of registrationof the affidavit”. The later category applies here, for a”right” is defined in s. 3(1) as including “estate,interest, equity and power”, thus covering the estate or interestof the purchaser. Since the judgment creditor could not by registeringhis judgment as a judgment mortgage acquire any greater estate orinterest in the land than the registered owner had at the time ofregistration, all that could pass to the judgment creditor here was theinterest in the land which the registered owner had after the making ofthe contract to sell, namely an interest which would pass out ofexistence once the sale had been completed, the purchase money paid andthe purchaser registered as full owner. It follows, therefore, that ifthe defendant here goes through with the purchase and becomes registeredas full owner, the post-contract judgment mortgages will no longeraffect the lands and he will be entitled to have them cancelled from thefolios.
This conclusion is in line with that of Kennedy C.J. in In re Murphyand McCormack 1930 I.R. 322 and of the Supreme Court (SullivanC.J., Geoghegan and O’Byrne JJ.; Murnaghan and Meredith JJ. Dissenting)in In re Strong 1940 I.R. 382. Those decisions were given underthe Local Registration of Title (Ir) Act. 1891, which is now repealed bythe Registration of Title Act, 1964, and in each ofthose cases the judgment mortgage had been registered after theexecution of the deed of transfer and after payment of the full purchasemoney, whereas here the judgment mortgage was registered before the deedof transfer had been executed or the full purchase money paid. Myconcurrence in the conclusion reached in those judgments that theregistered judgment mortgage could not affect the estate or interest ofthe registered transferee is in no way affected by the latterdifference, for the reasoning in those judgments leading to thatconclusion applies with no less force to a case such as the present,where the judgment mortgage was registered after the contract of salewas entered into but before the execution of the deed of transfer or thepayment of the balance of the purchase money. If a registered judgmentmortgage could be classified as “a charge created on the land forvaluable consideration,” by the terms of s. 68(3) of the 1964 Actit would be unaffected by the unregistered right of the purchaser forvalue. But (as was held by Kennedy C.J. in In re Murphy andMcCormack and by O’Byrne J. in In re Strong) a judgmentmortgage is a process of execution and not a charge created for valuableconsideration. The conclusion reached in those judgments that thatunregistered right of a purchaser for value from the registered owner isnot subject to a judgment mortgage registered against the registeredowner subsequent to the contract to sell, wouldnow appear to have been given statutory recognition, for s. 71(4)(c) ofthe 1964 Act provides that the registration of the judgment mortgageaffidavit shall charge the interest of the judgment debtor subject to”all unregistered rights to which the judgment debtor held thatinterest at the time of registration of the affidavit”. In otherwords, in a case as this, the unregistered “right” of thedefendant as purchaser is superior to the interest of the registeredowner which became charge by the post-contract judgment mortgages.
It follows, in my opinion, that (apart from the effect on pre-contractmortgages of the appointment of the plaintiffs as receiver on foot ofmortgage debentures, an effect which was not dealt with in the HighCourt and was only touched on in this appeal) the plaintiff was notbound, in order to make good title, to discharge the moneys due on footof the post-contract mortgages. Those mortgages took effect subject tothe defendants equitable estate or interest in the land. They couldaffect only such beneficial estate or interest as the registered ownerthen had. That estate or interest could not survive the completion ofthe same and the registration of defendant as full owner. The defendantcould then have them cancelled from the folios.
As the defendant’s purported repudiation of the contract was ineffectiveto rescind it, I would allow the appeal and decree specificperformance.
Rafferty v Crowley
[1984] ILRM 350
Judge: Mr. Justice Murphy
JUDGMENT of Mr. Justice Murphy delivered the 24th day of June 1983
Whilst this matter comes before the Court by way of a summons under the Vendor and Purchaser Act 1874 in relation to problems arising on the sale of premises at 35, Donore Road in the City of Dublin from the Plaintiff to the Defendant, the purpose of these proceedings is to secure the decision of this Court for the benefit of the legal profession and through it all persons having dealings with building societies as to the proper interpretation of section 80 of the Building Societies Act 1976. That section provides as follows:-
“A society shall not make a loan on the security of any freehold or leasehold estate which is subject to a prior mortgage unless the prior mortgage is in favour of the society making the loan.”
In the present proceedings the Plaintiff has asserted that a charge to secure an apportioned part of a leasehold rent does not constitute “a prior mortgage” within the meaning of that section. That assertion is disputed by the Defendant. If the Plaintiff’s contention herein does not succeed this could have very far-reaching effects for building societies and their many clients.
How the particular problem arises in the present case is as follows. By an Indenture of Lease dated the 19th day of May 1904 (the 1904 Lease) Kate McElroy and others demised to Edward Lynch and another a plot of land measuring some 186 feet by 93 feet situate in the Parish of St. Catherine and City of Dublin being the lands more particularly described on the map endorsed thereon to hold the same unto the lessees from the 25th March 1904 for the term of 500 years subject to the yearly rent of £17/10s and subject also to the covenants therein contained including, in particular, a covenant to erect at least ten good and substantial private dwellinghouses on the demised premises. There were, in addition, the usual covenants to repair and insure.
There were subsequently erected on the demised premises eleven dwellinghouses later and now known as numbers 15, 17, 19, 21, 23, 25, 27, 29, 31, 33 and 35 Donore Road in the City of Dublin. One of those premises, that is to say, number 35 Donore Road was by an Indenture of Assignment dated the 17th day of October 1962 assigned by John R. Molony to James Desmond Farrell and Veronica Farrell for the residue of the term of years granted by the 1904 lease and subject of course to the covenants and conditions therein contained. However, the assignment contained in accordance with the well established conveyancing practice a provision to the effect that the assignees should be:-
“Subject to the yearly rent of £17/10s but primarily liable to the yearly rent of £1/11/10d portion thereof and indemnified against the remainder of the rent by “the other premises demised by the lease and not hereby assigned and subject also to the covenants, conditions and stipulations (other than the covenant for the payment of the said entire rent of £17/10s) in the lease contained and on the part of the lessees to be observed and performed so far as the same now relate to the premises hereby assigned and that the purchasers hereby covenant with the vendor that they the purchasers and the survivor of them and their assigns and the executors administrators and assigns of such survivor will henceforth during the continuance of the said term pay the said yearly apportioned rent of £1/11/10d and observe and perform the covenants on the part of the lessees and conditions therein contained and will indemnify and keep indemnified the vendor and the estate of Herbert C. Crozier deceased against all actions and proceedings costs damages expenses claims and demands whatsoever by reason or on account of the non-payment of the said rent or any part thereof or the breach or non-performance or non-observance of the said covenants and conditions or any of them and that the vendor hereby covenants with the purchasers that he will henceforth pay the remainder of the said yearly rent reserved by the said lease and will perform and observe all the covenants and conditions binding on the lessee contained in such lease so far as the same are applicable to such part of the hereditaments demised by such lease as are not hereby assigned and will keep the purchasers and their executors administrators and assigns indemnified against all actions and claims brought or made by reason of any breach of the covenants by the vendor herein contained AND IT IS HEREBY AGREED that all moneys which shall become payable by either the vendor or the purchasers or the respective executors administrators or assigns under the respective covenants of indemnity hereinbefore contained shall be a charge on that part of the hereditaments demised by the said lease which upon the execution of these presents shall belong to him and such money shall be recoverable by sale or otherwise accordingly”.
In its terms and effect therefore, this clearly constitutes a charge on the premises No. 35, Donore Road in respect of the apportioned rent of £1.11.0d.
By an assignment dated the 25th day of November 1976 made between James Desmond Farrell and Veronica Farrell aforesaid of the one part and the Plaintiff herein (under her then name of Ann Teresa Corcoran) of the other part the premises 35, Donore Road in the City of Dublin were assigned to the Plaintiff for the then unexpired residue of the said term of 500 years granted by the 1904 lease and subject to the said yearly rent of £17.50 but primarily liable to the said yearly rent of £1.59p a portion thereof and indemnified against the remainder of the said rent by the other premises demised by the 1904 lease. This assignment repeated – unnecessarily or so it would seem to me – the cross covenants and charges contained in the 1962 assignment.
It was successfully argued in Provincial Building Society .v. Brown and Ministry of Finance for Northern Ireland 1950 N.I.R. 163 that the essential characteristics of a mortgage within the meaning of what was then section 13 of the Building Societies Act 1894 included first the granting of an estate by the mortgagor to the mortgagee to secure the loan, secondly the right to redeem and thirdly the right to foreclose. It was accordingly held that a charge in the form of a land purchase annuity payable to the Ministry of Finance for Northern Ireland was not “a prior mortgage” within the meaning of section 13 aforesaid. However, subsequent to that decision – and perhaps as a result of it – the Legislature in the United Kingdom when enacting the Building Societies Act 1962 and the Oireachtas here in enacting the Building Societies Act 1976introduced a definition of the word “mortgage” so as to include expressly a “charge”.
Reading section 80 of the 1976 Act and extending the word “mortgage” to include a charge as required by the interpretation section how can it be said that it does not include or extend to the 1962 charge?
Counsel on behalf of the vendor Plaintiff has sought to adopt a schematic or teleological approach to the Act and in particular section 80 thereof. She says that the purpose of the Act, and in particular Part VI thereof, is to ensure that advances made by building societies are fully and properly secured for the benefit of the society and its members. That being the intent of the Act – or so the argument goes – no purpose would be served and no benefit would be achieved by preventing or prohibiting a society from lending on the security of part of the lands comprised in and demised by a lease where the owner of that part (or his predecessor) had charged it with the payment of the rent apportioned to that part as such a charge does not reduce, in any way, the value of the leasehold interest. Again, it is pointed out that the 1976 Act expressly recognises the right of a building society to advance money on the security of leasehold property. Every person holding any part of lands demised by a lease is on risk for the payment of the entire of the rent thereby reserved. Accordingly, the mutual covenants and cross-charges benefit rather than prejudice the holders of any part of leashold land and through him any person holding a mortgage or charge on such lands. Accordingly, there is nothing to be gained and no purpose served by interpreting the words “a prior mortgage” in section 80 so as to include cross-charges of this nature.
Whilst I have every sympathy with the case made by the Plaintiff and indeed I believe that it would be in the public interest generally to uphold this construction of section 80 of the 1976 Act I do not believe that the accepted canons of construction would permit me to support that view. Re
Reference was made to the decision of the Supreme Court in Nestor .v. Murphy 1979 I.R. 326 as an example of a case in which the schematic approach might be adopted. However, it appears clearly from the judgment of Henchy, J., that the approach was justified so as to avoid “a pointless absurdity”. Again, Henchy, J., pursued “the pattern and purpose” of the legislation then under consideration where he was satisfied that by doing otherwise “would not only be unnecessary for the attainment of that aim but would enable contracts to be unfairly or dishonestly repudiated by parties who entered into them freely, willingly and with full knowledge.” It would appear that the schematic approach is justified where – in the words of Lord Reid in Luke .v. The Inland Revenue Commissioners 1963 A.C. 557 at 577 –
“To apply the words literally is to defeat the obvious “intention of the legislation and to produce a wholly unreasonable result.”
It is clear that by section 80 the Legislature set its face against a building society making a loan on the security of a property which was subject to any prior mortgage. It would have been a relatively easy task to restrict the operation of the section to cases where the prior mortgage or charge exceeded specified amounts or perhaps a particular percentage of the value of the property in question. Alternatively, what could have been done was to exclude the various categories of prior charge as was done by section 32 of the United Kingdom Building Societies Act 1962. If that precedent did not commend itself to the draftsman he could have adopted the formula used in section 99 of the Companies Act 1963which, having provided for the registration of (among other things) a charge on land wherever situate or any interest therein, goes on to provide:-
“but not including a charge for any rent or other periodical sum issuing out of land”.
In fact it does not require reference to examples or precedents confidently to infer that the Legislature in enacting section 80 in its existing form was conscious of the fact that it could have exempt from the scope of the prohibition certain prior mortgages or charges and deliberately chose not to do so. In these circumstance it seems to me that I am precluded from interpreting section 80 so as to achieve an effect – however desirable – not intended by the Oireachtas.
The conclusion which I have reached is supported to some extent by the decision of Pennyquick, V.C., In A bbotspark Estate 1972 3 A.E.R. 148. In that case the Court had approved of what is known as a management scheme under the Leasehold Reform Act 1967 which imposed certain liabilities in respect of moneys on the owners of leasehold property and these liabilities by virtue of the Leasehold Reform Act 1967 constituted a charge on the property. In those circumstances the learned Judge commented (at page 150) as follows:-
“This is an extremely serious position from the point of view of owners of the enfranchised properties. So far as I can see, on the material which has been put before me by Counsel who have been thoroughly into “the matter, there is no answer to the point, that is to say, if the charge under para. 3(b) of the scheme (the liability of the lessees) is not in some way postponed to any future building society mortgage, then a building society would be prohibited by section 32 from making an advance on the property.”
It appears, therefore, that, whilst the particular point was not the subject matter of controversy before the Court, the learned Judge was satisfied that the liability of the lessees by becoming a statutory charge on their property constituted a prior mortgage or charge within the United Kingdom equivalent of section 80 of the Building Societies Act 1976.
Like Vice-Chance11or Pennyquick I regard this as a very serious matter. There must be many building estates in which rents, small in themselves, are reduced still further by apportionment amongst individual assignees who have properly and correctly charged their respective interests with payment of the apportioned rent only to find themselves now precluded from obtaining an advance from a building society as a result of the charge so created. This would be an awsome consequence for the property holder and clearly a matter of the greatest possible concern to the building societies.
In the case of Nash .v. Halifax Building, Society and another1979 2 A.E.R. 19 Browne-Wilkinson, J., concluded that an advance made in breach of section 32 of the United Kingdom Building Societies Act 1962 was not irrecoverable as the section was enacted for the protection and benefit of a society and its members. If that decision is followed here it will obviously be a considerable comfort to the building societies in relation to loans already made but clearly, the directors of building societies would incur serious responsibilities if they choose to make loans on unauthorised securities.
Having regard to the far reaching effects which this decision may have in an area of the greatest social and economic significance I will direct the Registrar of the Courts to forward a copy of the judgment herein to the Minister for the Environment and to the Registrar of Building Societies in case it is felt that consideration should be given to making some amendment to this important legislation in the light of the conclusions expressed above.
Lyons v Thomas
[1986] IR 666
Mr. Justice Murphy
The Law
Before considering further the conduct of the parties it may be convenient at this stage to examine the legal principles applicable to the matters in issue.
There is general agreement among the text book writers as to the nature of the obligations imposed on a vendor subsequent to the execution of a contract and before the completion of the sale. Such problems as exist in this regard relate not so much to the nature of the duty but as to its basis in law and its extent in practice.
A convenient statement as to the nature of the vendors duties under an open contract is to be found in Clarke and Ramuz 1891 2 Q.B.D. 456 at 459 by Lord Coleridge, C.J. in the following terms:-
“It appears to be well established in equity that, in the case of a contract for the sale and purchase of land, although the legal property does not pass until the execution of the conveyance, during the interval prior to completion the vendor in possession is a trustee for the purchaser, and as such has duties to perform towards him, not exactly the same as in the case of other trustees, but certain duties, one of which is to use reasonable care to preserve the property in a reasonable state of preservation, and, as far as may be, as it was when the contract was made.”
Counsel for the vendor properly drew attention to the decision of the Supreme Court in Tempany and Hynes 1976 I.R. 101 and to the fact that the majority decision in that case may cast some doubt upon the correctness of the assumption made by Lord Coleridge to the effect that a purchaser is entitled to the equitable estate in the property pending completion. In fact Kenny J. (delivering the majority judgment) said at page 114:-
“He (the vendor) is not a trustee of the beneficial interest merely because he signs a contract.”
It must be said at once (as Counsel fully recognised) that the very sentence quoted follows immediately a statement by that learned Judge in which he recognises and reiterates the duties of the vendor in the following terms:-
“A vendor who signs a contract with a purchaser for the sale of land becomes a trustee in the sense that he is bound to take reasonable care of the property until the sale is completed, but he becomes a trustee of the beneficial interest to the extent only to which the purchase price is paid.”
In his Judgment (the minority Judgment) Henchy J. at page 109 affirms the duty of the vendor in the following terms:-
“When a binding contract for the sale of land has been made, whether the purchase money has been paid or not, the law (at least in cases where their parties proceed to the stage of conveyance) treats the beneficial ownership as having passed to the purchaser from the time the contract was made; Gordon Hill Trust Limited and Segall 1941 2 A.E.R. 379. From then until the time of completion regardless of whether the purchase money has been paid or not the vendor, in whom the legal estate is vested, is treated for certain purposes (such as the preservation of the property from damage by trespassers) as a trustee for the purchaser”.
It would seem, therefore, that there is superficially, at any rate, a conflict between the authorities as to whether the duty to preserve imposed upon the vendor derives from the fact that he is a trustee for the purchaser or whether indeed the status of the vendor as trustee arises from the fact that such a duty is imposed upon him by law.
It seems to me that this conflict – which in any event is not of fundamental importance – is more apparent than real. In the Tempany case the Supreme Court was considering the nature of the interest retained by a vendor subsequent to the execution of a contract and in particular whether such interest could be captured, in the circumstances of that case, by a mortgage created under the provisions of the Judgment Mortgage Act 1850. What Kenny J. concluded in his sentence at the end of the penultimate paragraph on page 114 of the Judgment was that:-
“Until the whole of the purchase money is paid, the vendor has in my opinion a beneficial interest in the land which may be charged by a Judgment Mortgage”.
In reaching that conclusion the learned Judge was in fact recognising as had Judges in many earlier cases that the trusteeship, if that is how it should be described, of a vendor is unorthodox in as much as he clearly has a significant beneficial interest perhaps with regard to occupation or interest as well as the potential right to have the property restored to him in the event of the contract being rescinded for one reason or another. In the circumstances it seems to me to be sufficient that subsequent to the execution of a contract, and whether or not all or part of the purchase price is paid, that the vendor has (subject to any particular bargain negotiated between the parties) the duty to use reasonable care to maintain the property in a reasonable state of preservation and that this duty, which is well established in law, derives from the fact that the purchaser has a significant interest in the property and is (I am assuming) precluded from the occupation and control of the property until actual completion.
The provisions of the contract in the present case and in particular the terms of what I have described as “the insurance clause” expressly provide that the property should be at the sole risk of the purchaser as to any damage from whatever cause arising after the date of the sale and that no claim should be made against the vendor for any deterioration or damage. Excepted from that exclusion is damage caused to the property occasioned by the “wilful neglect or default” of the vendor.
Whilst the words “wilful neglect or default” were traditionally used in contractual provisions dealing with the payment of interest and it is in that context that the expression has been subject to judicial scrutiny, I see no reason to conclude that the words should be interpreted differently merely because the action or inaction comprised therein would give rise to a different consequence when used in another context. Accordingly it seems to me that the comments of Bowen, L.J. in Young and Harston’s Contract L.R. 31 Ch. D. 168at 174 are equally applicable to the present case:-
“What does wilful default mean in a contract like this? The term “wilful default” – though onein common use in such contracts – is not a term of art, and to pursue authorities with a view to defining for all time what is its meaning in a contract like this appears to me to press citation far beyond the point at which it ceases to be useful. Default is a purely relative term, just like negligence. It means nothing more, nothing less, than not doing what is reasonable under the circumstances – not doing something which you ought to do, having regard to the relations which you occupy towards the other persons interested in the transaction. “The other word which it is sought to define is “willful”. That is a word of familiar use in every branch of law, and although in some branches of the law it may have a special meaning, it generally, as used in courts of law, implies nothing blameable, but merely that the person of whose action or default the expression is used, is a free agent, and that what has been done arises from the spontaneous action of his will. It amounts to nothing more than this, that he knows what he is doing, and intends to do what he is doing, and is a free agent”
In other words it seems to me that wilful default is no more and no less that a formula by which the Courts of Chancery describe an intentional (as opposed to an unconscious or accidental) negligent act or omission.
The other important question of law involved in these proceedings relates to the right of the vendor to rescind the contract. There is no doubt but that the rescission clause is expressed in wide terms and purports to confer extensive powers on the vendor. On the other hand it is settled law – and rightly accepted as such by Counsel on behalf of the vendor – that there are restraints imposed on a vendor seeking to invoke a clause of this nature.
The most recent decision to which reference was made with regard to the construction and application of a clause of this nature was the judgment of Privy Council in Selkirk and Romar 1963 I.W.L.R. 1415. In that case, which arose by way of an appeal from the Supreme Court of the Bahama Islands, a purchaser sought evidence of the devolution of the ownership from one person who appeared to be the owner of the property in question to another. That matter was raised by way of requisition on title and it is sufficient to say that the Privy Council was satisfied that the requisition was entirely proper. The issue in the case was whether the vendor for his part was entitled to invoke the contractual right of rescission which was included in the contract for the sale of the premises in question. The way the Court posed the question was whether “there was anything in the situation of the conduct of the parties to preclude the vendor from taking advantage of a contractual right which, ex facie, the contract had undoubtedly secured to him”. Viscount Radcliffe delivering the judgments of their Lordships explained the position (at page 1422) as follows:-
“Now, on what can the appellant rest his claim to set aside the respondent’s notice of rescision? It is plain enough that, so far as the terms of the contract go, the respondent is within its rights. Clause 3 (3) [the rescission clause] is as much a part of the various undertakings and stipulations that make up the total nexus of the parties’ agreement as any other of its clauses, and it is in fact a stipulation that was included in the draft put forward by the purchaser. If a vendor, having stipulated for or been conceded such a right, is to be precluded from asserting it in any particular context, it must be by virtue of some equitable principle which enures for the protection of the purchaser; and it is not in dispute that courts of equity have on numerous occasions intervened to restrain or control the exercise of such a right of rescission in contract for the sale of land, despite what, on the face of the contract, its terms seem to secure for the vendor. It does not appear to their Lordships, any more than it did to the Judge who tried the action, that there is any room for uncertainty as to the nature of the equitable principle that is invoked in these cases. It has frequently been analysed, and frequently applied, by Chancery judges, and, although the epithets that described the vendor’s offending action have shown some variety of expression, they are all related to the same underlying idea, and the variety is only due to the fact that, as each case is decided according to the whole context of its circumstances and the course of conduct of the vendor, one may illustrate more vividly than another some particular aspect of that idea. Thus, it has been said that a vendor, in seeking to rescind 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 doing so he makes a nullity of the whole elaborate and protracted transaction”
A similar view had previously been expressed by the Court of Appeal in England in Baines and Tweddle 1959 Ch. D. 679 in which the conclusion was expressed by Lord Evershed M.R. (at page 688) in the following terms:-
“On the face of this condition [the rescission clause] the right appears to be unqualified; if a purchaser takes or makes any objection which the vendor is unable, or on the grounds of unreasonable expense, unwilling to remove, etc., then the vendor may rescind the contract. Naturally enought it has been the main burden of Mr. Sparrow’s argument for the vendor that this was the bargain which the purchaser made. It gave the vendor this apparently unqualified right of rescission and the purchaser must, “accordingly, accept the consequences. I only venture, by way of comment on that, to remind the vendor that he on his part contracted to sell an unincumbered fee simple and nearly three weeks after doing so allowed the purchase money to tie paid into the joint account. But this condition, which is one of considerable ancestry, though quite unqualified in terms, nevertheless has had a qualification undoubtedly imposed upon it by the decision of the Court”
Lord Evershed then went on to quote Henn Collins M.R. In re Jackson and Haden’s Contract 1906 1 Ch. 412 as follows:-
“As I have already said, numerous cases have been most carefully set before us, which I have had the opportunity of examining as they were read, and it seems to me that, in every case where the vendor was allowed to avail himself of a stipulation like this, there was always absent that element of shortcoming on his part which, though falling short of fraud or dishonesty, might be described as “recklessness””.
Lord Evershed then went to quote (indirectly) from the decision of Rigby L.J. In re Deighton and Harris’s contract 1898 1 Ch. 458 at 464 as follows:-
“It would not, in my opinion, be right here to enable a vendor to ride off upon a condition to rescind which was obviously not framed with reference to any such case as that which has arisen”.
Again in Baines and Tweddle Romer L.J. in his judgment also cited with approval from the judgment of Henn Collins M.R. in Jackson and Haden’s Contract (above) the following passage at 421:-
“Now what is the element that the Vice Chancellor is seeking for there which determines the case? It seems to me to be an element of something on the part of the vendor less “than the law requires of him in such cases. It may stop short of fraud, it may be consistent with honesty; but, at the same time, there must be a falling short on his part – he must have done less than an ordinary prudent man, having regard to his relations to another person, when dealing with him, is bound to do”.
As I say Counsel on behalf of the vendor properly recognises that a vendor does not have an absolute right to invoke the terms of a rescission clause. Instead it is argued on behalf of the vendor in the present case that his purported rescission was reasonable and that it was not arbitrary, capricious or based on any reckless conduct of the vendor or his legal advisers. In addition the vendor is entitled to distinguish the rescission clause in the present case from some of the earlier versions of that clause which did not afford a purchaser a locus poenitantiae. The clause in the present case coupled with the notice given by the vendor afforded the purchaser an opportunity to recant by withdrawing his insistance on a claim for damages.
The vendor relied on (among others) the decision in Duddell and Simpson Law Reports L.R. 2 Ch. App. 102 in which Turnle L.J. commented upon a rescission clause in the following terms:-
“I think that in a case where the vendor annuls the contract on the ground of unwillingness, he must show some reasonable ground for unwillingness; thus, for instance, he may 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 expense which he never contemplated, and for avoiding which he reserves to himself the power of annulling the contract”.
Again reference was made to Glenton and Saunders to Haden 53 Law Times page 434 from which it may be convenient to cite in full the brief judgment of Bower L.J. as follows :-
“It seems to me that there are in this case two questions to be answered: (1) Did the purchaser insist on his requisitions? (2) Had the vendors a reason for refusing to comply? With regard to the insistence it is plain to me that there was, on the part of the purchaser, an unequivocal adhesion to a demand which had been refused as, for instance, in the case of the plans. Then what kind of reason must lie at the bottom of non compliance? It is a question which often arises, but not in every case. The authorities, ending with re Dames Wood show that something is to be read into a contract of this kind. But here it is a matter of construction of the contract. Here the contract expressly states the reasons to be expense or any other reason. The question is not whether the purchaser was entitled to make these demands; but whether the vendor had honest and bona fide reasons for non compliance. Mere caprice is not sufficient. But if there is a reason it need not be communicated by the vendor to the purchaser; that would be putting a new term into the contract. I agree therefore with the decision of the other Lords Justices, and I think that one good reason would to sufficient”.
In the present case the point, taken by the purchaser was not – in form at any rate – either an objection or a requisition whether as to title or as to assurance. Nor did it relate to any matter or thing existing at the date of the contract of sale. It was a complaint by the purchaser that the vendor had failed in the duty which she owed to him to maintain the property pending the completion of the sale. To that extent it may be said to be a complaint which was incidental to the sale. Nonetheless I would find it very hard to accept that a complaint relating to such a wrongdoing was within the contemplation of the parties when the rescission clause was framed and that conclusion of itself would be (on the basis of the decision of Hall V.C. in Bowman and Hyland 8 Ch. D 588) justify rejecting the vendor’s contention herein.
However, as the case was fairly argued before me on behalf of the vendor that she had acted reasonably in her response to the conduct of the purchaser which was – in the circumstances as they developed – unreasonable and that the purchaser effectively argued for the converse that I would prefer to decide the case by resolving that dispute.
It could hardly be suggested that a purchaser who insists upon a right to be compensated for damage to property in which he is interested is acting unreasonably. What is said on behalf of the vendor is that the purchaser acted unreasonably in failing (in all of the circumstances of the case) first to specify or quantify the damages to the premises of which he complained and secondly to co-operate in the solution ultimately proposed on behalf of the vendor, namely, that the contract would be completed without delay and the issue as to damages decided at a later date but on the basis that a substantial part of the purchase price would be set aside to meet any claim under that heading.
Whilst the proposal aforesaid made on behalf of the vendor was an eminently reasonable and practicable one there was no obligation on the purchaser to adopt it. There is no doubt but that the vendor and her legal advisers by the time the offer was made not merely suspected but had become convinced that the purchaser was not acting and had not acted in a bona fide manner and that his refusal to co-operate merely represented the culmination of an unhelpful approach to the problems facing the parties. The vendor suspected that the purchaser never had adequate finance with which to complete the purchase. Investigations by the solicitors on behalf of the vendor suggested that the purchaser did not intend to occupy the premises but sought to have the same demolished and the site cleared so that it could be developed as flats. There was a period during which an appeal was pending to the planning board and the vendor inferred that the purchaser was seeking to delay the transactic pending the decision of that body. It appears that the suspicions of the vendor with regard to the finances of the purchaser were unfounded. Convincing evidence was tendered at the trial as to the financial facilities available to the purchaser to enable him to complete the sale. On the other hand there is no doubt but that the purchaser sought permission to demolish the premises and applied for planning permission for their subsequent development and moreover caused these applications to be made under a name other than his own. However sinister such transactions might appear I cannot see that in any way they affected the rights of the vendor or in fact impinged upon the transaction between the parties. Moreover it must be recognised that if the vendor had become suspicious of the approach being taken by the purchaser that the purchaser for his part had every right to be concerned about the delay on the part of the vendor which had in fact occurred and it would not be surprising that the purchaser and his legal advisers would approach the proposals ultimately made on behalf of the vendor with some hesitation having regard to the context in which the same arose.
At the end of the day the position is this: under the terms of the contract for sale and in accordance with established legal principles the purchaser is entitled to be paid a substantial sum by the vendor by way of compensation for the vendor’s wrongdoing. Whilst in my view it is entirely understandable that the vendor should wish to escape this liability I could not accept that it would be reasonable for a vendor to invoke a rescission clause so as to enable him to escape a liability which was caused by and indeed consisted of his or her wilful default.
In these circumstances I am satisfied that the recission clause was not validly or effectively invoked.
O’Brien v Kearney
[1995] 2 ILRM 232
Mr. Justice McCracken
Finally, there is the question of the purported right of way. I am faced with the very strange situation that there is clear evidence that the blue lands and the green lands were in common ownership, that on occasion the owner passed from one to the other over the track, but I have no evidence as to whether he claims a right of way. Neither party chose to call him as a witness, although it has to be accepted that the Defendant made belated efforts to do so. On the evidence of the Plaintiff, he made it quite clear to the Defendant that the two plots of land were in common ownership and that it must have been quite clear to the Defendant that the track may well have connected them, although the Plaintiff was adamant that no right of way existed. The Defendant denies that he was told anything about the blue lands, and indeed understood from the map which he had in his possession that it was part of the lands being sold to him. The serious conflict of evidence as to what occurred during the initial inspection in November must, in my view, be resolved in favour of the Defendant. The evidence of two other witnesses would appear either to totally support his contention, or at least not to support the Plaintiff’s contention. Evidence was given by a Mr. Powell that, prior to the auction, he was interested in buying the lands, and he walked the lands on the Saturday before the auction with the Plaintiff. He also only had the brochure map. His evidence is that he was not told anything about the blue lands by the Plaintiff, and when shown the photographs taken in January by Mr. Murphy, he said that they did not represent what he saw in November and that the track was not cleared in that way. He also said that in buying land he would be very suspicious of any right of way.
Further support for the Defendant’s evidence comes, oddly enough, from the Plaintiff’s auctioneer who walked the lands with the Plaintiff and the Defendant in November. He accepted that the map on the brochure was wrong and that the blue lands appeared to be included in the lands in sale. He cannot recall the Plaintiff saying that the blue lands were in the same ownership as the green lands and accepted in cross-examination that the Defendant may have thought that the blue lands were included in the sale.
On balance, therefore, I am satisfied that the Defendant was not made aware of the existence of the blue lands, or of the fact that they were in common ownership with the green lands, and therefore was not in any way alerted to the possibility of a right of way. As to whether a right of way does or does not exist, that is something which I am unable to determine in the absence of evidence from Mr. Colclough, although again as a matter of probability, as it is acknowledged that the track has been used to gain access to the blue lands from the green lands, and has been so used for many years, a right of way may well exist.
Condition 40 of the General Conditions of Sale provides, inter alia: –
a “(a) If the sale be not completed on or before the closing date either party may on or after that date (unless the sale shall first have been rescinded or become void) give to the other party notice to complete the sale in accordance with this condition, but such notice shall be effective only if the party giving it shall then either be able, ready and willing to complete the sale or is not so able, ready or willing by reason of the default or misconduct of the other party”.
Condition 33 provides that a purchaser shall not be bound to accept property which differs substantially from the property agreed to be sold, but that apart from this provision no error should annul the sale or entitle the parties to be discharged. Condition 33(c) then provides: –
“The purchaser shall be entitled to be compensated by the vendor for any loss suffered by the purchaser in his bargain relative to the sale as a result of an error communicated to him by or on behalf of the vendor …”.
In my view, the failure of the Plaintiff to disclose the possible existence of a right of way, and to disclose the fact that the only access which Mr. Colclough had to the blue lands was along the track amounts to an error within the meaning of this condition, and accordingly the Defendant is entitled to be compensated for any loss suffered by him as a result of this error.
It has been strenuously argued on behalf of the Plaintiff that, even if such be the case, the Defendant was bound to comply with the Completion Notice and close the sale, subject to his right to claim compensation. I do not accept this contention. The Defendant was only obliged to comply with the Completion Notice if the Plaintiff was ready, willing and able to complete the sale in accordance with the terms of the contract. There undoubtedly was an outstanding query raised on his behalf in relation to the use of the track, and this query had not been dealt with. In Curtin v Kurzke (1971), 1 W.L.R. 769, Goff J. said at page 772: –
“It is a fundamental part of the vendor’s obligations to prove his title, and he is not, in my judgment, able to complete when he is not in a position to discharge that duty. Now, when the vendor served the notice, and when it expired, the position was that there was an adverse claim to the property which was either a question of fact or mixed law and fact, the facts being … within the knowledge of the vendor and the claimant and not that of the purchaser. It seems to me, therefore, that it was the duty of the vendor to clear her title, either by a vendor and purchaser summons, or probably more aptly by awaiting the determination of the arbitration ….”.
The position in the present case is very similar. There is an adverse claim, or at least the possibility of an adverse claim to the property which is within the knowledge of the Plaintiff and of Mr. Colclough, but not of the Defendant. It was the duty of the Plaintiff to clear the title of this possible adverse claim before he could serve a Completion Notice.
The matter is also dealt with by Barrington J. in Keating & Ors v Bank of Ireland (1983), I.L.R.M. 295. This was a proceeding in which the specific issue of whether a vendor was entitled to insist on the closing of the sale before determining the dispute as to whether the Plaintiff was entitled to compensation. Barrington J. said at page 299: –
“It appears to me that if the Plaintiffs are entitled to compensation at all they are entitled to it out of the purchase money and that they cannot be forced to close until such time as the amount of the compensation, if any, and therefore the amount of the balance of the purchase price has been ascertained. There may be many cases in which the sensible thing would be to leave the sum in dispute on joint deposit and to close the sale pending the resolution of the dispute. But it appears to me that it is one thing for the parties to make a supplementary agreement, however convenient and sensible, and quite another for one of the parties to be forced by the Court to close a sale before the issue of whether he is or is not entitled to compensation under the original contract has been determined. It appears to me that the law is on the side of the Plaintiffs in the present case”.
It was argued on behalf of the Plaintiff that the present case is distinguishable from the Keating case, in that there was a question of possible fraud involved in the Keating case. I do not consider this to be a valid distinction, as I think that the Judge set out a general principle applicable to all cases where a purchaser is entitled to an abatement of the purchase price. Accordingly, in my view, the Defendant was not obliged to complete the sale in accordance with the Completion Notice and the Plaintiff’s claim must fail.
The Defendant has counter-claimed also for specific performance but with an abatement of the purchase price. While I do not feel in a position to determine whether a right of way actually exists, the probability of such a right of way is certainly a matter which affects the value of the land, and therefore would be a loss suffered by the Defendant as contemplated by Condition 33(c). I accept fully that the existence of even a possible claim to a right of way is a matter which would be considered of considerable importance to a purchaser of farm land, and which would, to some degree, reduce the value of the land. I have had evidence of valuers, although I do not find them greatly helpful in the present circumstances. It has to be said that the only part of this land affected by the possible right of way is the poorest portion of the lands, which has been valued at £500 an acre. It must also be remembered that, while the purchase price was £105,000, the price being paid for the lands, as opposed to the milk quota, was approximately £50,000. As by far the greater and more valuable portion of the lands would be totally unaffected by a possible right of way, I would assess the reduction in the value of the lands at 5%, that is the sum £2,500 and I would order specific performance with an abatement of the purchase price in that figure.
Finally, there is a counter-claim by the Defendant for an injunction restraining the Plaintiff, his servants or agents from causing or permitting his retained lands from being or becoming a source of nuisance to the lands acquired by the Defendant and for damages for nuisance, breach of contract and breach of duty. I have already held that there may well have been some pollution of the drain from time to time, either from the farmyard itself or from the silo. However, the evidence before me certainly does not establish that this pollution amounts to a nuisance in law, or indeed that it causes any damage to the lands being purchased by the Defendant. I am satisfied the Defendant is not entitled to any relief on foot of this part of the counter-claim.
Mac A Bhaird v Commissioner of Public Works in Ireland
[2016] IEHC 223
Ms. Justice Baker
5th day of April, 2016.
1
The plaintiff seeks specific performance of an agreement made on the 4th November, 2011, for the sale to the defendant of lands at Glanmire, County Cork. This judgement primarily concerns the counter claim of the purchaser for a declaration that the contract has been rescinded, and its claim for a return of the contract deposit.
The contract
2
By agreement for sale made in writing on or about the 4th November, 2011, and which incorporated the Law Society General Conditions of Sale, between the plaintiff as vendor on the one part, and the defendant as purchaser on the other part, the defendant agreed to purchase and the plaintiff agreed to sell all of the premises known as Unit 4A, Glanmire Industrial Estate, Glanmire, in the County of Cork for the total purchase price of €862,000. The contract was made subject to a number of general and special conditions, and closing was to be within seven weeks of the grant of planning permission for change of use of the premises. Planning permission issued on the 25th January, 2012, and the sale fell to be completed on the 14th March, 2012, in accordance with this special condition.
3
The vendor served a notice in accordance with General Condition 40 of the Law Society General Conditions of Sale on the 23rd November, 2012, and the purchaser, by letter of the 9th January, 2013, purported to rescind the contract, by reason of what is said to be the inability of the vendor to close the sale on the expiration of the period of 28 days fixed for closing by the completion notice.
4
The 28-day period provided in the completion notice expired during the Christmas holiday, and the parties have agreed that, taking into account an agreed period during which time did not run, the closing date in accordance with the notice was the 2nd January, 2013.
5
Much of the evidence revolved around events that occurred since the service of the completion notice on the 23rd November, 2012, and on whether the vendor, and/or the purchaser, was in a position to comply with certain title requirements, and certain general and special conditions relating to the mode and place of closing.
6
Both parties agree that the contract for sale is valid, and the central issue is whether the vendor has validly rescinded the contract.
Invalid notice?
7
Either party to a contract for sale made under the Law Society General Conditions may serve a completion notice, under General Condition 40, and condition 40(a) provides that a completion notice is effective only if the party giving it ‘shall then either be able, ready and willing to complete the sale or is not so able, ready or willing by reason of the default or misconduct of the other party’.
8
Three matters were required to be dealt with by the vendor to be ready, able and willing to perform his obligations as vendor under the contract as follows:
• The lands, the subject matter of the contract for sale, were subject to a charge registered in favour of Bank of Ireland. The charge created a security over other lands not relevant to the sale, but the vendor required a deed of partial discharge from the Bank in respect of the subject lands in order to give an unencumbered title.
• The lands in sale were also subject to a charge in favour of Danske Bank, and it is common case that this charge came to light only on the 21st December, 2012, and when the purchaser made its closing searches. That charge also affected other lands not the subject matter of the sale, and again, a partial discharge was required to clear the title to the subject lands.
• The contract was subject to the vendor producing at closing a valid tax clearance certificate. At the time the completion notice was served, the vendor’s tax clearance certificate had expired, and, although the evidence is that he was tax compliant, he did not have a valid tax clearance certificate until one issued from Revenue on the 4th January, 2013.
While the matter arose initially in argument, counsel have now agreed that the completion notice was valid at the date of service, and that the matters still to be done by the vendor were administrative matters wholly within his control, or did not contractually require to be in place at the date of the service of the notice.
9
I do not therefore propose to deal with the question raised but not answered by Clarke J. in Windham v. Maguire & Anor [2009] IEHC 359, and mentioned by Finlay Geoghegan J. in Mackin v. Deane [2010] IEHC 192, as to the consequence of a party becoming unable to close in the currency of a notice which was valid at the date of service.
The correspondence
10
After the service of the completion notice on the 23rd November, 2012, nothing was heard from the solicitor for the purchaser until a phone call on the 18th December, 2012, followed up by an e-mail on 19th December, 2012, in which she sought details of the redemption figures on the Bank of Ireland mortgage up to Friday 21st December, 2012. This was because of Special Condition 9 of the contract, which required a separate cheque to be made payable to Bank of Ireland in respect of the balance of the purchase price after taking off the costs of sale and VAT on the transaction.
11
By an e-mail sent at 14.58 on the 19th December, 2012, the solicitor for the purchaser, after repeating her request for details of the redemption figures, suggested that in lieu of the furnishing of separate bank drafts, as was required by the Special Condition, that the balance of the purchase price could be transferred into the account of the vendor’s solicitor. It was said that confirmation of this proposal was required as a matter of urgency as ‘in order for the monies to be in your account by Monday next, I need details of your firm’s account today.’ The Monday referred to was Christmas Eve, the 24th December, 2012.
12
In an e-mail some 20 minutes later, at 15.19, the purchaser proposed a closing in the office of the vendor’s solicitor on either Friday the 21st December or Monday the 24th December, 2012. The email mentioned again the fact that in order for the option of an electronic transfer to be available, details of the relevant bank account were required on that day, 19th December, 2012.
13
On the following day, the 20th December, 2012, by fax, and letter hand-delivered by courier, the solicitor for the vendor furnished details of the relevant bank account, but gave no reply as to a proposed date and time for closing. The exact time that this faxed letter was sent is unclear, but from the attendance note on the file of the purchaser’s solicitor of a phone call from the office of the solicitor for the vendor at 14.35 requesting confirmation that a fax had been received, I conclude that the letter was faxed at or near that time.
14
At 15.46, the solicitor for the purchaser sent a letter marked ‘urgent’ in which it was pointed out that the option of the electronic transfer was no longer available as there had been a limited, and now expired, window within which such transfer could happen.
15
Some time was given over in the course of evidence to the reasons for this, and to an arguable lack of clarity in the letters from the purchaser’s solicitor, in that they had not expressly identified the fact that the option could not be availed of after the 19th December, 2012. I consider that correspondence is sufficiently clear. The offer of an electronic transfer was by variation on Special Condition 9, which provided for a three-way physical closing and the furnishing of three bank drafts in the relevant amounts. The variation was not accepted in accordance with the terms of the letter, and accordingly that option never became a variation on the conditions relating to closing.
16
The solicitor for the vendor on Friday the 21st December, 2012, by fax sent at 11.51, indicated that the sale could complete either that afternoon, or on Monday the 24th and asked for confirmation that the purchase monies had been transferred to her client account. That letter also contained details of the redemption figures. I consider that, as the option of an electronic transfer of funds was no longer available, the solicitor for the vendor misunderstood the correspondence. The solicitor for the purchaser pointed this out in an email at 12.58, by proposing closing on Monday the 24th December, 2012, and then sent her closing searches in anticipation of that closing. These showed a charge registered by Danske Bank on 29th January, 2010, ranking second in priority to the Bank of Ireland charge. I have heard evidence, and accept, that this charge affected a small portion on the south east of the subject lands only, but as a matter of law the charge was an encumbrance and had to be cleared off the title in accordance with the contractual obligation to provide an unencumbered title. From the correspondence and the oral evidence, I consider that the solicitor for the vendor was unaware of this charge, as it was registered after the long negotiations for the sale had resulted in a concluded agreement in November 2011.
17
The solicitor for the vendor suggested by a fax sent at 16.06 that she would hold the bank drafts on trust until the completion documents and searches had been explained and certified. I consider that this was not at all consistent with the agreed mode of closing, namely by three way closing involving the physical presence of the solicitors for the purchaser, the vendor and Bank of Ireland. No agreement was reached on the 21st December, 2012, that the sale would close on the 24th December but the solicitor for the purchaser had indicated that she could close on that day.
18
On the 24th December, 2012, by email and fax sent at 10.19, the solicitor for the purchaser asked that a time for completion be nominated as a matter of urgency. She received no reply to this letter nor to an email sent at 11.14. She later attempted to contact the solicitor for the vendor by phone, but the evidence is that the office of the solicitor for the vendor was by then closed for the Christmas vacation.
19
The parties were contractually required to close by way of a physical three-way closing, and the purchaser was required to have three bank drafts. On the 21st December, 2012, AIB Bank was requested to furnish the three relevant bank drafts, but was not in a position to do this by the 24th December, 2012, and the purchaser was therefore not able to close on that day. It is not at all clear to me in those circumstances why the solicitor for the purchaser remained in her office until 16.00 on Christmas Eve in anticipation of closing.
20
Three bank drafts were made available on the 28th December, 2012, and for that reason I conclude that the purchaser was not in a position to close until that date.
21
In contractual terms the proposal by the purchaser for completion on the 21st December or the 24th December, 2012 was permissible, but I find that the purchaser was not in a position to complete on either of those days, and was not so in a position until the 28th December.
22
I turn now to consider when the vendor was in a position to close. The effect of the completion notice was that he was required as a matter essential to the contract to be in a position to close on the 2nd January, 2013, at the latest.
Was the vendor able to complete on the 2nd January, 2013?
23
I consider that the vendor was not in a position to complete this sale on the 2nd January, 2013, the date that the completion notice expired. This is for a number of reasons: the solicitor for the vendor was quite clear that she was not aware of the Danske Bank charge registered on title until, as she put it, she ‘got a fright’ when she received the closing searches from the purchaser’s solicitor on that day, albeit they had been sent on the 21st December, 2012, when her office was closed. She did reach an agreement with Danske Bank that it would furnish a deed of partial release but not until some days later, possibly the 7th January, 2013. Equally, the vendor could not have closed on the 2nd January, 2013, because he did not have a current tax clearance certificate until the 4th January, 2013. Furthermore the solicitor for the vendor did not have an agreement with the solicitor for Bank of Ireland that it would furnish on or before the 2nd January, 2013, the deed of partial discharge for the purpose of clearing the first charge on title.
24
Thus, while each of the three matters in respect of which complaint is made were matters within the control of the vendor these were not in place or capable of being put in place by the 2nd January, 2013.
25
It is a matter of some concern that the solicitor for the vendor did not inform the solicitors for the purchaser that this was so, and indeed there was complete silence from her until her letter of the 9th January, 2013, wherein she inexplicably failed to explain or deal in any way with the gap, at a time when matters were clearly at a critical point. It is regrettable that the solicitor for the vendor considers that the approach being taking by the solicitor for the purchaser was a form of what she described as ‘posturing’ and that she did not genuinely believe that the purchaser would rescind, or that she was at any risk that this could occur.
26
I also consider that the solicitor for the vendor was not in a position to offer to close on the 24th December as she had no agreement with the solicitors for Bank of Ireland to close on that day and, in her evidence, she explained her reference to her offer to ‘close’ on that day as meaning that she was in a position to receive the monies, hold them on trust, agree an arrangement for the holding of the title deeds on trust, and deal with the balance of the conveyancing issues when the office of Judge and Co., the solicitors nominated to act for the Bank opened in January. Thus, the offer to close on the 24th December, 2012, was not well made, and was not one, had it been accepted, that could have been performed by the vendor.
27
It was unfortunate that the solicitor for the vendor made certain assumptions that a degree of informality would be acceptable to the purchaser, and that she did not explain to them when she offered to close on the 24th December, 2012, that she did not mean that the full transaction would be completed and all conveyance requirements met on that day. She could not achieve this, and she ought not to have offered to do so, albeit I accept that she believed she would have ‘substantially closed’, as she put it, on that day.
28
The key date was the 2nd January, 2013. The solicitor for the purchaser did wait until 17.14 to ascertain the position and send an email. The vendor’s solicitor did nothing at all to communicate with the purchaser on that day. It was the vendor’s solicitor who had served the completion notice, she by then was aware, or ought to have been aware, that the Danske Bank charge remained on title and needed to be dealt with as a matter of urgency. It was she who had to make the arrangement for the solicitor for the Bank to attend at the place and time agreed, and it was she who had to meet the other title and conveyancing requirements including the production of a tax clearance certificate for her client. I consider that she was not in a position to deal with the matter on the 2nd January, 2013, she could not have brought together various elements to close on that day and accordingly she was not in a position to close the sale within the 28 day period in respect of which time was of the essence following service of the completion notice.
29
I find on the facts that the vendor was in a position to provide a discharge in respect of the Danske Bank charge on the 7th January, 2013, and not before. The draft deed was sent to the solicitor for that bank on the 3rd January, 2013, and a soft copy was provided to him on the following day. I accept the evidence of Mr. Keogh that he was not asked as a matter of urgency to make himself available to facilitate closing on the 4th January or at any time before that.
30
As regards the tax clearance certificate, the plaintiff himself said that he obtained this certificate on the 4th January, 2013, in Cork and that he posted it to his solicitor. His solicitor says that she had always anticipated that her client would travel to Dublin to physically hand over the tax clearance certificate and any other documents that were required for closing. I am satisfied however, that the plaintiff was not asked to attend at any closing on the 4th January, 2013, and, as his evidence was that it would have taken him less than three hours to travel from Cork to Dublin, I consider that he was in a position to produce the certificate on the 4thJanuary, 2013. The difficulty arose from the fact that his solicitor had not asked him to travel to Dublin on that day.
Conclusion on ability to close?
31
The option of closing on Friday the 21st December, 2012, had no reality from either point of view, and at best it seems to me there was a degree of optimism, and at worst a lack of appreciation of the degree of urgency involved, on both sides. However, I accept that at that time at least the purchaser was willing to close. Indeed some suggestion was made in the course of cross examination that the purchaser had ‘gone cold’ on the transaction and was happy to avoid the contract by December, 2012, and I accept the bona fides of both parties, both of them wished to complete this sale, and both solicitors were under instructions to so do.
32
The purchaser was in possession of three drafts each dated 28th December 2012, on the 2nd January, 2013, when they were collected from the bank in anticipation closing on that day. Thus the purchaser was in funds and was able to close within the period of the completion notice.
33
Furthermore, I accept the evidence of Ms. Crombie solicitor for the purchaser that she had ordered a taxi and had available to her the drafts and all other necessary documents in order to close on the 4th January, 2013, in accordance with what she believed was an agreement reached with Ms. O’Driscoll, solicitor for the vendor.
34
I reject the suggestion of counsel for the vendor that the solicitor for the purchaser was setting a trap by waiting until late on the 2nd January, 2013, to send an email. The ball was quite clearly in the court of the vendor’s solicitor at that time and it is remarkable that the she did not pick up the phone and attempt to reach an agreement other than through fax and hand delivered documents which were insufficient to meet the requirements of exigency then apparent. I also reject the suggestion that the letter from the vendor’s solicitor where she used the expression ‘we propose to close’ is anything other than an invitation to close on the 4th January, and I take that view because there was nothing unclear or incomplete about the time, place and date in respect of which the closing was to happen.
35
Thus, for the reasons outlined, I find that the purchaser was in a position to close within the period provided by the completion notice, but the vendor was not.
Events on 2nd January, 2013
36
Nothing happened between the 24th December, 2012, and late on the 2nd January, 2013, the date the completion notice expired, when the purchaser’s solicitor sent an email at 17.14, marked ‘urgent’, confirming that she was in a position to close.
37
She suggested that closing would take place on the following day the 3rd January, 2013, i.e. outside the 28-day period, and enclosed a long schedule of closing requirements, which included a number of matters not already raised in pre-contract or post-contract requisitions, and which were either unnecessary or not contractually mandated, such as a request for an indemnity under seal in respect of the footpaths, roads and sewers from the original developer, and a letter from Cork County Council confirming that the roads and services were in charge.
38
I consider that the solicitor for the purchaser in her email sent at 17.14 on the day the completion notice expired, accepted that the sale would not close on that day and expressly proposed a closing outside the 28-day period fixed by the notice. Further, she raised matters not contractually required of the vendor, and in the course of cross-examination she accepted this, and that she had been prepared to close even without each of them being satisfied. However her correspondence did not make this clear, and the matters raised would have required a detailed consideration by the solicitor for the vendor. I consider that the vendor’s solicitor was entitled to treat the new requisitions as matters in respect to which she needed to reach agreement with the solicitor for the purchaser that she would not insist on the matters raised by way of new requisitions. A parallel series of letters were exchanged between the solicitors dealing with this question, and I find that the solicitor for the purchaser did not withdraw the additional requisitions until her evidence at trial.
39
On the 4th January at 9.55 the solicitors for the vendor separately replied to the letter raising the additional requisitions, and, correctly in my view, said that no further or new closing requirements would be entertained by her.
40
On the 3rd January, 2013, by fax at 14.56 the solicitors for the vendor proposed closing at a time and place on the following day, Friday the 4th January, 2013. That letter was headed ‘strictly without prejudice to the contract for sale,’ and was not an acceptance of the offer of the 2nd January, 2013, to close on the 3rd January, 2013, but a counter offer to close the following day. Thus, I find that no agreement had been reached that the sale would close on the 3rd January, 2013.
41
By email sent on the 4th January, 2013, at 10.23, the solicitor for the purchaser replied to the letter of 3rd January, apologised for the delay in replying, and required a ‘written explanation’ in respect of the use of the phrase ‘strictly without prejudice to the contract for sale’. She proposed closing at 15.00 that day, but ‘subject to receiving a satisfactory written response’ to this query by noon that day. The solicitor for the vendor sensibly responded to requests for ‘an explanation’ at 12.18 by fax. She headed her letter ‘strictly without prejudice’ but her response was fulsome. Whether it was ‘satisfactory’ as required by the solicitor for the purchaser is not clear, save that by a response, sent at 13.24, the solicitors for the purchaser did accept the offer to close at the time, place and date proposed.
42
I consider this is an acceptance of the offer or a waiver of the objection with regard to the use of the rubric ‘without prejudice’. Therefore, I find that at 13.24 on the 4th January, 2013, an agreement was reached for the closing of the sale later that day, and the solicitor for the purchaser at 14.08 sent further closing searches for explanation, the same searches which had been sent on the 21st December, 2012.
43
The solicitor for the vendor clearly did not think that an agreement to close was in place, and as late as 14.16 she faxed a letter, inexplicably headed ‘strictly without prejudice’, indicating that she was awaiting confirmation from the solicitor for Bank of Ireland that he was available to attend a three-way closing that afternoon. The solicitor for the purchaser by email at 15.27 called for closing before close of business, but the sale did not close and no further communication was sent by the solicitor for the vendor until 14.28 on the 9th January, five days later, by which it was proposed that the sale would close on the 10th January. The solicitor for the purchaser responded at 17.29 and rescinded the contract, in stated reliance on the completion notice as the new proposed date was outside the term provided by that notice, or the ‘one final opportunity’ to complete, namely the 4th January, 2013. While this is not spelt out, it is implicit in the letter that the solicitor for the purchaser regarded the period provided in the completion notice as having being extended to the 4th January, 2013.
44
The purchaser is correct in my view that no satisfactory explanation was provided by the solicitor for the vendor as to the reasons for the delay between early afternoon on the 4th January, 2013, and the 9th January, 2013, when, without explanation or apology, the vendor’s solicitors sought closing on the following day.
45
I turn now to consider the argument that the vendor was entitled to rescind in reliance on General Condition 40.
The effect of service of a completion notice
46
Time is in general not regarded as of the essence in a contract for the sale of land. This proposition arises primarily from the fact that an action for specific performance of a contract for the sale of land sounds in equity, and the courts of equity will not imply into such contract a term that time is of the essence, and will relieve against a failure of one or other party to comply with strict time conditions if to do so is in the interests of justice.
47
A party to a contract for sale may however seek to fix a time for closing if it is considered that a reasonable time has passed, and that the other party is in default of the obligation to close. General Condition 40 of the Law Society General Conditions of Sale provides a convenient way in a contract made under its terms to fix a time for completion. This provides in the relevant parts as follows:
‘COMPLETION NOTICES
Save where time is of the essence in respect of the Closing Date, the following provisions shall apply:
(a) if the sale be not completed on or before the Closing Date either party may either on or after that date (unless the Sale shall first have been rescinded or become void) give to the other party notice to complete the Sale in accordance with this condition, but such notice shall be effective only if the party giving it shall then either be able, ready and willing to complete the Sale or is not so able, ready or willing by reason of the default or misconduct of the other party
(b) upon service of such notice the party upon whom it shall have been served shall complete the Sale within a period of twenty eight days after the date of such service (as defined in Condition 49 and excluding the date of service), and in respect of such period time shall be of the essence of the contract but without prejudice to any intermediate right of rescission by either party (c) the recipient of any such notice shall give to the party serving the same reasonable advice of his readiness to complete.’
48
Certain propositions of law are not contested, and are well established in the authorities. The service of a completion notice under General Condition 40 makes time of the essence in the contract in respect of the period of 28 days therein provided. The notice binds both parties, such that both the giver of the notice and the recipient are bound to comply with all contractual obligations within the 28 day period fixed.
49
While it is sometimes said that the service of a completion notice pursuant to General Condition 40 makes time of the essence of a contract, that description may not be useful if it is taken to mean that the contract is to be characterised as one in which time was of the essence ab initio, or for all purposes. The service of a completion notice does not change the essential character of the contract, and if time was not of the essence at its inception, the service of the completion notice does not make time of the essence save in respect of the time fixed by reference to the condition. This is clear from the express terms of General Condition 40 from which it is clear that the effect of a valid notice is that time is of the essence only of the period of 28 days thereby fixed.
50
Time was not of the essence in respect of the agreed closing date in the agreement for sale in the present case, thus the service of the completion notice under General Condition 40 had the effect that the purchaser was obliged as a matter essential to the contract to complete the sale within a period of 28 days after the date of service. After making allowance for the Christmas period the relevant closing date so designated was the 2nd January, 2013.
51
It is accepted by both parties that the service of the completion notice creates mutual obligations, and that the notice binds both giver and recipient. Thus, if a vendor serves a completion notice the purchaser is bound to close within the time stipulated, but equally the vendor is obliged to perform the obligations on his part within the time limited by the notice.
52
The authority for the proposition that mutual obligations arise is the judgment of the Court of Appeal for England and Wales in Quadrangle Development and Construction Company Ltd. v. Jenner [1974] 1 All E.R. 729 where Russell L.J. stated the proposition in general terms as follows:
‘It seems to be that if by the notice the giver of the notice brings into existence a term in respect of which time should be of the essence that the recipient of the notice should complete, it is implicit in that the term equally binds the giver of the notice because completion.…is in my judgment an activity in which two parties necessarily co-operate. Completion by one cannot be effected without co-operation of the other’
53
Similarly, in the same judgment, Buckley L.J. explained the matter thus:
‘I am of the opinion that when notice is given to complete in this form it has the effect of making time of the essence of the contract as a whole and in respect of both parties to the contract…’
54
Both of these quotes have been referred to with approval by the Supreme Court in Tyndarius Ltd. v. O’Mahony & Ors. (Unreported, Supreme Court, 3rd March, 2003) and by the Supreme Court in United Yeast Co. v. Cameo Investments [1977] 111 I.L.T.R. 13, and are accepted as stating the general proposition that time becomes of the essence in respect of the performance by both parties to the contract of the obligation to complete. For this reason the service of a completion notice has often been described as a ‘two-edged sword’.
55
As was memorably put by Farrand at p. 184 of the 4th edition of his seminal text, “Contract and Conveyance”:
‘…the party serving a notice to complete must himself be ready both at the time of service and at the time of expiry, or else it may be a case of the biter bites.’
56
The failure of one party to meet the obligations made essential by virtue of the service of a valid notice means that the innocent party may rescind the contract for breach by the other of that essential term.
The effect of the extension of time
57
A completion notice may be waived, or extended by agreement. Express provision is made for an extension of time by agreement under General Condition 40 (f) as follows:
‘the party serving the notice under this Condition may, at the request of or with the consent of the other party, by written communication to the other party extend the term of such notice for one or more specified periods of time, and, in that case, the term of the notice shall be deemed to expire on the last day of such extended period or periods, and the notice shall operate as though such extended period or periods had been specified in this Condition in lieu of the said period of twenty-eight days, and time shall be of the essence in relation to such extended period.’
58
Wiley & Woods, at para. 13.25 of their authoritative text “Irish Conveyancing Law” express the view that when time is extended for a fixed and defined period, time becomes of the essence in respect of the extended or new period. The authority for this position is stated to be the case of Lock v. Bell [1931] 1 Ch 35. I do not consider that general proposition to be correct for reasons I now elaborate.
59
Lock v. Bell arose in the context of the proposition, accepted as being correct by the court that, as the contract was for the sale as a going concern of a public house and its stock, time was prima facie of the essence, and that the authorities bore this out. Thus it is not authority for the broad statement of principle stated by Wylie and Woods.
60
The judgment of Maugham J. in Lock v. Bell was also relied on by Farrand at p.178 of his text, although in a different context. Referring to contracts where time was originally of the essence, he said that where delay to a particular date is allowed, ‘that later date automatically becomes of the essence instead.’ The distinction he drew was between contracts where time was originally of the essence, and the contrasting case where time was made of the essence by service of a notice to complete. I consider that Farrand has correctly identified the proposition found in Lock v Bell.
61
This is clear too from the judgment of Jessel M.R. in Barclay v. Messenger (1874) 43 LJ Ch 449. That case involved an action for specific performance where it was held that time was of the essence of the contract, and the question for the court was whether the purchaser had waived this essential term of the contract by extending the time. The Master of the Rolls considered the differences in the authorities and expressed his authoritative judgment at p. 455 of the judgment as follows:
‘It appears to me plain that a mere extension of time, and nothing more, is only a waiver to the extent of substituting the extended time for the original time, and not an utter destruction of the essential character of the time.’
62
The court came to that conclusion inter alia on the grounds that it could not be the case that if time was of the essence the extension of time could put a party in a better position than had originally been agreed.
63
Farrell expresses the proposition that if time is extended to a substitute date, time remains of the essence with regard to that substitute date. He quotes Barclay v. Messenger as authority for this proposition, but as I have noted that case is not authority for a broad proposition that the new time becomes of the essence, as that case involved a contract where time was originally of the essence.
64
Farrand also refers to Buckland v. Farmar & Moody [1979] 1 WLR 221, in which the Court of Appeal for England and Wales held that time was of the essence, when delay had been allowed after a notice to complete had expired and two fixed date extensions were allowed. That judgment is also not authority for the proposition that time remains of the essence if an extension is allowed after the time fixed by a completion notice has expired, as it was predicated on a concession by both sides that to quote Buckley L.J. ‘if a vendor has once made time of the essence of the contract and then allows a further extension to a fixed date, the time remains essential’. The Court of Appeal for England and Wales found on the facts that there was no waiver of the essential time condition. That case is more usefully considered as authority with regard to waiver of the essential nature of the term with regard to time.
65
This approach is consistent with the comment by Farrand that Denning L.J. in Rickards (Charles) Ltd. v. Oppenheim [1951] K.B. 616 at 620 considered the matter to be an application of the High Trees principle. The same proposition is stated with characteristic succinct style by the late John Farrell in his “Irish Law of Specific Performance”, under the heading ‘waiver of a time limit’ at para. 8.39 where he says the following:
‘When time is of the essence the relevant time limit may be waived. This may be done by conduct. The vendor when faced with the time limit for sending an abstract title of a title document agreed to be sent is likely to lose the right to insist on the purchaser raising his objections or requisitions within the time limited for that purpose. If the delay is serious it may even amount to waiver of a clause in the contract making time of the essence for completion of a sale.’
66
No argument of waiver was made in the present case, and accordingly, I must look to the general law with regard to the effect of an agreement to extend the time for closing.
67
The general proposition seems to be, rather, that an extension of time will, without more, destroy the essential element of a time provision. Farrand quotes the dicta of Malins V-C in Webb v. Hughes [1870] L.R 10 Eq 281 at 286 where he said: –
‘If the time is once allowed to pass and the parties go on negotiating for the completion of the purchase, then time is no longer of the essence of the contract.’
68
Farrand in his discussion makes the following wry observation:
‘This means that the consequence of courtesy would be as if time had never been of the essence, involve either waiting for an unreasonable delay or else taking steps to make a later time of the essence.’
69
I consider that the approach canvassed by Farrand points me to a difference between the extension of a time limit where time is originally of the essence, and in a contract where time is not of the essence, but is made of the essence of the period fixed by a completion notice.
70
I find useful the decision of Goulding J. in Luck v. White (1973) 26 P. & C.R. 89. That case involved a contract for the sale of land where time was not originally of the essence, and a notice to complete was served by the vendor who then allowed the time to pass and continued to press the purchaser’s solicitor to close. The dicta at pp. 95 and 96 of the judgment were quoted with approval by Buckley L.J. in Buckland v. Farmar & Moody as follows:
‘…if the party who was in the right allowed the defaulting party to try to remedy his default after an essential date had passed, he could not then call the bargain off without first warning the defaulting party by fixing a fresh limit, reasonable in the circumstances.’
71
Buckley J. in Buckland v. Farmar & Moody while accepting that general statement of law, found on the facts that it was clear on the evidence that the vendor ‘had no intention of releasing the plaintiffs form their liability resulting from their default in complying with the completion notice’ (at p. 230 F).
72
In summary, I consider that the correct proposition of law is that if time is originally of the essence of a contract, an agreed or permitted extension of time will not destroy that essential element, but that if time is not of the essence the continuation of negotiations toward agreeing a new date following expiration of the time fixed by a completion notice will not at common law have the effect that time is of the essence of the extended period, unless that is made clear by the innocent party.
The effect of General Condition 40(f)
73
The express terms of General condition 40(f) modify somewhat that common law rule. It is clear that its provision with regard to the extension of time may be availed of by either party, i.e. either the purchaser or the vendor may seek an extension of time, and if agreement is reached time remains of the essence of the extended and specified time or times.
74
What is not clear however is whether the agreement to extend must be made in the currency of the notice, as is argued by the plaintiff. Counsel points to the term of General condition 40 itself, which refers to the extension of ‘such notice’. He argues that if the period of the notice has expired, the notice can no longer be said to subsist and accordingly, may not form a framework within which the extended period operates. Condition 40 (f) refers throughout to ‘the notice’‘the term of the notice’ or ‘such notice’.
75
The Condition is silent as to when an agreement to extend must be made, and the question is devoid of authority. I consider that there must at the time of the agreement to extend the notice be an extant notice, the period of which can be extended. If, whether with or without a failure on the part of either or both parties, the service of a completion notice does not result in either the closing of a sale or the rescission of the contract, time has ceased to be of the essence. The General Condition does not envisage circumstances where a party can serve a completion notice and then seek, after the expiration of that notice, to make a further period of time of the essence in reliance on that notice, and without serving a fresh notice. This is because service of the notice does not make time of the essence of the contract as a whole, it does not change the essential nature of the contract, but time is thereby made of the essence only of the 28 days so specified. Outside the period of the notice, if a new closing date is agreed, the parties are setting a new time and not extending an essential time condition, which has ceased to operate on the expiration of the time fixed. The new time is agreed in the context of the general contractual principle that time is not of the essence of a contract for the sale of land. Making time of the essence is the exception to the general contractual position. If the parties agree a closing date, time is not thereby agreed to be of the essence. If the time fixed by the completion notice has expired, they are not operating under its rubric, and therefore an agreement with regard to a date for closing is not an essential term, unless agreed or nominated to be such.
76
Thus, it seems to me that counsel for the plaintiff is correct that if an agreement was reached between the parties for the extension of the period provided for in the completion notice, that agreement is an effective addition to the 28 day period in respect to which time is of the essence, only if the agreement was reached while that notice was still extant. The alternative proposition cannot be correct as it envisages the extension of a period provided by an already expired notice.
77
I conclude then, that on a true construction of General Condition 40(f) that an agreement to extend a completion notice must be made in the currency of the notice. That proposition is consistent with the general law that time is not of the essence of a contract for the sale of land, and with the authorities analysed above with regard to the effect of service of a completion notice and of continuation of negotiations outside the notice period.
78
I conclude accordingly, that as the agreement to extend the closing date was made after the expiration of the completion notice on 2nd January, 2013, that time was not of the essence of the extended period.
79
However, the authorities show that the innocent party may reserve his or her rights under a notice, and I turn now to consider that proposition on which the defendant relies.
The reservation of rights
80
The defendant argues that it reserved its entitlement to rescind while at the same time agreeing to the two-day extension of 28-day period.
81
The correspondence from the solicitor for the purchaser after the 20th December, 2012, was expressly sent either without prejudice, without prejudice to the contract or by way of reserving rights under the contract. The first time this formula was used was in a letter of the 20th December, 2012, by which she ‘reserved our client’s right’ in the context of her assertion that the vendor was not ready to complete the sale after reasonable notice had been given of the readiness of the purchaser.
82
That rights may be effectively reserved in these circumstances is clear from the dicta of Goulding J. in Luck v. White, where he noted that the vendors had continued to negotiate without reserving in express terms their right to rescind, and made the following observation with regard to what might have been the situation had that occurred:
‘Indeed, the mere extension of the period to a new fixed date would on the authorities have preserved the position that time was of the essence, without fresh stipulation to that effect. The vendors, however, did nothing of the kind. They encouraged the purchaser to try to complete notwithstanding the expiry of the notice, and there was nothing to tell him at what moment the axe would fall.’
83
I turn now to consider the rights the purchaser asserts it had reserved.
84
It is argued that as a result of the proposal from the purchaser that it would close on the 21st December, 2012, or the 24th December, 2012, that the purchaser could have rescinded as the vendor was not in a position to close on that nominated date. I consider that as a matter of law the purchaser could not have rescinded the contract until the expiration of the full 28-day period in respect to which time was of the essence. This is apparent from the decision of the Chancery Division of the English High Court in Oakdown Ltd. v. Bernstein & Co. & anor. [1984] 49 P. & C.R. 282. That case concerned a vendor’s notice to complete in response to which the purchaser proposed to complete on the first day of the Passover. The vendor, who was of the Jewish faith, refused to complete on that date, and also refused to deliver the title deeds on the day before. The plaintiff successfully sued for specific performance. Scott J. held that while both the party serving and the party receiving a completion notice had an obligation to complete within the 28-day period, the giving of a notice of a willingness or readiness to complete within that 28 day period would not mean that the other party was in breach. The obligation is more simply stated: It is an obligation on both parties to complete within the 28 day period, and no failure on either party to complete before that on an intermediate date could render the contract capable of being rescinded by the other party.
85
Scott J. said as follows:
‘First, the obligation which binds the recipient of the notice and in respect of which time is of the essence is to complete within 28 days. I do not see why the corresponding obligation which binds the giver of the notice and in respect of which time is of the essence should be an obligation to complete on such day within the 28-day period as may be nominated by the recipient of the notice. Secondly, if the recipient of the notice selects a day for completion, say, five days after service and fails then to complete it is clear, in my judgment, that the failure does not place the recipient of the notice in breach of his obligations under the notice. He can still remedy that failure by completion within the remaining 23 days. I do not follow why the failure of the giver of the notice to complete on the selected day should have a repudiatory effect whereas the like failure of the recipient of the notice does not have that effect.
I accept, of course, that the failure by the giver of the notice to complete on an intermediate date within the 28-day period would be a breach of contractual obligation and might, in an appropriate case, affect the running of interest on the purchase money. But it would not, in my judgment, per se entitle the recipient of the notice to treat the contract as at an end’
86
Scott J. regarded the conclusion in Quadrangle Development and Construction Company Ltd. v. Jenner [1974] 1 ALL ER 729, often regarded as the leading decision on completion notices, that a party who serves a completion notice must be ready to complete at all times within the period specified, not to be authority for a wider proposition that that the recipient could call for an earlier closing. I agree. If either party is not ready, willing and able to complete within that fixed period, the other can rescind once the notice has expired, but not before. The period of 28 days is absolute in the sense that the party not at fault may not rescind until the notice has expired, and the full period of 28 days has to be given to both recipient and sender.
87
I consider that the use of formulae by the solicitor for the purchaser in her correspondence suggestive of the reservation of rights had no meaning as the purchaser had no right to rescind before the end of the period provided by the completion notice on the 2nd January, 2013. Thus, the reservation of rights to rescind had no legal effect.
88
Further, the rights expressly reserved by the solicitor for the purchaser were those under the contract, such as the right to purchase the premises at the agreed price, not to be charged interest, to the benefit of the various special conditions etc. There was no express reservation of rights that might have arisen by virtue of the failure of the vendor to be ready and able to close at the expiration of the completion notice. The reservation of rights in accordance with the authorities mentioned above must be clear and unequivocal and I am not satisfied that the solicitor for the purchaser clearly and unequivocally reserved her client’s right to rescind by virtue of the failure of the vendor to be in a position to close. The purchaser did in my view have a right to rescind on the 2nd January, 2013, but continued to engage as if the contract subsisted and indicated a willingness to close thereafter, and not having expressly reserved the right to rescind by these negotiations, it has hereby lost that right. To borrow the words of Goulding J. in Luck v. White, the solicitor for the purchaser encouraged the vendor to close on a later date. She cannot now resile from that position, and seek to rely on the essential nature of time in the contract, without making time of the essence afresh.
Conclusion
89
I consider then, that the defendant did not have a right to rescind the contract for sale in reliance on the completion notice of the vendor. The date agreed for completion was outside the time fixed under that notice, and accordingly time was not of the essence of the agreed extension. As the purchaser did not make time of the essence of the new date it cannot rescind for failure of the purchaser to close on that agreed date.
90
The counterclaim fails. The vendor seeks specific performance, and as the vendor is ready, willing and able to close, and no argument is made that a reasonable time has not been allowed to the purchaser to perform the obligations arising, the vendor is entitled to specific performance of the contract. I will hear further argument with regard to the claim for interest on the purchase price.
Northern Bank Ltd v Duffy
[1981] ILRM 308
MR. JUSTICE COSTELLO
16th DAY OF MARCH 1981.
On the 30th March, 1979, the plaintiffs agreed to sell to the defendant their interest in certain premises in Talbot Street in the City of Dublin for the sum of £130,000 utilising the 1978 edition of the General Conditions of Sale printed by the Incorporated Law Society of Ireland. The parties agreed that the sale would be completed on the 18th may, 1979 and that if it was not then the purchaser would pay interest on the balance of the purchase price from the 18th May to the date of actual completion in certain circumstances. The plaintiffs say that the circumstances envisaged in the contract have occurred and that they are entitled to interest on the sum of £104,000 from the 18th May to the 23rd August – the date of actual completion. The rate of interest specified in the parties agreement was a high one (20% per annum) as a result of which if interest becomes payable the defendant’s liability works out at a rate of £57 per day.
The plaintiffs’ claim is based on the provisions of Condition 4 of the Conditions of Sale which provides that:-
“The purchase shall be completed and the balance of the purchase money paid by the purchaser on or before the closing date which shall be the date specified in the Memorandum… Completion shall take place at the office of the vendors solicitor. If by reason of any default on the part of the purchaser the purchase shall not be completed on or before the closing date, the purchaser shall pay interest to the vendor at the rate specified in the Memorandum on the balance of the purchase money remaining unpaid from the closing date up to the date of actual completion, or the vendor may elect… to take the rents and profits less the outgoings of the property for such period in lieu of interest…”
There was, the plaintiffs say, “default” by the purchaser within the meaning of this Condition as a result of which the purchase was not completed on the 18th May. The plaintiffs did not elect to take the rents and profits up to the date of actual completion in lieu of interest and claim that they are entitled to interest up to the 23rd August at the rate to which I have just referred.
The defendant denies that he was in “default” within the meaning of the condition and this will be the first matter which I will have to decide. But a finding that the purchaser was in default will not determine all the issues which arise in these proceedings. It is urged on the defendant’s behalf that (a) even if he was in default the default was only for a period of sixteen days and payment of interest should be limited to this period only, and (b) alternatively interest is only payable from the 18th May to the 10th July as after that day the delay in completion was attributable to the purchaser’s default.
I find the concept of “default” in contracts for the sale of land most succinctly and clearly explained by parker, J. (as he then was) in Baylay-Worthington and Choen’ Contract (1909) 1 Ch. 648.The judgment commenced with a summary of the law based on a careful analysis of earlier cases (for example In Re Young and Horston’ Contract 31 Ch. D.168, and In Re Hetling and Merton’s Contract (1893) 3 Ch. 269 and Bennet .v. Stone 1902 1 Ch. 226) to which reference is made in modern text-books on the subject.
The statement of the law to which I wish to refer is as follows:-
“Default must, I think, involve either not doing what you ought or doing what you ought not, having regard to your relations with the other parties concerned in the transaction; in other words, it involves the breach of some duty you owe to another or others. It refers to personal conduct and is not the same thing as breach of contract. If A. contracts that B. shall do something by a certain day and B. does not do it by the day named, A. commits a breach of contract; but if the question arises whether the delay be due to A.’s default, A.’s personal conduct has to be considered, and the question will be whether he has committed some breach of his duty towards B. So, in contracts for the sale of real estate providing for completion at a certain date, and containing provisions as to what is to happen if completion be delayed beyond that date by or without the default, or wilful default, of either party, the conduct of that party has to be considered; and if he has been guilty of no breach of duty he will not, I think, be in default within the meaning of the contract. Of course the duties of each party towards the other must be determined by all the circumstances, including the nature of the contract and its provisions; and in determining these duties the complexities of the English law of real property must be borne in mind. The duties of, at any rate, the vendor under a contract for sale of real estate cannot be gauged by the standard applicable to other contracts, for example the sale of goods. Thus the vendor is not in every case bound to know of a defect in his title, but he is bound to remove any such defect if it be pointed out and it is in his power to remove it. If he proceeds with diligence to remove it when pointed out, he will not be guilty of default merely because completion has to be delayed pending such removal. If, however, he refuse to remove such defect when pointed out, I think he will be guilty of default, for his duty to the purchaser is to comply with or remove all proper requisitions or objections as to title. On the other hand, though the purchaser is entitled to make all proper requisitions or objections as to title, and to refuse to complete until they have been complied with or removed, he owes a duty to the vendor not to refuse to complete on the ground that some untenable requisition or objection made by him has not been complied with or removed; and if he refuse to complete on any such ground he is, I think, guilty of default. There may, of course, be cases in which there is a bona fide dispute as to what is a proper requisition or objection, and the only way of settling such dispute may be by application to the Court. If the Court decide that an objection or requisition is untenable, it in effect decides that it ought not to have been insisted on, and consequently that the purchaser was in default in refusing to complete till it was complied with or removed. If, on the other hand, the Court decide that the requisition or objection was good, it in effect decides that the vendor was in default in not complying with or removing it, if it was in his power so to do. The honest belief of either party in the validity of his own view will not prevent such party being in default, though it may Prevent such default being a wilful default within the meaning of the contract in question”.
In order to apply the principles of law which I have just quoted I must examine in some detail what happened between the 30th March, 1979 (the date the contract was signed) and the 23rd August (when the sale was actually completed) and in particular consider whether or not firstly the purchaser had been in breach of duty towards the vendor and secondly whether or not the vendor was subsequently in breach of duty towards the purchaser.
By letter of the 19th April the vendor’s solicitors sent to the purchaser’s solicitors copies of the documents necessary to vouch the title which had been shown in the Conditions of Sale. There was at that time a postal strike in existence and the purchaser’s solicitor had arranged for the delivery of letters by hand during the period of the strike. The evidence establishes that letters from him were usually delivered on the day after the date which the letter bears. This means that the copy documents of title would have reached the purchaser’s solicitors on the 20th April, 1979. Condition 9 of the Conditions of Sale provided that the purchasers had ten days after the delivery of the copy documents of title in which to send Requisitions on Title and in this connection time was expressly made the essence of the condition. So, the Requisitions should have reached the vendor’s solicitors by the 30th April, But the title was by no means an easy one and the purchaser’s solicitors were not in a position to send the Requisition until the 3rd May, On that day a letter was written for delivery to the vendor’s solicitors. Unfortunately it did not arrive at the offices of the vendor’s solicitors until the 16th May. It is not certain what caused the delay. The purchasers’ solicitors had also made arrangements during the postal strike to have their correspondence delivered by hand and the evidence of Mrs Coughlan who was then handling the sale in the office of the purchasers’ solicitors establishes that she signed the letter on the 3rd May. Due to some default in the delivery service the letter and the requisitions accompanying it took thirteen days to reach the vendor’s solicitors office.
The parties had agreed that the sale would be closed on the 18th May and as the Requisitions arrived only two days before this date it would obviously be impossible to complete a sale within two days. I must conclude that there was “default” on the purchasers part within the meaning of Condition 4 by reason of the hold-up in the delivery of the Requisitions. The purchaser was quite clearly under a duty to ensure that the Requisitions were delivered in sufficient time to enable the sale to be closed on the 18th May and this default resulted in failure to close on the day specified in the contract. It follows therefore that the plaintiffs became entitled to claim interest under Condition 4 or elect in lieu of interest to claim the rents and profits from the 18th May. What I now have to consider is, the vendors not electing to take the rents and profits, the period for which interest is payable.
With considerable expedition Mr. Crawford who was handling the sale in the office of the vendor’s solicitors replied on the 17th May, to the purchasers Requisitions and on the 22nd May, the closing day having passed, he informed the purchasers solicitors that a claim to interest under the contract was being made. Mrs. Coughla replied on the 28th May, raising further objections to the title, and these were dealt with by Mr. Crawford on the 30th May. On the same day he wrote directly to the purchaser requiring completion within 28 days and making time the essence of the contract. On the 6th June Mrs. Coughlan wrote indicating that the replies to the Requisitions were satisfactory and requiring that a statutory declaration be handed over on closing on terms set out on the letter. She also enclosed a draft deed of assignment for the vendor’s approval which was immediately approved and sent back on the 8th June. On the 11th June Mrs Coughlan wrote requesting that an appointment to close be arranged, but on the 19th June made it clear that the purchaser was denying liability to pay interest. After some further correspondence and telephone calls relating to the purchaser’s liability for interest an appointment to close in the offices of the mortagees solicitors (Messrs Sheedy Hickey and Co) was made for the 10th July. The recollection of Mr. Crawford and Mrs Coughlan differ as to what arrangements had been made in relation to the vendor’s claim to interest. Mr. Crawford believes that the purchasers had agreed to pay interest up to closing on the 10th July without any qualification. Mrs. Coughlan says that she had agreed to pay interest but made it clear that it would be without prejudice to the purchasers right to claim it back. It seems to me that there was a perfectly genuine misunderstanding as to the conditions under which interest would be paid and that it is a misunderstanding which in the events which happened in no way affects the parties rights under the contract.
When the solicitors met to close on the 10th July a further and completely unexpected difficulty arose. A search in the Registry of Deeds, which only became available on the 10th July, revealed that a Judgment Mortgage was registered against the interest of one of the vendors in the property. Mr. Crawford immediately gave his personal undertaking that he would discharge this mortgage out of the purchase price and requested that the sale be closed forthwith. Mrs. Coughlan was perfectly prepared to accept this undertaking but maintained that the existence of the Judgment Mortgage meant that the purchaser was not liable to pay interest on the balance of the purchase price. This led, as can well be imagined, to some considerable controversy. Mrs. Coughlan telephoned her principal in the vendor’s solicitors office and as a result agreed to pay the balance of the purchase price and close the sale there and then on the understanding that the purchasers obligation to pay interest would be determined by the Court on a summons brought under the provisions of the Vendor and Purchaser Act 1874. Mr. Crawford refused to close on these terms and the meeting terminated in what was described as “some disorder”.
The position concerning the Judgment Mortgage was investigaged and it transpired that some time previously the mortgage had in fact been discharged and that due to an oversight in lodging the necessary documents to vacate the mortgage the mortgage still appeared in the Registry of Deeds as a valid incumbrance. The vendor’s solicitor also obtained information which led him to believe that Mrs. Coughlan had been aware when the parties had met on the 10th July both of the existence of the Judgment Mortgage and of the fact that it had been discharged. I need not delay in reviewing the evidence on this aspect of the case as I am quite satisfied that Mrs. Coughlan had no knowledge of the exact position relating to the Judgment Mortgage on the 10th July. Whilst it is true that she had been involved in a previous sale of portion of the property in Talbot Street the subject matter of the contract of the 30th March, 1979 she was not present at the closing of that sale and had no details of what had happened to the Judgment Mortgage.
The parties continued in dispute for some time as to the purchasers liability to pay interest and eventually on the 9th August the vendor’s solicitor suggested that the sale be closed without prejudice to the interest question, that the amount of interest due to actual closing be put on a joint account and that an application to the Court be made to determine the purchasers liability. It will be noted that this was in substance the proposal which Mrs. Coughlan had put forward on the 10th July and so this suggestion was readily agreed to and the sale was closed on the 23rd August, 1979. Subsequently these proceedings were instituted by the vendor’s solicitor and I now have to decide what sum the defendant should pay by way of interest to the plaintiffs.
My conclusions on the facts which I have just outlined are as follows. The delay in closing the sale between the 18th May (when the purchasers solicitors received the replies to the Requisitions on Title) and the 7th June (when the vendor’s solicitors received intimation that the title was satisfactory) arose because of further objections to the title raised by the purchaser. Although the vendor’s solicitor was able to show that the points raised by the purchasers solicitor were without foundation I am gaite satisfied that in raising them there was no “default” on the purchasers behalf. As I have said, the title was somewhat complicated and it cannot be said that by raising the objections the purchaser was guilty of a breach of duty towards the vendor . Further delay arose between the 7th June and the 10th July, a delay occasioned by the claim to interest which the vendors were maintaining and which the purchaser was disputing. As the purchaser had been in “default” prior to the 18th May and as the sale was not closed due to this default the vendor was entitled to claim interest under Condition 4. The delay in closing after the 7th June, therefore, was occasioned by the purchasers unjustified insistence that interest was not payable.
In the light of these conclusions I am quite satisfied that the purchaser is certainly required to pay interest up to the 10th July. It is true that some of the delay between the 18th May and the 10th July was attributable to the ordinary problems which can occur in the investigation of a complex title but I do not think that this assists the purchaser in any way or mitigates his liability under Condition 4. There was imposed on the purchaser an obligation to pay interest from the closing date fixed in the contract to the date of actual completion if by reason of any default on his part the purchase was not completed on the closing date. I cannot imply a term into that condition that the amount of interest is to be limited to that period between the specified closing date and the date of actual completion which equals the period prior to the specified closing date during which the purchaser was in actual default. The parties agreement is clear; if there is default by the purchaser which results in the sale not being closed on the day agreed upon the interest is payable even though some further delay occurs after the specified completion date which is not attributable to his default but which arises from the ordinary problems of investigating a title.
I come now to consider the effects of the events of the 10th July on the purchasers liability to pay interest beyond that date. What I now have to decide is (a) whether the delay between the 10th July and the 23rd August is attributable to the vendor’s acts or omissions and (b) if so, is the purchaser thereby relieved from liability to pay interest beyond the 10th July.
Just as a purchaser owes a duty to his vendor in the course of the implementation of a contract for sale so to does a vendor owe a duty to the purchaser. The nature and extent of that duty will of course be different as the sale progresses. I think that by the 10th July the vendor in this case owed a duty to the purchaser to co-operate with him in closing the sale as expeditiously as possible, a duty which was acknowledged and partly fulfilled when the vendor’s solicitor agreed to undertake to discharge the judgment mortgage out of the proceeds of sale. But it seems to me that the sale could well have been closed on the 10th July and what prohibited its closing was a failure by the Vendors to agree to close on the terms suggested by the purchaser’s Solicitor. Those terms were reasonable ones and were substantially the same as those suggested by the Purchasers Solicitors a month later and which in fact were the basis on which the sale was actually closed on the 23rd August. In my opinion by failing to close on the 10th July the vendors were in all the circumstances then pertaining in breach of their duty to their purchaser and so were in “default” on that date. Does this “default” disentitle them to interest from the 10th July?
It has long been settled that the “wilful” default of a vendor can affect the liability of a purchaser to pay interest even when the contract requires him to pay interest when the delay is occasioned by any cause whatsoever. This principle was applied in Menton .v. Mannion (1948) I.R. 324, a case in which the parties had agreed that interest would be paid by the purchaser “if for any cause whatsoever” the purchase was not completed on the day specified in the agreement. The Court held that this should be construed as meaning that interest would be payable if for any reason the sale was not completed on the day stated “other than the wilful default or vexatious conduct of the vendor.” Construing a similar clause in Sheridan .v. Higgins (1971) I.R. 291 the Chief Justice pointed out (p.304) that it could never have been the intention that the purchaser was to pay interest when the delay in completion was due to the wilful default of the vendor. In the present case I am not considering an interest clause which imposes an obligation to pay interest “if for any cause whatsoever” there is delay in completion; the condition here is a less onerous one and only imposes a liability when there is some “default” on the purchasers part. But it seems to me that I should construe this contract as the Chief Justice did in Sheridan .v. Higgins and conclude that the parties must have intended that the purchaser would not be required to pay interest for any delay which could be shown to have been caused by the wilful default of the vendor. If it were otherwise the contract would permit the most unfair and oppressive conduct on the part of a defaulting vendor and I do not think that the parties contemplated that their contract would permit such conduct. It seems to me that I should construe Condition 4 as meaning that if added to the default of the purchaser which results in his liability to pay interest under the contract there is “wilful default” on the part of the vendor after the specified completion date which results in further delay in actual completion interest should not be payable for that period attributable to the vendor’s wilful default.
I have already referred to what I understand is meant by the word “default” in a contract of this sort. I think I should make it clear that the adjective “wilful” does not carry ary overtones of moral obliquity. As pointed out by Bowen L.J. In Re Young and Harston’s Contract 31 Ch. D. 168 at 174, “wilful”
“is a word of familiar use in every branch of the law, and although in some branches of the law it may have a special meaning, it generally, as used in Courts of Law, implies nothing blameable, but merely that the person of whose action or default the expression is used is a free agent, and that what has been done arises from the spontaneous action of his will. It amounts to nothing more than this, that he knows what he is doing, and intends to do what he is doing, and is a free agent”.
I conclude therefore that the vendor’s breach of duty on and after the 10th July not only amounted to “default” but also to “wilful default” as that term is understood in the law of vendor and purchaser and that they are disentitled to interest for the period 10th July to 23rd August. In the result, the plaintiffs should get interest only from the 18th May to the 10th July (i.e. for 53 days) at the rate of £57.00 per day, namely the sum of £3,021.00.
There is one final matter to be considered. The parties by their agreement whilst imposing an obligation on the purchaser to pay interest from the specified closing date to actual completion also gave him the rents and profits (less outgoings) during that period. If however their agreement is to be interpreted as meaning that for a portion of that period the purchaser may be relieved of his obligation to pay interest it should also be interpreted as meaning that for the same period he should not be entitled to the benefits of the rents and profits. It seems to me that the parties could not have intended that the purchaser should take the benefit of the rents and profits at a time when he was not obliged to pay interest to the vendor. This means that in this case in addition to paying the sum in interest which I have just mentioned the purchaser should repay a sum equal to the rents and profits less outgoings for the period 10th July to 23rd August which was credited to him on the closing of the sale.
Collins v Duffy & Callan
[2009] IEHC 290
Judge: Ms. Justice Finlay GeogheganMs. Justice Finlay Geoghegan
The plaintiffs are husband and wife and engaged in property development. The defendants are property developers.
By an agreement in writing made on 12th September, 2007, the plaintiffs agreed to sell and the defendants agreed to purchase the lands comprised in folio 8328 of the Register of Freeholders, County Dublin, in consideration of €6.3 million (“the Contract”). The defendants paid to the plaintiffs a non-refundable deposit of €630,000 pursuant to the Contract. The Contract provided a closing date of 30th July, 2008. The defendants obtained planning permission for eighteen houses on 1st August, 2008. In the summer of 2008, the plaintiffs and the defendants agreed to a six-week extension and a new completion date of 12th September, 2008.
The defendants failed to complete the contract on 12th September, 2008. By letter of 16th September, 2008, the solicitors for the defendants indicated that their clients had now arranged for a survey of the property and that a preliminary report had been provided, indicating that there was a discrepancy between the Property Registration Authority map for folio 8328, County Dublin, and the actual boundaries on the ground. They indicated that they were seeking a map clearly indicating the extent of the discrepancy and that they were uncertain as to the “full extent or relevance of the discrepancy”. They indicated that they hoped a map would be prepared prior to the end of the week and would send it for comments. No such map was sent.
There was further correspondence in the second half of September, including an allegation made on behalf of the plaintiffs that one of the defendants had indicated that he did not intend completing the purchase of the property. Specific performance proceedings were threatened and a plenary summons issued on 9th October, 2008, claiming specific performance of the Contract, damages, and other ancillary reliefs.
At the end of the hearing, the plaintiffs, through their counsel, indicated that they were opting to pursue a claim for damagesin lieu of specific performance and not seeking an order for specific performance of the Contract. The defendants each gave evidence of their current inability to raise finance to complete the Contract. It is common case that the plaintiffs are only entitled to damages in lieu of specific performance if they establish an entitlement to an order for specific performance of the Contract.
The defendants admit the Contract and raise no issue as to its validity. They defend the claim for specific performance on three grounds.
i (i) The Contract was contingent upon the plaintiffs ensuring that the first named plaintiff and/or his associates purchased from a company owned by the defendants, Pecan Investments Limited, two units to be built by it at the development to be known as Metro Point Business Park, Kettles Lane, Swords, County Dublin, for a total price of €2,266,800.00 plus VAT.
ii (ii) The plaintiffs did not serve a completion notice pursuant to condition 40 of the general conditions of sale and in the absence of same are not entitled to maintain proceedings for specific performance.
iii (iii) The plaintiffs were not ready, willing and able to complete the sale of the property at the time of the issue of the plenary summons by reason of the alleged discrepancy in relation to the western boundary of the site and an issue as to whether or not the stream along the western boundary forms part of the property the subject matter of the sale.
7. It is not in dispute that at the end of 2006 or early 2007, the first named plaintiff and his business partner, Niall Doyle, put a booking deposit on two units being developed by the defendants’ company, Pecan Investments Limited, at Metro Point Business Park, Kettles Lane, Swords, County Dublin. It is further agreed that ultimately the plaintiff and Mr. Doyle determined not to proceed with the proposed purchase by reason of a potential increased stamp duty liability on the transactions and that the booking deposits were returned. I have concluded, on the oral evidence of the first named plaintiff, Mr. Michael Greene (the auctioneer and valuer for the plaintiffs) and the defendants, and find as a fact that there was not even an oral agreement making the purchase by the defendants of the property in folio 8328, County Dublin, pursuant to the Contract, contingent on the purchase of the two units at Kettles Lane, Swords, County Dublin.
8. Irrespective of the existence of any oral agreement, condition 5 of the special conditions of the Contract provides, “it is hereby further agreed that this document contains the entire terms and conditions of the agreement between the parties hereto…..” I am satisfied that the Contract does contain the entire terms and conditions of the agreement between the parties in relation to the sale and purchase of the lands in folio 8328, County Dublin, and was not contingent on any purchase by the first named plaintiff of units at Kettles Lane, Swords, County Dublin.
9. The defendants contend that time was not of the essence in respect of the Closing Date and accordingly, in the absence of the service of a completion notice pursuant to condition 40 of the general conditions of sale, the plaintiffs were not entitled to commence proceedings for specific performance and obtain an order for specific performance of the Contract. They rely, in particular, upon general condition 40(d) which provides:
“Save where time is of the essence in respect of the Closing Date, the following provisions shall apply:”
(a) …
(d) if the Purchaser shall not comply with such a notice within the said period (or within any extension thereof which the Vendor may agree) he shall be deemed to have failed to comply with these Conditions in a material respect and the Vendor may enforce against the Purchaser, without further notice, such rights and remedies as may be available to the Vendor at law or in equity, or (without prejudice to such rights and remedies) may invoke and impose the provisions of Condition 41 ….”
Condition 41 refers to the right of a vendor to forfeit the deposit and resell the property.
10. Counsel for the defendants did not refer to any authority in support of the proposition that a vendor is obliged to serve a completion notice prior to commencing proceedings seeking an order for specific performance. The submission is contrary to the view expressed in Farrell, ‘Irish Law of Specific Performance’ (Dublin, Butterworths, 1994) at para. 8.38, where it is stated, “[a] plaintiff seems to be entitled to sue for specific performance once the agreed completion date has passed without making time of the essence”. Mr. Farrell refers, as authority for that statement, to an unreported decision of O’Caoimh P. of 18th May, 1973, Sidebottom Limited v. Leonard. In that decision, O’Caoimh P. stated:
“Now it has been argued that before a vendor can institute proceedings for specific performance of a contract when the time for completion has passed and the completion date has been not insisted upon by the vendor he must serve a notice making time of the essence. I know of no authority for this proposition. I accept that if the vendor wishes to enforce rights under the contract to forfeit the deposit he must make time of the essence and that in default of some notice it does not. Making time of the essence I think is a misdescription because time can never be made of the essence of a non-commercial contract unless the contract makes it such. I think this is the effect of Mr. Justice Harmon’s decision. What the notice can do is give to the other party notice that his failure to complete within a reasonable time specified in the notice will be treated by the other party as a refusal on his part to carry out the contract and that is what normally is meant by making time of the essence in a contract such as this, but I don’t think it is necessary there should be such a notice in the case of an action by a vendor, not to call off the contract and pocket the deposit, but merely to call upon the purchaser to do what he has engaged to do and I think the vendors are entitled to a decree for specific performance. On the whole I think it better not to say anything about title in the decree, just make a decree for specific performance.”
11. Whilst the contract for sale, the subject matter of the above decision, probably included an earlier version of the Law Society general conditions, I am in agreement with O’Caoimh P. and do not consider that general condition 40 in any way alters the entitlement of a vendor to bring proceedings, certainly after a closing date, where a purchaser has indicated an unwillingness to complete as he was contracted to do. On the facts herein, I find, on the evidence, that the purchasers, through their solicitors in the correspondence between 16th September, 2008, and the date of issue of the summons, had made clear that they were then unwilling to complete the purchase.
12. There is only a small difference in the evidence of the experts called by the plaintiffs and the defendants in relation to the alleged boundary discrepancy, as it was referred to, or perhaps more accurately, an uncertainty in relation to the boundary. The property comprised in folio 8328, County Dublin, is at present agricultural land with no difficulty identifying the precise boundaries on the ground in relation to the northern, eastern and southern perimeters. At the western perimeter, a stream runs along the entire length. The evidence is that on the ground, the eastern side of the stream is overgrown with thicket, hedgerows, bushes, etc. The steam is down a ravine of differing heights along the length of the perimeter. The Ordinance Survey maps indicate that the western boundary of folio 8328 is also the town land boundary. The Ordinance Survey map, from which the Property Registration Authority map is taken, identifies the western boundary as being “6′ [or now 1.83m] FF”. Mr. Bruffini, who gave evidence for the plaintiff, explains that this, on an Ordinance Survey map, means six feet from a fence. However, he also stated that in some instances there were no such fences, that what is being referred to is a hedgerow or similar.
13. Mr. Williams, a surveyor called by the defendants, gave evidence that on his reading of the Ordinance Survey maps and the Property Registration Authority map taken therefrom, including the above referred to explanation, the boundary line falls on the western side of the stream. Mr. Bruffini, by reason of the identification of the boundary at 6′ from a fence and by reason of the fact that the stream, as a matter of probability, is not uniformly 6′ wide along the length of the western boundary, stated that, in his view, the boundary line may fall at some points on the western side of the stream, but also if, for example, the stream were ten feet wide, it would fall in the stream. Also, that it depended on the distance of the stream from whatever is being referred to as the old fence or hedgerow. Mr. Williams also stated that there was evidence along the stream of some activity including cutting down of trees on the eastern edge of the stream by adjoining landowners.
14. I am satisfied, on the evidence of the surveyors, that as a matter of fact, it is not possible to identify precisely from the Property Registration Authority map where exactly the boundary falls in relation to the stream running along or adjacent to the western perimeter of the property. Whilst there are indications that it may be at the western edge of the stream, that is not certain.
15. In relation to the legal issues, it is common case between the parties that by reason of s. 85 of the Registration of Title Act, 1964 (as substituted by s. 62 of the Registration of Deeds and Title Act, 2006), the Property Registration Authority map is not conclusive as to the boundaries or extent of the land comprised in folio 8328. There, however, agreement ends.
16. The plaintiffs submit that they agreed to sell all the lands comprised in folio 8328, County Dublin, and are under no obligation to identify on the ground the precise boundaries of the property being sold, having regard, in particular, to condition 14 of the general conditions. They also submit, having regard to special condition 4, that it is a matter for the defendants to satisfy themselves as to the exact location of the western boundary on the ground. The plaintiffs further subit that they were, on 12th September, 2008, and at the date of issue of the plenary summons, ready, willing and able to complete the sale.
17. The defendants submit that there was, at least since 16th September, 2008, a genuine issue raised in relation to a possible discrepancy concerning the western boundary and that the plaintiffs are obliged to resolve this matter prior to being entitled to require the defendants to complete the sale. They also contend that the plaintiffs were not ready, willing and able to complete the Contract, as they were not in a position to give vacant possession of the entire of the lands in folio 8328 by reason of evidence of use or occupation by the adjoining landowners of an area on the eastern edge of the stream.
18. The plaintiffs also sought to rely on the fact that the defendants did not have finance in place to complete the Contract in September, 2008. On the evidence, I find as a fact, that the defendants did not have finance in place to complete the Contract in September 2008. Nevertheless, such finding is not relevant to the issues as to whether the plaintiffs were entitled to require the defendants to complete the Contract in September, 2008, and were themselves ready, willing and able to do so.
19. The Contract describes the property in sale as:
“All that and those the lands and premises situate at Killsallaghan, Rolestown, County Dublin, being all the property comprises (sic) in Folio 8328 of the register of Freeholders, County Dublin, held in fee simple”.
20. The document schedule contains folio 8328, County Dublin, and file plan 8328, County Dublin. There is no map attached to the Contract. General condition 14 provides:
“The Purchaser shall accept such evidence of identify as may be gathered from the descriptions in the documents of title plus (if circumstances require) a statutory declaration to be made by a competent person, at the Purchaser’s expense, that the Subject Property has been held and enjoyed for at least twelve years in accordance with the title shown. The Vendor shall be obliged to furnish such information as is in his possession relative to the identify and extent of the Subject Property, but shall not be required to define exact boundaries, fences, ditches, hedges or walls or to specify which (if any) of the same are of a party nature, nor shall the Vendor be required to identify parts of the Subject Property held under different titles.”
21. As already indicated, the only documents of title are the folio and file plan. The latter is not conclusive as to boundaries. There was no statutory declaration such as referred to in condition 14. It is not suggested that the plaintiffs had any other information in their possession relative to the identity or extent of the property. I am satisfied that in accordance with the express terms of condition 14, which forms part of the Contract and therefore the terms under which the defendants agreed to purchase the property, the plaintiffs are not required to define exact boundaries. In the light of this conclusion, it is unnecessary for me to consider the plaintiffs’ reliance on special condition 4.
22. I am also satisfied that the plaintiffs were ready, willing and able to complete the Contract on 12th September, 2008, and all material dates thereafter, up to and including the date of issue of the plenary summons. The admissible minimal evidence of work done by adjoining landowners on the eastern side of the stream does not, in my view, preclude a finding that the plaintiffs were able to deliver vacant possession of the property comprised in folio 8328, County Dublin. Even that evidence results from a survey in December 2008. Further, whilst evidence was sought to be given by the defendants of claims made by adjoining landowners in November 2008, those persons were not called. There is no admissible evidence of any such claim.
23. The solicitor for the defendants gave evidence of difficulties which he envisaged in the development of the property if the defendants were required to complete the purchase without precise identification of the western boundary on the ground. That may be so. However, the defendants entered into the Contract with the benefit of legal advice and are bound by its terms. Having regard to condition 14 of the general conditions to which they agreed, they are not entitled to require the plaintiffs to identify the boundary before being obliged to complete.
24. Accordingly, I am satisfied that the plaintiffs, if they had pursued a claim for same, would have been entitled to an order for specific performance of the Contract. As they have opted for damages in lieu of specific performance and having regard to the evidence of the defendants as to their present financial circumstances I consider I should exercise my discretion to award damages must determine the appropriate amount.
25. The damages to be awarded to the plaintiffs should be such as will put the plaintiffs in as good a position as if the Contract had been performed. There is no dispute that such is the principle. If the sale had been completed in accordance with the Contract, the plaintiffs would have received the balance of the purchase price of €5,670,000.00 on 12th September, 2008, or within a short period thereafter. They have not received this sum and by reason of the option taken at the end of the proceedings i.e. not to seek an order for specific performance they are, in effect, accepting the breach of contract by the defendants and now treating the Contract as discharged. The plaintiffs therefore retain the lands and must give credit for those lands at their current value against the gross loss of €5,670,000.00.
26. There is great difficulty in present market conditions in reaching a conclusion as to the probable current value of this property. Evidence was adduced on behalf of the plaintiffs from Mr. Greene and by the defendants from Mr. Duff, both valuers. Each valued the lands, having regard to potential development in accordance with the planning permission for eighteen houses obtained in August, 2008. Nevertheless, the evidence of Mr. Duff was that, at present, there is no market for the sale of a site such as these lands, or, indeed, for the sale of individual house sites if the property were to be laid out with roads and services and eighteen individual sites sold. Insofar as he placed a value on those individual sites, those values would only apply if the market picked up and finance becomes available. The evidence of Mr. Greene on this point was less explicit but nevertheless it was clear there was great uncertainty, in his view, of what is the current market value. He gave evidence of some recent sales of houses which he considered relevant to the prices used in his valuation. I am satisfied that both valuers genuinely attempted to assist the Court in a time of great uncertainty..
27. Mr. Greene approached the valuation of the site in two ways. First, if the property were fully developed and houses built in accordance with the planning permission obtained, for the detailed reasons given to the Court, including probable house prices and building costs, he formed a view that, taking into account a required contribution for social and affordable housing, the site has a current market value in the order of €1,884,000.00. In the context of a witness statement which had been delivered from Mr. Duff, he also considered a valuation upon a basis that approximately €300,000.00 would be spent to put services and roads on the lands and then eighteen individual sites sold off. On that basis, again with a contribution for social and affordable housing, he estimated the value of the entire site to be in the order of €2,102,000.00. There was some controversy in relation to VAT which if not applied, as he stated, might increase his value on this basis by a further €400,000.00 approximately.
28. Mr. Duff, on the other hand, expressed the view that if roads and services were put in the eighteen sites would then realise, on average, not less than €250,000.00 each and might even achieve €300,000.00. Taking into account the agreed sum of €300,000.00 for roads and services, and a social and affordable housing contribution in the order of €500,000.00, and using €250,000.00 this results in an estimated value of the site of €3.7 million. Nevertheless, as already stated Mr. Duff accepted that there is, at present, no market for the sale of this site at that price or the eighteen individual sites and an average of €250,000.00 each. Accordingly, this cannot be considered as a current market value but rather a potential value when the market picks up.
29. There was also evidence of a valuation of the site in 2005, before rezoning, at €1.8 million and, after rezoning, at €4.0 million. In Mr Greene’s view, current land values are now lower than 2005 values. He expressed a view that they were closer to 2003 or 2004 values. Unfortunately, I have no evidence of the value of this property or a comparable site in 2003 or 2004.
30. On all the evidence given by the valuers, I have concluded that the value of the property in sale has reduced from the price agreed in the Contract by more than 50%. I have concluded that the evidence given by Mr. Greene in relation to a current market value (with his VAT treatment) is at the lower end of a probable current value but that Mr Duff’s valuation is more significantly higher. I have determined that, in assessing the damages herein, the plaintiffs should give credit for the retention of the lands at a current value of €2.6 million. The balance due pursuant to the Contract was €5.670 million. This results in a net award of €3,070,000.00.
31. The remaining issue is that of interest. The plaintiffs claim interest pursuant to the Contract on the outstanding balance of €5,670,000.00. The rate of interest under the Contract is 8%. As damages are being awarded in lieu of specific performance, it appears to me that in accordance with the principle of putting the plaintiffs in the position they would have been if the Contract had been performed, and taking into account the fact that they now retain the property, interest should only be payable on the net amount of the award. If the Contract had been performed, completion should have taken place on 12th September, 2008, or within a short period thereafter. Having regard to condition 40 of the general conditions, and the fact that no completion notice was served, I have concluded that I should exercise the discretion given me by the Courts Act in relation to interest (also at 8%), to award the plaintiffs interest on the sum of €3,070,000.00 from the date of commencement of proceedings i.e. 9th October, 2008, pursuant to the Courts Act, (at the rate of 8%) until the date of judgment.
There will be judgment in favour of the plaintiffs against the defendants, jointly and severally, in the sum of €3,070,000.00, together with €175, 621.00 being my estimate of interest at 8% from 9th October, 2008, to the date of this judgment, giving a total of €3,245,621.00.
Geryani v O’Callaghan
[1995] 1 JIC 2501
Judgment of
Mr. Justice Declan Costello.
This vendor and purchaser summons relates to a Contract for Sale of property known as “The Coffee Deck” in Rathmines, Dublin. The property is held under a lease of the 26 February 1993 subject to a yearly rent of £12,000 (subject to review). The purchase price was £25,000 and a deposit of £2,500 was paid. The plaintiff is the vendor and claims that the defendant purchaser wrongfully rescinded the contract, that she served a valid Notice to Complete and that the deposit was forfeited in her favour. The main (but not the only) issue in the case is whether the contract was validly rescinded.
The dispute arose because a cafe business was carried on in the premises which were as a result subject to the provisions of the 1950 Food Hygiene Regulations made under the Health Act1947( S.I. No. 205 of 1950) which provide for registration of “Food Premises” and the keeping of a Register of “Food Premises” by the Health Board. Provision is made in these Regulations for a “provisional registration”, which may be obtained pending compliance with the Health Board’s requirement, such registration being permitted only for a six month period. The Health Board is required to notify an applicant for registration that the premises have been provisionally registered and inform the applicant of the measures to be carried out before registration can be effected (Article 40 (2)). Non-compliance with a Board’s requirements will result in non-registration. It is prohibited to carry on a “food business” contrary to the regulations.
In this case the defendant discovered after she signed the Contract and Requisitions had been answered that the premises were not registered but were subject only to a provisional registration. Full registration, it transpired, dependant on satisfactory compliance with 21 conditions required by the Board. When this was discovered she rescinded the contract. The vendor contested the defendant’s right to rescind and served a twenty-eight day notice to complete. This was not complied with and these proceedings followed.
(1) The Contract of Sale incorporated the General Conditions of Sale (1991 Edition) of the Law Society. The sale was of the property described in the Particulars, namely a groundfloor shop at Lower Rathmines Road held under a lease of the 26 February 1993 at the yearly rent of £12,000 “together with the goodwill of the premises and trade name”. By special condition (7) the sale price included the inventory of contents attached to the agreement. This inventory was headed “The Coffee Deck” at 1, Lower Rathmines Road, Dublin 6 and the list was of equipment such as display fridges, microwave equipment, toasters, boilers etc. which would be used in a cafe. The evidence establishes that the agreement was one for the sale of the cafe business as a going concern.
(2) The purchaser paid the deposit of £2,500.
(3) On the 12 November 1993 “Objections and Requisitions on Title” were sent using the August 1990 (Revised) Edition of the Law Society’s Objections and Requisitions. In reply on the 16 November 1993 the vendor’s solicitor struck out a number of the Requisitions contained in the printed form, including Requisition 31.
(4) On the 22 November 1993 a telephone conversation took place between the parties solicitors in the course of which the purchaser’s solicitor stated that they would make enquiries with the Health Authority relating to the property and required the vendor’s authority to inspect the Health Authority’s files relating to registration.
(5) This conversation was followed by a letter to the vendor’s solicitors in which the purchaser’s solicitors stated “Requisition 31 must be replied to in full”. The vendor’s solicitor replied on the 22 of November and referred to Requisition 30.21. This reads:-
“State whether the property has been registered with the Local Health Authority pursuant to the Food Hygiene Regulations 1950 as amended. If so, furnish evidence of such registration”.
The reply was “property has been registered with the Local Authority pursuant to the Food Hygiene Regulations 1950”. This was not correct.
“State whether any notice has been served by the Health Authority or whether the vendor or his agents have any information of an intention to serve any such notice”.
“No notice has been served by the Health Authority. Neither the vendor nor her agent has any information of an intention to serve any such notice.” This was also incorrect, as notification of 22 conditions has been served.
Requisition No. 31.22 reads:-
The reply was:-
(6) In addition to replying to Requisitions number 31.21 and 31.22 the purchaser’s solicitor referred in their letter to the telephone conversation which had taken place on the 22 of November and stated:-
“We confirm that our client is registered with the Eastern Health Board to run a coffee shop at the premises herein. We further confirm that there is no license attaching to the premises.
Our client has discharged the registration fee and has complied fully with the Food Hygiene Regulations. We note that you wish to take up an extract from the Food Hygiene Register of the Eastern Health Board and enclose herewith a copy of our client’s authority to enable you to do so”.
The letter went on go give the name of the official in the Health Board who should be contacted. This letter was incorrect. The premises were not registered and there was not full compliance with the Regulations.
(7) Requisition number 11 was headed “Notices” and asked the vendor whether any notice had been served or any notice of intention to serve any notice relating to the property under the Public Health Acts. The answer to this Requisition was “not to vendor’s of agents knowledge”. Sub-paragraph 2 require the vendor to furnish any notice so served and this was replied stating “none”. Sub-paragraph 3 required the vendor to state if notices had been complied with and the reply to this was “N/A” which presumably means “not applicable”. This information was also incorrect as the vendors application for registration had been answered by the notice requiring compliance with 21 conditions.
(8) After the telephone conversation on the 22 November the purchaser’s solicitor contacted the Health Board and ascertained that the restaurant was only registered provisionally, that provisional registration lasted only six months and the vendor was now in the second three months period of the provisional term. They were told that when provisional registration expired trading from the restaurant would be illegal. The Health Board confirmed that a notice had been served on the vendor which required that a number of matters be complied with. In the light of this information the purchaser instructed her solicitor to rescind the contract.
(9) By letter of the 24 November 1993 the purchaser’s solicitor rescinded the contract and requested a refund of the deposit.
2 (10)By letter of the 25 November 1993 (written before the letter of rescission was received) the vendor’s solicitor wrote correcting the information previously given. It was confirmed that the vendor was registered with the Board and “has received a three months provisional registration … same has been extended by an additional three months from the week commencing the 15 November 1993.” It confirmed that additional work should be done before full registration and went on:-
“We understand that these works are as follows: ”
A toilet and wash-hand basin must be installed in the premises together with a deep double sink”.
The letter went on to state that the vendor would carry out these works immediately. The information was also incorrect as a great deal more work was required to be done than that specified in it.
2 (11)By notice dated the 13 December 1993 the vendor purported to require the purchaser to close the sale. The purchaser refused to comply with this notice because of her claim that the contract had been rescinded.
3 (12)In addition to claiming rescission of the contract the purchaser claims to be entitled to the sum of £744.15 being professional fees incurred in relation to the sale.
4 (13)In fact the requirements of the Health Board were not accurately summarised in the letter of the 25 November. By a notice dated the 22 November 1993 the Board granted provisional registration for a further three months subject to compliance with outstanding conditions. Attached to the notice was a notice of “requirements for registration”. Numbers 1, 2 and 4, 8, and 9, 11 to 19 and 21 inclusive of these conditions were required to be met. These included the provision of a suitable stainless steel canopy with means of mechanical extraction, the provision of a smooth hard and durable surface on the floors, the making of the wall surface behind the cooking equipment heat resistent, the provision of shelving and a deep double sink, the provision of conduits for the electrical wiring and a wash-hand basin for use of food workers, the provision of male/female patrons sanitary accommodation and staff sanitary accommodation with mechanical ventilation, the walls to be provided with smooth durable cleanable surfaces and a staff cloakroom. In addition suitable facilities had to be provided for storage of cleaning equipment and self-closing devices were required to be fixed on the doors of water-closets.
The purchaser does not claim rescission-rights arising from incorrect replies to Requisitions. Her argument in support of her right to rescind is based on Clause 33 of the Contract of Sale (although a claim to rescind at common law was also advanced). This is headed “Errors” and provides in sub-paragraph (a) as follows:-
“Nothing in the Memorandum, the Particulars or the Conditions shall:-”
(i) Entitle the vendor to require the purchaser to accept or entitle the purchaser to require the vendor to assure (with or without compensation), property which differs substantially from the property agreed to be sold whether in quantity, quality, tenure or otherwise, if the purchaser or the vendor (as the case may be) would be prejudiced materially by reason of any such difference,
or,
(ii) Affect the right of the purchaser to rescind or repudiate the sale where compensation for a claim attributable to a material error communicated to him by or on behalf of the vendor cannot be reasonable assessed”.
I draw attention to the following aspects of this clause:-
(a) The purchaser’s right to rescission will arise when there is a difference “in quantity, qualify, tenure or otherwise” between the property agreed to be sold and the property which will be conveyed. Effect must be given to the words “otherwise” and this means that the misdescription or non-disclosure which has produced the difference on which the purchaser relies is not limited to matters of quantity, quality or tenure.
(b) The difference between the property agreed to be sold (whether in quantity, quality, tenure or otherwise) and the property to be assured must be substantial.
(c) The difference must materially prejudice the purchaser.
It seems to me that in this case the purchaser is entitled to rely on this clause for two separate reasons.
Firstly, there is a difference between the property which the purchaser agreed to buy and that which would be assured in that a considerable amount of work will have to be done to the premises if it is to be registered under the Regulations. The difference is substantial in that customer space will be reduced, which will have a substantial effect on the business carried on in the premises. This difference was materially prejudicial to the purchaser in that her financial position would be adversely effected, bearing in mind the very high rent of the premises and the considerable purchase price payable for them.
Secondly, the purchaser agreed to buy a property and a business in the property as a going concern. The purchaser could reasonably assume that the property was one in which the business could lawfully be carried on. Subsequent to the contract it transpired that the purchaser was required to accept a property in which in three months time it would be illegal to carry on such a business, unless substantial work was done to the satisfaction of the officials of the Health Board. This seems to me to be a difference of substance between the property which the purchaser agreed to buy and the property she was asked to take in that the property is subject to a risk that the cafe business she purchased could not be carried on in it. This risk was significant because the purchaser could not be certain that the vendor was financially capable of carrying out the requirements of the Health Board, or that she could be relied on to carry out the work to the satisfaction of the officials of the Board, particularly in the light of the untrue statements made in the course of the transaction. The purchaser was materially prejudiced by this difference because she was asked to make a substantial payment for a property which might prove useless to her and involve her in very substantial financial loss.
I am of the opinion, therefore, that the purchaser was entitled to rescind under the provisions of Clause 33. It is therefore unnecessary for me to consider whether, apart from the contract, the purchaser had a right at common law to rescind this contract.
In arriving at the conclusions outlined above I have impliedly rejected an argument advanced on the vendor’s behalf based on the doctrine of caveat emptor. It was said that there was no duty imposed on the vendor to disclose the fact that the premises were only provisionally registered under the 1950 Regulations, that the purchaser cannot complain, therefore, if the provisional registration is not what she wanted as had pre-contract inquiries been made by her solicitor she could have ascertained the situation.
The general rule of contract law is that a vendor is under no duty to disclose defects in the physical condition of the premises and is only required to disclose defects in the title which are latent. The purchaser, accepts that this is so and does not make the case that the general principles of contract law imposed any duty on the vendor to disclose either the notices served on her by the Health Board or the existence of the facts concerning the registration of the premises. The claimed right to rescission is based on the contract. In construing Clause 33 it is to be borne in mind that it is in a standard form which has been developed by the Law Society over the years. It establishes a contractual arrangement between the parties independent of any obligations imposed by general legal principles. As construed by me it imposes no new requirement of disclosure of any statutory notices issued under the Public Health Acts because such notices are required to be disclosed under the standard Requisitions published by the Law Society. But it does mean that if a vendor has knowledge of facts where non disclosure might confer contractual rescission-rights under Clause 33 prudence would suggest either pre-contract disclosure or that they be made the subject of special contractual conditions.
The general rule is that a purchaser who rescinds is entitled to recover his deposit and any legal expenses incurred in investigating the title to the property (McMahon -v- Gaffney 1930 IR 576, 587). But this general rule is subject to any agreed contractual terms. Clause 33 on which the purchaser relies in this case provides that:-
“(c) The Purchaser shall be entitled to be compensated by the Vendor for any loss suffered by the Purchaser in his bargain relative to the sale as a result of an error communicated by or on behalf of the Vendor” …
(An entitlement which is subject to a proviso which is not relevant in this case.)
“Error” is defined in sub-paragraph (d), but there was in this case no “Communication” of an “error” by the vendor to the purchaser which caused loss to the purchaser in this case. The purchaser cannot therefore rely on Clause 33 to recover the legal costs incurred.
Clause 37 is headed “Rescission” and provides that upon rescission in accordance with the provisions of the Contract that “the purchaser shall be entitled to a return of his deposit (save where it has been lawfully forfeited) but without interest thereon”. But this clause gives no right to recoupment of legal costs if rescission is made under Clause 33.
I must conclude that the contract does not permit the purchaser to claim her costs of investigating the title prior to rescission.
Greene and Another v Quinn
Circuit Court.
19 December 1940
[1941] 75 I.L.T.R 107
Judge Davitt
December 10 and 19, 1940
Vendor and Purchaser—Part of purchase money unpaid
*107
—Purchaser allowed into possession on date fixed for but before completion—Vendor’s title afterwards accepted—Delay in completion—Wilful default clause in contract for sale—Vendor in default in completion— Liability of purchaser to pay interest on unpaid balance of purchase money.
A purchaser who had not paid the balance of the purchase money went into beneficial possession of the premises sold on the date fixed for completion (17th May, 1940), but before completion, which was delayed owing to wilful default on the vendor’s part. The sale was completed on 29th August, 1940. It was held that the purchaser was liable to pay interest on the unpaid balance of the purchase money from the date of going into possession until the date of completion of sale.
Appeal from dismiss in Dublin District Court of vendors’ (plaintiffs) claim for interest.
The plaintiffs’ Civil Bill was as follows:—
“to answer the plaintiffs’ claim for £13 10s. 10d., being interest due from the defendant to the plaintiffs on the balance of the consideration stated in an agreement in writing dated the 14th day of May, 1940, between the plaintiffs (as vendors) for the sale to the defendant of the house and premises ‘Greenarms,’ Stillorgan Park, County Dublin. The said sum of £13 10s. 10d.—interest on £800 from 17th May, 1940, to 28th August, 1940, 103 days at 6 per cent.—is claimed pursuant to the defendant’s undertaking in the said agreement to pay the same in events which have happened and as money due from the defendant to the plaintiffs on foot of an account stated between them being an Apportionment Account dated 27th August, 1940.”
Judge Davitt allowed the following amendment to the plaintiffs’ Civil Bill:—
“In the alternative the plaintiffs claim the said sum as due to them by the defendant by virtue of the defendant’s having taken possession of and occupied the said premises on the 17th May, 1940, without paying the said balance of £800 or interest thereon or rent for the said premises.
In the further alternative the plaintiffs claim the said sum as due to them by the defendant for his use and occupation of the said premises.
In the further alternative the plaintiffs’ claim the said sum of £13 10s. 10d. as interest due on the said unpaid balance of £800 in the events which have happened.”
The following is the relevant portion of the contract, dated 14th May, 1940, out of which this litigation arose:—
The Vendors agree to sell and the Purchaser to purchase for the sum of One thousand pounds the House and Premises known as “Greenarms” Stillorgan Park in the County of Dublin. The Purchaser having paid a Deposit of Two Hundred Pounds (£200) to the Vendors’ Agents, Messrs. Hamilton & Hamilton on or before the signing of this Agreement shall pay the balance of the purchase money at the Office of Mr. J. C. Erskine the Vendors’ Solicitor on or before the 17th day of May 1940 and on payment of the balance of the purchase money the Purchaser shall be entitled to clear possession. If from any cause other than the wilful default of the Vendors the sale shall not be closed on said date the Purchaser shall pay Interest on the balance of the purchase money at the rate of 6% per annum until the actual date of completion.
An informal agreement had been entered into on 20th April, 1940.
The purchaser, at his own request, was allowed into beneficial possession of the premises on the 17th May, 1940, the date fixed for completion. The sale was not completed until 29th August, 1940, owing, as was afterwards held, to wilful default on the part of the vendors.
On 27th August, 1940, the vendors’ solicitor presented an Apportionment Account with the following claim:—“ Allow Vendors’ interest on £800 from 17th May, 1940, to 28th August, 1940, 103 days at 6%=£13 10s. 10d.”
On 29th August, 1940, the purchaser’s solicitor, who rejected the vendors’ claim, wrote as follows to the vendors’ solicitor:—
“Green & Anor. to Quinn.
“In relation to arrangements for closing the sale herein to-day and the dispute which has arisen in relation to the proper basis of apportionment, we acknowledge that you on your part will close without prejudice to your claim to interest on the purchase money from the date contracted for closing to present date.”
It was agreed to litigate the dispute in the District Court so as to avoid the expense of Vendor and Purchaser proceedings.
Counsel for the plaintiffs (appellants) submitted that the purchaser who took possession and accepted title must pay interest even if the vendors were in default. He referred to:—Williams on Vendor and Purchaser (1922, 3rd Ed.), Vol. 1, page 499— Purchaser taking possession before completion; —; Seaborne on Vendor and Purchaser *108 (1908, 7th Ed., page 274; 1914, 8th Ed., page 287)—“ The Court will always struggle to prevent the purchaser from receiving the rents and profits without any correlative liability to pay interest on his purchase money ; and it is conceived that even where, owing to the wilful default of the vendor, the purchaser is not liable to interest under the express condition, yet if he has been in possession, he may be liable to £4% interest …”; Halsbury on Specific Performance (Vol. 27, page 93, para. 164 and notes)—Interest on Purchase Money. Purchaser in Possession: He cited the following cases:—(1806) Fludyer v. Cocker, 12 Ves. 25 at 27; (1842) A. / G. v. Dean of Christchurch, 13 Sim. 214; (1851) Birch v. Joy, 3 H. L. Cas. 565 at 583; 590-1; (1880) Ballard v. Shutt, 15 Ch. D. 122 at 123/4, (1908) Beresford v. Clarke [1908] 2 I. R 317.
Liam Lysaght (Solicitor) for the defendant (respondent) referred to Halsbury on Specific Performance, Vol. 27, p. 93—Liability of Vendor. He cited:—In re Young and Harston’s Contract, 29 Ch. D. 691. See particularly Appeal in that case, 31 Ch. D. 168. Bennett v. Stone [1903] 1 Ch. 509. In re Hetling and Merton’s Contract [1893] 3 Ch. 269. Kershaw v. Kershaw (1869) L. R. 9 Eq. 56.
Judgment was reserved.
Judge Davitt:
I have in this case already given my decision against the plaintiffs on their claim as set forth in their Civil Bill, but I have allowed them to amend their process by claiming as follows:—
(Reads Amendment.)
The facts are not in dispute. By agreement dated the 14th May, 1940, the defendant agreed to purchase from the plaintiffs the dwellinghouse and premises known as “Greenarms,” Stillorgan. The price was £1,000 and £200 was paid as deposit. In fact agreement had been reached between the parties, the defendant’s solicitor had had inspection of the documents of title and had in fact raised 34 requisitions, and the deposit had been paid before the agreement to purchase had actually been signed. These facts explain why though signed only on the 14th May, 1940, the agreement provided that the sale should be completed a few days later, on the 17th May, 1940. It was not completed until the 29th August, 1940. This I have found to be due to the wilful default of the vendors.
Although according to the terms of the agreement the defendant was not entitled to possession until the completion of the sale and the payment of the balance of the purchase money, he in fact was allowed into possession on the date originally fixed for completion, viz. 17th May, 1940. This was due to the circumstance that he was selling his previous dwellinghouse. He was raising the balance of his purchase money by way of loan from his bank.
The parties came to no express agreement with regard to the payment of interest, in the events that have happened, upon the unpaid balance of the purchase money and their respective rights and liabilities in regard to the matter have to be implied from the circumstances.
I have read the cases cited to me by Counsel on behalf of the plaintiffs (appellants), and by Mr. Lysaght on behalf of the defendant. Those cited by Mr. Lysaght are relevant mainly to the plaintiffs’ claim as originally framed and have served to persuade me to decide against the plaintiffs on that claim.
From the cases cited by Counsel for the appellants it appears to me to be abundantly clear that in the circumstances of this case, the law, or to be strictly accurate, equity will imply an agreement by the purchaser to pay interest on the balance of the purchase money. The general rule appears to be that where a purchaser is allowed into possession before completion equity will imply such an agreement unless there is something in the express agreement between the parties, or otherwise in the circumstances, to negative such an implication. In this case there is nothing in the express agreement between the parties to negative such an implication.
Mr. Lysaght was able to suggest only two circumstances as tending to negative the implication. The subject matter of the purchase was a dwellinghouse and there were no actual rents and profits into receipt of which the purchaser could enter, and from the date he took possession he discharged all outgoings.
I am quite satisfied that these circumstances do not negative the implication of an agreement to pay interest.
If the sale had in fact been completed on the 17th May, 1940, the defendant as from that date would have been entitled to possession, been liable to discharge all outgoings, and would have had to pay the balance of his purchase money. On one side of the account there was possession without, it is true, any actual rents and profits, but with what amounted to as much, viz. the right to the beneficial occupation of the premises as a dwellinghouse. On the other side was the liability to outgoings and the obligation to part with £800, the balance of the pur *109 chase money and the loss of the actual or notional interest thereon.
By the case he makes the defendant seeks to be put in a better position than he would have occupied had the sale been completed as agreed on the 17th May, 1940. Since that date he has enjoyed the benefits of ownership, viz. the beneficial occupation of the dwellinghouse, together with its liabilities, the obligation to discharge the outgoings. He has had in addition the use of the £800 for the 103 days from 17th May, 1940, to the 29th August, 1940. If he is not liable to pay interest then, regarded equitably, the position is this:—Either he is not paying the agreed purchase price, £1,000, but only £1,000 less the interest on £800 for 103 days, or else he has enjoyed free occupation of the dwellinghouse for 103 days.
If the defendant had had to maintain the £800 at call so as to be ready to pay it to the vendors whenever they were in a position to make title, he could have lodged the money in his bank and notified the plaintiffs to the effect that as he had so to maintain the money earning a small amount of interest he would be liable to them for no greater amount of interest. In those circumstances no Court of Equity would imply an agreement by him to pay any greater amount of interest to the plaintiffs. This, however, he did not do. So far from lodging any sum in the bank he was borrowing the balance of the purchase money from the bank. If completion had taken place on the 17th May, 1940, he would have had to pay interest on the amount borrowed as from that date. In fact he has had to pay interest only from the 29th August, 1940.
In my opinion, so far from there being anything in the circumstances negativing the implication of an agreement by the purchaser to pay interest every circumstance of the case favours such an implication. In my opinion, it would be manifestly unfair and inequitable not to hold that the defendant should pay interest.
In all the circumstances of the case it appears to me that the plaintiffs are entitled to interest on the £800 for 103 days at the usual 4% rate This by my arithmetic works out at £9 0s. 7d.