Invalid agreement to sell house – Parties deferring completion for five years – Buyer taking immediate possession but failing to keep to agreed timetable of payments – Seller evicting buyer – Buyer seeking to recover payments made prior to eviction – Whether claim supportable on basis of total failure of consideration
In or about early 1989 the defendant purchased his council house in Stamford Hill, London, under the right to buy provisions of the Housing Act 1985, thus incurring an obligation to refund a proportion of the discount in the event of reselling within the three years immediately following the purchase. The purchase price of £43,000 was funded by a mortgage loan from a building society. On August 2 1990 the parties, having agreed in principle to a resale of the house to the plaintiff for £83,000, entered into a professionally drawn agreement whereby the plaintiff would: (i) make a payment to the defendant of £14,000 on exchange of contracts; (ii) obtain vacant possession on such exchange; (iii) make a further payment of £6,000 within 28 days of exchange; (iv) make a further payment of £15,000 within four months of exchange; (v) indemnify the defendant in respect of payments made by the defendant to the building society; and (vi) be entitled to call for completion not earlier than five years after exchange. The plaintiff went into possession, began to prepare the house for letting, and made the first two payments agreed upon. However, on falling into financial difficulties, the plaintiff failed to pay third tranche of £15,000, thus prompting the defendant to move back into the house on January 28 1991. The plaintiff commenced proceedings in September 1991, but the action progressed slowly over the next five years. At the trial it was common ground that the 1990 agreement was void for non-compliance with the requirements of section 2 of the Law of Property (Amendment) Act 1989 and that the sole issue was whether the plaintiff had a good claim for the sum of £20,000 as money had and received for a consideration which had totally failed. The defendant, relying upon Hunt v Silk (1804) 5 East 449, contended that there had been no such failure as the plaintiff had enjoyed possession for a period of nearly five months.
Held Judgment for the plaintiff.
1. The argument advanced by the defendant had been very recently considered and rejected by the Court of Appeal in Guinness Mahon & Co Ltd v Kensington and Chelsea Royal London Borough Council The Times, March 2 1998, holding that, where the contract (unlike the contract in Hunt) was void from the outset, it was the very invalidity of the contract which constituted the total failure. The fact that the contract in Guinness was void for a different reason (inability of local authority to enter into interest rate swap) was immaterial.
2. It followed that the partial performance by the defendant, in letting the plaintiff into possession, was no bar to recovery as the plaintiff had not obtained the legal right contracted for. The value of the possession enjoyed could in principle have been taken into account when determining the net amount recoverable; however, the defendant had led no relevant evidence on that point.
Christopher Spratt (instructed by Abrahamson & Associates) appeared for the plaintiff; Ivan Clarke (instructed by Kenneth Beavis & Co) appeared for the defendants.
