Vendor and purchaser — Vendors’ refusal to complete — Whether binding contract — Authority of vendors’ agent — Action by purchaser against vendors for specific performance and against agent for breach of warranty of authority — Measure of damages — Purchaser had negotiated with the vendors, a husband and wife, for the purchase of the vendors’ house — During the period of routine conveyancing it was the wife who dealt mainly with the matters arising, English being her native language whereas the husband was an Iranian — The time came when the husband had to make a visit of some weeks to Iran and was thus out of contact with the progress of the sale — During this period the stage for the exchange of contracts was reached and there was a conflict of evidence as to whether the wife by telephone purported to authorise the vendors’ solicitor to sign and exchange the contract on the joint behalf of the husband and wife — The judge accepted the solicitor’s evidence that he understood that he had been given full authority by the vendors to sign and exchange
concluded that there was no binding contract in existence for the sale of the
house to the purchaser — Although the wife had given her express authority to
the solicitor, the husband had given no authority of any kind; and authority
from both vendors was required — The solicitor was liable to the purchaser for
breach of warranty of authority and he was not entitled to be indemnified by
the wife — Damages payable by the solicitor would be calculated on the difference
between the contract price and the value of the house at the judgment date, not
the value at the completion date, the former amount being considerably higher
than the latter — The judge discussed at some length the reasons for this basis
of calculation — Generally, the judge indicated that he was ‘less than happy’
with the result — The solicitor was the loser although he had done his best to
assist his clients, taking a risk in so doing, with unfortunate consequences
for him
The following
cases are referred to in this report.
Armagas
Ltd v Mundogas SA [1986] AC 717; [1986] 2
WLR 1063; [1986] 2 All ER 385, HL
Bain v Fothergill (1874) LR 7 HL 158, HL
Chitholie
v Nash & Co (1974) 229 EG 786
Freeman
& Lockyer v Buckhurst Park Properties
(Mangal) Ltd [1964] 2 QB 480; [1964] 2 WLR 618; [1964] 1 All ER 630, CA
Johnson v Agnew [1980] AC 367; [1979] 2 WLR 487; [1979] 1 All ER 883,
(1979) 38 P&CR 424; [1979] EGD 969, 251 EG 1167, [1979] 2 EGLR 146, HL
Wroth v Tyler [1974] Ch 30; [1973] 2 WLR 405; [1973] 1 All ER 897;
25 P&CR 138
In these
proceedings the plaintiff, Mr Suleman, claimed specific performance against the
defendants, Mr and Mrs Shahsavari, of an alleged contract for the sale to him
of a house at 25 Tylecroft Road, London SW16. He added a claim in respect of
breach of warranty of authority against the third defendant, Mr Martinez,
solicitor for the first and second defendants. Mr Martinez contended that if he
were held liable in damages to the plaintiff he should be indemnified by Mrs
Shahsavari, who had purported to give him authority to sign and exchange the
contract.
William
Geldart (instructed by Robin Murray & Co) appeared on behalf of the
plaintiff; Brian Hurst (instructed by M S Miller & Co) represented the
first and second defendants; Patrick Hamlin (instructed by Willey Hargrave)
represented the third defendant.
Giving
judgment, MR ANDREW PARK QC said:
Introduction
25 Tylecroft
Road, London SW16, is a three-bedroom terrace house in Norbury. This case is
about a sale of it which went comprehensively wrong and has ended up in this
court. The facts are quite complex and partly in dispute. Several legal issues
arise. The result is the depressingly long judgment which follows.
In the barest
outline the case arises this way. The house was owned by Mr and Mrs Shahsavari,
the first and second defendants. They put it on the market and Mr Suleman, the
plaintiff, agreed to buy it. Contracts were exchanged, the vendors’ part being
signed by their solicitor, Mr Martinez, the third defendant, as their agent. Mr
and Mrs Shahsavari refused to complete. Mr Suleman claimed specific performance
against them. They resisted the claim on the grounds that they had not signed
the contract and Mr Martinez was not authorised by them to sign it as their
agent. Mr Suleman then added a claim against Mr Martinez for damages for breach
of warranty of authority. Mr Martinez says that he was the authorised agent of
the Shahsavaris, but agrees that, if he were not, he is liable to Mr Suleman in
damages. He says, however, that the damages should be the difference between
the contract price and the value of the house at the completion date, not (as
Mr Suleman claims) the difference between the contract price and the value of
the house at judgment. Mr Martinez also says that, if he is liable in damages
to Mr Suleman, he is entitled to be indemnified by Mrs Shahsavari.
I therefore
list the questions which I have to determine and, with a view to making the
thread of this judgment more readily comprehensible, the conclusions which I
have reached on them.
1 Was there a contract binding Mr and Mrs
Shahsavari to sell the house to Mr Suleman?
Conclusion: No. Therefore Mr Suleman’s
claim against the Shahsavaris for specific performance or damages in lieu
fails.
2 Is Mr Martinez liable in damages to Mr
Suleman for breach of warranty of authority?
Conclusion: Yes. Given my conclusion on
1, it is common ground that this follows.
3 Are the damages calculated by reference to
the difference between the contract price of the house and its market value at
(i) the completion date or (ii) the judgment date?
Conclusion: The judgment date.
4 Is Mr Martinez entitled to be indemnified
by Mrs Shahsavari?
Conclusion: No.
As I indicate
at the end of this judgment, there are aspects of these conclusions which leave
me far less than happy. They are nevertheless the conclusions to which I
believe I must come on the evidence and the law.
The
detailed facts
Mr and Mrs
Shahsavari bought 25 Tylecroft Road in (I think) 1983 for £24,950. They raised
a mortgage of £21,900 to finance the purchase, and later borrowed some £2,000
from their bank to pay for
deposit of over £2,000 from Mrs Shahsavari’s grandmother, a Jamaican lady who
lived with them in the house.
In the autumn
of 1985 Mrs Shahsavari’s grandmother decided that she did not wish to stay
indefinitely in this country and that she would like to go to live with a
daughter, Mrs Shahsavari’s aunt, in New York. She naturally did not want to be
a financial burden on her daughter and asked Mr and Mrs Shahsavari if they
could repay her loan in order that she should have some money when she went to
live with her daughter. Mr and Mrs Shahsavari thought, rightly or wrongly, that
they could not borrow any more money from other sources to repay the
grandmother and therefore decided to put the house on the market. This they
did, initially at an asking price of £49,950. The house stuck for a while; then
there was one offer which looked like it would proceed to a sale but fell
through. By April of 1986 the asking price had been reduced to £46,950.
This was the
stage when Mr Suleman entered the narrative. He was living with his wife and
two children in a flat at his brother’s house not far away and wanted to buy a
house himself. He learned that 25 Tylecroft Road was on the market through the
estate agents, Jackson Property Services. It was in the right area for him and
had the sort of accommodation he wanted. He went to see the house on April 28
1986. Only Mrs Shahsavari was at home. Mr Suleman liked the house but asked if
the price could be reduced. Mrs Shahsavari replied that she would have to ask
her husband and Mr Suleman should come back the next day.
When he came
back he was told that the price could be reduced by £450 to £46,500, and he
agreed to buy at that figure. There was a conflict of evidence over whether Mr
Shahsavari as well as his wife was present on this occasion (Mr Suleman saying
he was not, Mr Shahsavari saying he was). This does not really bear on any
issue I have to decide and I make no finding about it.
Mr Suleman,
having agreed the sale and the price with Mrs (and possibly Mr) Shahsavari,
went immediately to Jackson Property Services and paid them £250 by way of
pre-contract deposit of earnest money. They then sent details of the proposed
sale to Mr Martinez, who was to act as solicitor for the Shahsavaris. He had
first been introduced to them in connection with the previous sale which had
fallen through. He practises as sole proprietor of M D Martinez & Co at
Catford, which is quite some distance from Norbury.
The normal
processes of a routine conveyancing transaction then started, involving matters
such as Mr Suleman’s arranging his mortgage, pre-contract inquiries, submission
of a draft contract etc. On occasions when Mr Martinez needed to communicate
with his clients, Mr and Mrs Shahsavari, he did so by letter addressed to both
of them. They communicated with him not by letter but by telephone, and invariably
it was Mrs Shahsavari who made the call. One explanation of this may be that Mr
Shahsavari is an Iranian. Thus, while his English is perfectly adequate, it is
not his native language, whereas it is his wife’s and she was better able to
deal with the detailed points that cropped up from time to time. However, Mr
Martinez certainly — and understandably — formed the impression that, while his
clients were the husband and the wife, it was the wife with whom he was in
practice dealing.
The replies to
the pre-contract inquiries by Mr Suleman’s solicitors were drafted by Mr
Martinez. He sent them to Mr Suleman’s solicitors on June 12, but at the same
time he sent a copy to Mr and Mrs Shahsavari, telling them in his covering
letter that they should read the replies carefully and inform him immediately
if any of them were not correct. One inquiry was: ‘When will the Vendor be able
to complete the sale of the Property to the Purchaser’. Mr Martinez’s reply
was: ‘The contract will provide, but soonest.’
Mr and Mrs Shahsavari did not communicate to him any dissent from that
reply. The reply reflected the circumstance that Mr and Mrs Shahsavari had no
dependent purchase — that is, they were not in a chain of purchases and sales
where the completion of their sale had to be timed to coincide with a purchase
of another house. Mr Martinez had ascertained this at an early stage and took
great care to advise Mr and Mrs Shahsavari that, when they completed their
sale, they would have to have arranged for somewhere else to live.
The
conveyancing process continued without any particular urgency, but also without
any indication to Mr Martinez that the Shahsavaris were other than wholly
committed to their sale. Indeed, Mr Martinez said in evidence that he was
telephoned two or more times a week by Mrs Shahsavari, inquiring about progress
and urging expedition. In accordance with his usual practice he did not make
attendance notes of ‘chaser’ calls like this.
Then on June
26 an important event happened. Mr Shahsavari went to Iran, where his mother
had been ill. He was not expected back until July 28 and in the meantime was
out of contact. Both he and his wife said that, before leaving, he told her not
to sign anything about the house.
Nevertheless,
in his absence exchanges between his wife and Mr Martinez continued. Mr
Martinez kept attendance notes of two telephone conversations. One was on July
3. The note relates to two matters on which Mr Suleman’s solicitors had made
inquiries — a timber damp-proof guarantee and planning permission for the
kitchen extension. The note reads in part:
Gave detail
for above. Asked if it would delay matters. Said obtaining copy of P/P
[planning permission] could well do. She stressed must sell by end of July
1986. Does not want any delays.
I accept this
is an accurate summary of the conversation.
On July 7 Mr
Suleman’s solicitors telephoned Mr Martinez to say that the contract was
approved and they were ready to exchange. They confirmed this by letter the
same day.
Then on July 8
there was a critically important telephone conversation between Mr Martinez and
Mrs Shahsavari. The accounts of it given to me by each of them differed
fundamentally. Mrs Shahsavari’s version was that she explained that she was
going to accompany her grandmother to New York on July 10. She could not sign
anything on behalf of her husband. Nothing was to be signed while they were
both away, but Mr Martinez should have the documents at his office ready for
signature at the end of the month, when she and her husband would call at the
office. Nothing was said about Mr Martinez’s signing the contract on behalf of
the two of them.
Mr Martinez’s
attendance note, which he wrote during the call or immediately afterwards,
reads as follows:
Spoke to
Client re Completion — Authorised to sign contract. Complete transaction after
return on 31/7/86. Try for latest date in August — last week or 3rd week.
Mr Martinez
said that he recalled the conversation quite well. This seems to me entirely
likely, given the exceptional nature of the transaction. He supplemented the
attendance note by evidence to the following effect. Mrs Shahsavari telephoned
him to say that she was leaving the country on July 10. He told her that the
contract was ready to be signed. She was ‘still just as anxious to get on with
things’. There were two potential snags: first, her husband was away and could
not sign the contract; second, she could not get to Mr Martinez’s office
herself before leaving on the 10th and did not want to risk the contract not
arriving in the post. On the first point, Mr Martinez said that Mrs Shahsavari
could sign the contract on her husband’s behalf. On the second point, he
suggested that she could authorise him by telephone to sign and exchange the
contract on their joint behalf. He took care to ensure (as he had done before,
for example in a telephone conversation confirmed by a letter of June 12) that
she understood the significance of exchange of contracts and completion and was
satisfied that she did indeed understand. The attendance note refers to completion
in late August. That was at his suggestion in order to ensure that after Mr and
Mrs Shahsavari returned to this country, they would have enough time to make
alternative living arrangements before moving out of the house.
As between the
two accounts of the telephone call I accept that of Mr Martinez. I regard it as
inconceivable that he would have falsified the attendance note, and indeed
counsel for Mr and Mrs Shahsavari did not suggest that he had. I am also
satisfied that Mr Martinez reasonably understood Mrs Shahsavari to have
authorised him to sign and exchange the contract. I do not say that Mrs
Shahsavari gave deliberately false evidence to me. Indeed she appeared
passionately to believe her account. However, it is a matter of common
experience in litigation that parties reconstruct events in their own minds,
and two witnesses, each of transparent sincerity, give irreconcilable
descriptions of the same event. I think that Mrs Shahsavari did understand what
she was telling Mr Martinez at the time, but I also think that it was not long
before her grasp of what she had done slipped. In the course of her evidence
before me her comprehension of the significance of and difference between
exchange of contracts and completion seemed to vary from time to time. I
believe that when she was talking to Mr Martinez she knew, with his guidance,
that she was authorising him to conclude a contract, but I also believe that,
not long after the telephone call, she no longer realised what she had done.
That was the
vital telephone conversation of July 8. Nothing specific happened on the 9th,
but on the 10th there took place the signature and exchange of contracts which
has resulted in these proceedings. The exchange took place over the telephone
between Mr Martinez and Mr Suleman’s solicitors, following Law Society Formula
B, as permitted by the special conditions of sale in the contract. The process
happened at 12 noon. Mr Martinez was speaking on the telephone to Mr Suleman’s
solicitors. They held Mr Suleman’s part of the contract already signed. Mr
Martinez, in exercise of the authority he thought he had, signed Mr and Mrs
Shahsavari’s part. The two solicitors then agreed to the exchange over the
telephone. Completion was to be on September 5, which suited Mr Suleman better
than late August.
Immediately
after the exchange by telephone Mr Martinez telephoned the estate agents,
Jackson Property Services, and informed them. He also dictated a number of
letters, including one to Mr and Mrs Shahsavari, which read:
Dear Mr and
Mrs Shahsavari,
Re: 25
Tylecroft Road
In accordance
with your instructions contracts have been exchanged in connection with your
sale and completion is now to take place on September 5 1986. You should make
arrangements to move out of the property on that day when we will be put in
funds by the purchaser’s solicitors.
Yours
faithfully
M D Martinez
July 10 was
also the day when Mrs Shahsavari went to America with her grandmother. She said
that a taxi was at her door to take them to the airport when the telephone
rang. It was Jackson Property Services congratulating her on the exchange of
contracts. Her evidence was that she was taken aback and rang Mr Martinez from
the airport, not having been able to ring from home because the taxi was
waiting. Mr Martinez told her that it was nothing and that everything was
settled for July 31. Mr Martinez has no note or recollection of this telephone
call, and I am not satisfied that it took place. It is most unlikely that he
would not have noted it, or would have forgotten it, if he was being told that
he had made a mistake in signing and exchanging the contract. His letter which
I have quoted above (and which, though dictated on the 10th, was not typed
until the 11th) would surely have taken a very different form.
From July 10
to 28 Mrs Shahsavari was in America, staying with her aunt. In the course of
her stay it emerged that her aunt was entirely happy to support her (the
aunt’s) mother, and the perceived need for Mr and Mrs Shahsavari to repay the
loan in full at an early date disappeared. Mrs Shahsavari said that this made
her very happy, because it meant that they no longer needed to sell the house.
I think that she may well have felt exactly that way, having by then completely
reconstructed in her mind what she had told Mr Mattinez before she left.
Mr Shahsavari
returned from Iran on July 27 and Mrs Shahsavari returned from America on the
next day. They found waiting for them Mr Martinez’s letter which I quoted
earlier and a later letter enclosing a form of transfer for execution by them.
Mrs Shahsavari said that she at first thought this was simply a form of
contract which they were no longer going to sign. She was annoyed because Mr
Martinez sent it to the house instead of keeping it at his office. In any
event, Mr and Mrs Shahsavari very soon made it clear both to Mr Suleman and to
Mr Martinez that they no longer needed to sell and were withdrawing from the
transaction. Both responded to the effect that it was too late to withdraw
because contracts had been exchanged.
There were a
few further letters exchanged, and two or three telephone conversations between
Mr Martinez (or a member of his staff) and Mrs Shahsavari, but it was not long
before proceedings were commenced. Initially, Mr Suleman applied against Mr and
Mrs Shahsavari for summary judgment for specific performance under Ord 86.
However, when they applied for leave to defend on the ground that they had not
signed the contract and Mr Martinez was not authorised to sign it as their agent
the application for summary judgment was not proceeded with. Mr Martinez was
brought into the case as the third defendant. Various amendments to the
pleadings were made (including two of major importance in the course of the
trial), and the various issues which I have to determine were identified. To
those issues I now turn.
Legal
issues — general
There are
three general points which it might be convenient to make at this stage.
First, I ought
to refer to section 40 of the Law of Property Act 1925, if only to say that no
point arises under it. The section does of course require a contract for the
sale of land to be in, or evidenced by, writing which must be signed; but the
writing can be signed either by the vendor ‘or by some other person thereunto by
him lawfully authorised’. The vendor’s agent can therefore sign on his behalf.
Further, the section does not require the agent to be authorised in writing. If
Mr Martinez were authorised orally by Mr and Mrs Shahsavari to sign the
contract, then his written signature would be sufficient to comply with section
40.
Second, this
case is of course wholly embedded in the law of agency. It is important to
appreciate that relevant issues of fact and law arise in relation to two wholly
separate agencies which may or may not have existed. The first is Mr Martinez’s
agency (or absence of it) to act on behalf of Mr and Mrs Shahsavari. The second
is Mrs Shahsavari’s agency (or absence of it) to act on behalf of her husband.
It might be added that the first of the two itself subdivides into two further
parts: (a) What was Mr Martinez’s position as agent or otherwise for Mrs
Shahsavari? (b) What was his position as
agent or otherwise for Mr Shahsavari?
Third, when
there is a dispute arising from a situation where A is said to have been an
agent for P and in that capacity to have made a contract with C, the questions
which may arise appear to me to be the following, in the following logical
order.
(1) Express authority. Did A have express
authority from P to make the contract?
If so, P is bound to C by the contract.
(2) Implied authority. Did A have implied
authority from P to make the contract?
If so, P is bound to C by the contract.
(3) Apparent or ostensible authority. Did A have
apparent or ostensible authority from P to make the contract? If so, P is bound to C by the contract.
(4) Warranty of authority. In a case where A had
neither express nor implied nor ostensible authority from P, so that P is not
bound to C by the contract, did A nevertheless represent to C (or is he
presumed to have represented to C) that he was authorised by P to make the
contract? If so, C has a claim for
damages against A for breach of warranty of authority.
Implied
authority (referred to in question 2) is very similar to express authority
(referred to in question 1) in that both are kinds of actual authority. The
difference is that in express authority specific words are used by P to
authorise A to make the particular contract, whereas in implied authority,
although specific words are not used, the law implies from the nature of the
relationship that A does in fact have P’s authority to make the contract
without the need for the authority to be specifically expressed. A
non-controversial example might be that, where a solicitor (A) is instructed by
a client (P) to act for P in a house purchase the solicitor has implied
authority from P to obtain searches from the local authority and to incur
whatever expense is thereby involved.
Apparent or
ostensible authority (referred to in question 3) differs fundamentally from
implied authority, because it is a case where in fact there was no actual
authority, express or implied, but nevertheless P is liable to C because by
words or conduct he held A out as having authority from him (from P, that is), and
is estopped from saying that in truth A never had the authority. Apparent
authority normally applies to acts which the sort of agent A is alleged to be
usually enters into in the course of his business: (see per Diplock LJ
in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964]
2 QB 480 at p 505, described as ‘the locus classicus on the subject of
ostensible authority’ by Robert Goff LJ in Armagas Ltd v Mundogas SA [1986]
AC 717 at p 731. Cases of this type were described as ones of ‘ostensible
general authority’ by Lord Keith of Kinkel in the House of Lords in the Armagas
case (supra at p 777). In theory there could also be ‘ostensible
specific authority’ arising in a ‘one-off’ situation: ie A does something which
it is not usual for agents of his kind to do; he has no actual or implied
authority from P to do it; yet P in some way held A out to C as having
authority to do it. However, Lord Keith said that cases of ostensible specific
authority ‘must be very rare and unusual’.
In many of the
reported cases the aspect of breach of warranty of authority is not gone into
at all, because A may have disappeared or may not be worth suing. In principle,
however, it is always a question which should at least be considered where P is
not bound to C by the contract because A did not have any of the required forms
of authority.
I now proceed
to the specific issues which I have to decide.
Mr
Suleman’s action against Mr and Mrs Shahsavari
Mr Suleman’s
preferred remedy is a decree of specific performance against Mr and Mrs
Shahsavari. The crucial question is whether the Shahsavaris are bound by the
contract signed by Mr Martinez as their agent: this of course depends on
whether he had any form of authority — express, implied or ostensible — to sign
the contract on their behalf. Mr Geldart (counsel for Mr Suleman) and Mr Hamlin
(counsel for Mr Martinez) say that he had express or implied authority. Mr
Hurst (counsel for Mr and Mrs Shahsavari) says in the alternative: (i) he had
no authority at all, and indeed was expressly instructed by Mrs Shahsavari not
to sign and exchange the contract; or (ii) if he had authority from Mrs
Shahsavari, he did not have any form of authority from Mr Shahsavari, and,
since authority from both vendors was required, there was no contract which
bound them.
I will first
deal with Mr Hurst’s first argument. I reject it because, as I have said
earlier, I accept Mr Martinez’s evidence about the telephone call on July 8. I
therefore take the view that Mr Martinez had express authority from Mrs
Shahsavari to sign and exchange the contract.
Mr Hurst’s
second argument, however, based on the absence of authority from Mr Shahsavari,
is a different matter, and I have concluded that I must accept it. Before
saying why I consider that there was no sufficient authority from Mr
Shahsavari, I should say this: neither Mr Geldart nor Mr Hamlin has disputed
the proposition that, if Mr Martinez was authorised by Mrs Shahsavari but not
by Mr Shahsavari, there is no contract. It has not been suggested to me that
there could be a contract which bound Mrs Shahsavari, and on which she is
liable in damages. I think this must be right. Suppose that, instead of an
exchange of part and counterpart, a single contractual document was drawn up,
to be signed by all three; Mr Suleman and Mrs Shahsavari signed it, but Mr
Shahsavari refused to sign. There would have been no contract. The position is
the same if Mr Martinez had no authority from Mr Shahsavari.
I now consider
the three possible kinds of authority as between Mr Shahsavari (the alleged
principal) and Mr Martinez (the alleged agent).
(a) Express authority. Mr Shahsavari never spoke
or wrote directly to Mr Martinez. I am asked, however, to find that he gave his
wife authority, express, implied or ostensible, to sign and exchange a contract
of sale as his agent (which authority, if given, would extend to authorise Mrs
Shahsavari, as Mr Shahsavari’s agent, expressly to authorise Mr Martinez, as
agent for both of them, to conclude a contract of sale with Mr Suleman). I
cannot make any such finding. The burden of establishing an authority from Mr
Shahsavari to Mrs Shahsavari must rest on those who assert it, that is Mr
Suleman and Mr Martinez. In the nature of things, they can give no evidence of
express authority from the husband to the wife. Indeed, both the husband and
the wife gave direct evidence to exactly the opposite effect. Even though I
have reservations about some aspects of the Shahsavaris’ evidence, I am not
prepared to find an express authority of which there is no positive evidence at
all and which they both deny.
I certainly accept that Mr Shahsavari authorised his wife in a
general way to represent both of them in connection with many aspects of the
sale such as dealing with inquiries from Mr Martinez and talking to Mr Suleman.
He also authorised her to swear an affidavit on behalf of the two of them in
the Ord 86 application. I cannot, however, infer that he authorised her, either
expressly or impliedly, to conclude a binding contract as his agent. It is of
some significance that, when Mr Suleman asked for a reduction below the asking
price of £46,950, Mrs Shahsavari did not deal with that herself but had to
discuss it with her husband. Concluding a binding contract was of at least as
much importance. Mr Hamlin submitted that agreement subject to contract was the
vital stage and may have required Mr Shahsavari’s express approval of the price
but that everything thereafter was just formalities, as to which an authority
from him to his wife to act comprehensively for him could readily be implied.
This may be fair enough on matters such as inquiries about damp-proof
guarantees, but I am sure that it is not right about the vital stage of
converting an agreement subject to contract into a legally binding contract.
Nor, in my judgment, is there sufficient material on which I could
find an ostensible authority from Mr Shahsavari to his wife. I do not think
that he held her out to Mr Suleman or Mr Martinez as having authority from him
to conclude a contract which bound him to sell the house of which he was joint
owner and occupier. It is not usual for a wife to be the agent of her husband
to sell the family house. Further, I cannot regard this as one of the ‘very
rare and unusual’ cases of an ‘ostensible specific authority’: see the
reference earlier to Lord Keith of Kinkel in the Armagas case.
Therefore, Mr Martinez did not have express authority from Mr
Shahsavari, either directly or indirectly through his wife.
(b) Implied authority. If Mr Martinez did not
have express authority from both vendors to sign and exchange contracts, I am
sure that he did not have implied authority. Mr Geldart at one stage suggested
— but I think only faintly — that he had such authority because he was acting
within his normal role as a solicitor. I disagree. When Mr and Mrs Shahsavari
instructed Mr Martinez to act as their solicitor, I accept that they conferred
on him implied authority to do many things, like obtaining local authority
searches, but they certainly did not thereby confer on him implied authority to
conclude a binding contract of sale as their agent.
(c) Ostensible authority. There is no point on
this. It is not and cannot be suggested that Mr and Mrs Shahsavari, while
conferring no express or implied authority on Mr Martinez to contract to sell
the house, nevertheless held him out to Mr Suleman as having such authority. Of
course Mr Martinez held himself out to Mr Suleman as having the authority, but
it is clear law that an agent cannot by his own representation create an
ostensible authority which binds the principal: see Diplock LJ in the Freeman
& Lockyer case [1964] 2 QB 480 at p 505, and the Armagas case
[1986] AC 717. He may make himself liable for breach of warranty of authority,
but he cannot bind the principal.
Mr Suleman’s
claim against Mr and Mrs Shahsavari therefore fails. I would only add that, if
I had held that Mr Martinez was authorised to conclude a binding contract, I
would certainly have made an order for specific performance, not withstanding
Mr Hurst’s submissions to me that damages would be the appropriate remedy.
Mr
Suleman’s action against Mr Martinez
If, as I have
held is the case, the contract did not bind Mr and Mrs Shahsavari because Mr
Martinez was not authorised to sign it, then Mr Suleman claims damages from Mr
Martinez for breach of warranty of authority. It is agreed that, given my view
on the previous point, this claim must succeed, but there is a significant
question to be determined about the measure of damages. It arises in the
following way.
The contract
price was £46,500. The value of the house at the completion date (September 5
1986) is agreed at £56,000 (£9,500 more than the contract price). The value
just before the hearing is agreed at £76,000 (£29,500 more than the contract
price). Should the damages be £9,500 plus interest from September 1986 to
judgment? Or should they be £29,500 but
with no interest? (I should add that,
since the failure to complete the sale is attributable to circumstances other
than a defect in the title of Mr and Mrs Shahsavari, it is agreed that the
damages are not limited to Mr Suleman’s abortive costs under the rule in Bain
v Fothergill (1874) LR 7 HL 158. He is entitled to damages for loss
of bargain, but are they £9,500 or £29,500?)
In this
connection Mr Hamlin took me through a line of authorities beginning with Wroth
v Tyler [1974] Ch 30 and ending with Johnson v Agnew [1980]
AC 367. With scrupulous fairness he drew my attention to passages which were
unhelpful to his client, Mr Martinez. I am indeed grateful to him. The cases,
with one exception to which I will refer later, arose between purchaser and
vendor, not between purchaser and an alleged agent for the vendor. I summarise
the result of them as follows.
(a) A purchaser who loses his purchase is
entitled to damages at common law as well as to damages in lieu of specific
performance under Lord Cairns’ Act.
(b) The usual measure of damages at common law
has in the past been the difference between the contract price and the price at
completion, plus interest from completion until judgment.
(c) This is not an absolute rule of law, and
damages may be assessed by reference to the value at a different date if it
would be more just to do so.
(d) Where, as often in recent years, there have
been dramatic changes in property values, it may be more just to assess damages
at a different date.
(e) That is particularly so where the innocent
party reasonably continues to try to have the contract completed: in such a
case it is logical and just to assess damages as at the date when (otherwise
than by his default) the contract is lost.
I should
mention that Johnson v Agnew (the main source of the above
summary) was not a case of a purchaser suing for damages where the value of the
property has risen, but rather a case of a vendor suing for damages where the
value of the property had fallen. However, the same principles apply in each
case.
If in this
case I was assessing damages to be paid to Mr Suleman by Mr and Mrs Shahsavari,
the vendors, I would certainly fix them at £29,500:£9,500 plus interest would
not be adequate compensation to him. He has conducted himself entirely
reasonably in seeking to obtain specific performance, for all that I have
concluded that he cannot have it. He has been in no way dilatory over his claim
and cannot be accused of having unreasonably failed to mitigate his damage.
Does it make
any difference that Mr Suleman’s damages are payable by Mr Martinez, not Mr and
Mrs Shahsavari, and are for breach of warranty of authority, not for breach of
contract to sell? Mr Hamlin, in
submitting that it does, has referred me to the only case known to counsel where
the point has been considered: Chitholie v Nash & Co (1974)
229 EG 786. As in the present case, solicitors, who without authority, had
signed a contract as agent for the vendor were liable in damages for breach of
warranty of authority. Talbot J assessed the damages by reference to the value
of the house at the completion date, not at judgment. Mr Hamlin says I should
do the same in this case. He also points to the hardship to Mr Martinez of
having to pay higher damages because he had to wait to see whether Mr Suleman’s
action for specific performance against the Shahsavaris would fail.
I see the
force of Mr Hamlin’s submissions, but I have nevertheless concluded that the
damages should be £29,500, not £9,500. I distinguish Chitholie v Nash
& Co on two grounds. First, it was at all times agreed there that the
solicitors had no authority to sign the contract, so the time when the
plaintiff lost his purchase was the completion date. In this case Mr Suleman
loses his purchase only by virtue of my judgment that he is not entitled to
specific performance. Second, the basis of Talbot J’s decision was that ‘he was
bound, as he saw it, to follow the normal common law rule as to the measure of
damages for breach of a contract of sale’. That rule was, he believed, that
damages were assessed by reference to the value at completion. However, at
least since Johnson v Agnew, decided by the House of Lords in
1980, I think that the common law rule is different. The rule now is that
damages may — and perhaps even should — be assessed at the date when the plaintiff
loses his purchase if that is a more just measure of compensation and the
plaintiff has not unreasonably delayed his claim.
I agree with
Mr Geldart that it would be extraordinary if Mr Suleman was entitled to a lower
amount of damages against Mr Martinez than he would have been awarded against
Mr and Mrs Shahsavari, had he had a good claim against them. I sympathise with
Mr Martinez over the increase in the damages attributable to Mr Suleman’s
unsuccessfully pursuing his claim for specific performance, but, as Lord
Wilberforce said in Johnson v Agnew [1980] AC at p 400: ‘The
general principle for the assessment of damages is compensatory.’ Mr Suleman would not be adequately
compensated by damages of £9,500 plus interest, however tough the higher
damages might be on Mr Martinez.
I therefore
hold that (unless an application is made for a more up-to-date valuation to be
adopted) the main damages for breach of warranty of authority are £29,500.
There should be added £188.50 of loss for conveyancing and other incidental
costs suffered by Mr Suleman, but not £300 for a life insurance premium which
he paid. As far as I could make out, he still has the policy and may not have
suffered any loss in that respect.
Mr Martinez is
still holding the deposit of £2,325 which Mr Suleman paid on exchange of
contracts. He will no doubt repay it, with accrued interest, to Mr Suleman in
the light of this judgment. Mr Suleman paid £250 of earnest money to Jackson
Property Services. He must recover that from them. Mr Martinez has no liability
for it.
Mr
Martinez’s claim to be indemnified by Mrs Shahsavari
Mr Martinez
contends that, if he is liable to Mr Suleman in damages for breach of warranty
that he had authority from Mr and Mrs Shahsavari, he is entitled to be
indemnified by Mrs Shahsavari because she is in breach of warranty to him that
she had authority from her husband. For quite some time in the course of the
hearing I thought that this must be right, but I have concluded otherwise.
An agent is
presumed to warrant his or her authority, but the presumption can be rebutted.
In this case I believe it is, on Mr Martinez’s own account of the circumstances
in which Mrs Shahsavari authorised him to sign the contract. This goes back to
the telephone conversation of July 8 which I have described earlier. One
problem dealt with was: how to cope with the absence of Mr Shahsavari in
Iran? Mr Martinez’s evidence was that he
said to Mrs Shahsavari that she could sign the contract on behalf of herself
and her husband. The ultimate outcome — that, though not signing the contract
herself on behalf of the two of them, she gave authority on behalf of the two
of them to Mr Martinez to sign the contract — all sprang from Mr Martinez’s own
suggestion. She did not expressly say that she had her husband’s authority, and
Mr Martinez did not expressly ask her. She therefore made no express
representation to Mr Martinez, and I cannot consider that, merely by falling in
with Mr Martinez’s suggestion that she could commit her husband, she thereby
represented or warranted to Mr Martinez that she was authorised by her husband
to commit him.
I can quite
understand how Mr Martinez came to make his suggestion, and I have considerable
sympathy for him. All communications to him had always come from Mrs
Shahsavari, and he took it for granted — probably without giving it much
thought — that if she signed for her husband (or authorised Mr Martinez to sign
for both of them) there would be no problem. In 99 cases out of 100 he would
have been right. This, unfortunately, was the 100th case.
I therefore
conclude that Mr Martinez is not entitled to be indemnified by Mrs Shahsavari.
Conclusion
The final
result is that Mr Martinez is the loser and recovers nothing from either of the
Shahsavaris. In many respects I feel sorry about this. Mr Martinez had a
difficult and demanding client, who wanted a solution to an intractable
problem. As he said in a letter to Mr Suleman’s solicitors, written after
everything had gone wrong, ‘We endeavoured to assist our clients’. It is very
hard on him that his constructive efforts have rebounded on him as they have —
all the more so since, as I suspect (but do not know), Mr Shahsavari might well
have signed the contract himself (or given express authority to Mr Martinez to
sign it) if he had been in this country on July 10.
However, Mr
Martinez did take a risk. He could, perhaps, have said to Mrs Shahsavari that
he would sign the contract and exchange it only if he received a letter from her
instructing him to do so on behalf of herself and her husband and confirming
that she had her husband’s authority. In his letter to Mr Suleman’s solicitors
he wrote:
Whilst we
understood or believed that we were receiving joint instructions and spoke mainly
to Mrs Shahsavari, quite clearly it is open to Mr Shahsavari to say that he did
not authorise an exchange of contracts.
Unhappily for
Mr Martinez, Mr Shahsavari has said precisely that. I believe on the evidence
and the law that it protects the Shahsavaris and leads to the unfortunate
outcome for Mr Martinez which I have described in this judgment.
For the
reasons appearing in my judgment, the plaintiff’s claim for specific
performance or damages against the first and second defendants is dismissed.
The plaintiff’s claim for damages against the third defendant succeeds, damages
to be assessed as described in the judgment. The third defendant’s claim for an
indemnity against the second defendant fails.
The
plaintiff’s claim against the first and second defendants was dismissed;
judgment was given for the plaintiff against the third defendant for £29,716.78
with costs (being £29,500 plus aborted conveyancing expenses of £188.50 plus a
small amount of interest); the third defendant was also ordered to pay the
costs of the first and second defendants.
