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Faruqi v English Real Estates Ltd

Contract for the sale of land–Vendor and purchaser summons–Conditions of sale at auction–Special condition that property was sold ‘subject to entries on the registers of title’–One of the general conditions provided that when the property was sold subject to any lease, covenant, restriction or other matter a copy could be inspected at the solicitors’ offices and the purchaser should be deemed to purchase with full notice–In fact the title was subject to restrictions contained in a deed of 1883 of which neither the original nor a copy could be produced–No indication in conditions of any particular difficulty or snag in the title–Although bound by contract at law equity would not force such a title on an unwilling purchaser–‘A pig in a poke’–Not a contract of which a court of equity would enforce specific performance–Purchaser entitled to give stakeholder a good receipt and discharge for deposit

This was a
vendor and purchaser summons taken out by the plaintiff, Ghufran Ahmad Faruqi,
asking for declarations that certain requisitions as to title had not been
sufficiently answered, that a good title had not been shown in accordance with
the contract, that the plaintiff was entitled to give the auctioneers as
stakeholders a good receipt and discharge for the deposit, and that the
plaintiff was entitled to receive interest on the deposit. The plaintiff also
claimed that the de-151 fendants were liable to pay his costs of investigation of title and of
providing insurance protection since the date of the contract. The defendants
were the vendors, English Real Estates Ltd.

R J Simpkiss
(instructed by David Schayek & Co) appeared on behalf of the plaintiff; G C
Raffety (instructed by Eric Levine & Co) represented the defendants.

Giving
judgment, WALTON J said: The property with which this vendor and purchaser
summons is concerned is part freehold and part leasehold and has been in the
ownership of the defendants, English Real Estates Ltd, for approximately two
years. It was acquired by them or an associated company of theirs, so far as it
was freehold, under a contract of which I have seen a draft. There is a special
condition in that contract as follows:

The property
is sold (a) subject to the covenants restrictions and agreements contained or
referred to in a deed dated the seventeenth day of May one thousand eight
hundred and eighty three and expressed to be made between the several persons
whose names and seals are subscribed and set out in the second schedule thereto
of the first part and the United Land Company of the second part. The vendors
are unable to discover the whereabouts of this deed or any copy thereof but the
purchaser shall be deemed to purchase with full knowledge thereof and shall
make no inquiry objection or requisition with respect thereto.

The contents
of that document, whatever those contents are, equally affect the leasehold
portion of the premises.

These were put
up for auction on June 7 1978 and the particular lot in which they are included
is lot 87. There were special conditions of sale which provided, first of all,
as to the vendor’s solicitors and, secondly, that lot 87 was registered as to
block B at the Land Registry with absolute leasehold title and as to blocks G
and H with freehold title absolute, and the title numbers were given. Then it
said:

The
properties will be sold subject to (a) tenancies leases detailed in the
particulars of sale; (b) the entries on the registers of title.

The general
conditions of sale applicable to all lots made the 19th edition of the National
Conditions of Sale applicable but also had some very special and ferocious
clauses of their own. Clause 6(3) provides as follows:

Where by the
special conditions of sale any property is sold subject to any lease, covenant,
restriction or other matter a copy of the said lease, covenant, restriction or
other matter may unless otherwise provided in the said special conditions be
inspected at the said offices of the solicitors for the vendor at any time
during normal office hours and the purchaser shall be deemed to purchase with
full notice and knowledge of such matters whether or not he shall have availed
himself of the opportunity of such inspection and shall raise no objection or
inquiry or requisition thereon.

In addition to
that, general condition 11 states:

The purchaser
shall raise no objection, requisition or inquiry in respect of any rights,
covenants, obligations, easements, quasi-easements, privileges, licences
subsisting, acquired or being acquired over under or in respect of the
properties whether or not the same are disclosed to the purchaser. Neither the
vendor nor the auctioneers shall be under any liability to disclose the same
whether or not the same are known to them.

The plaintiff
duly attended the auction; lot 87 was knocked down to him for the price of
£18,350 and he then and there paid a deposit of £1,835, the usual 10 per cent,
to Messrs Willmotts, the auctioneers. Although the memorandum of sale is not as
clear as it might be, that was accepted by Willmotts as stakeholders, so at the
moment Willmotts are holding the money as stakeholders.

When the
abstract of title was supplied to the plaintiff’s solicitors, it became at once
apparent that the freehold property was subject to various matters set out on
the charges register as to which no real question arises, such as the use of
the property and support from neighbouring buildings–the sort of matters one
would expect–and of course the deed of May 17 1883 and the statement that
neither the original deed nor a certified copy or examined abstract thereof was
produced on registration. Similarly, with the leasehold portion of the premises
once again there are some restrictions on the charges register, the sort of
thing one would expect,

The land is
subject to such rights of way, passage and running of water,

and so forth,
as are granted by the leases of the various portions of the property, the whole
in fact being a block of flats, which leases are also noted on the charges
register and, once again, the deed of May 17 1883.

Since it is
quite impossible for anybody to say what the deed contains, it is quite
impossible for anybody to know at this stage what the state of the title is,
what is likely to happen in the future. So, on July 18 the plaintiff issued a
vendor and purchaser summons asking for a declaration that certain requisitions
which related to this point had not been sufficiently answered, a declaration
that good title to the property had not been shown in accordance with the
contract of sale, a declaration that the plaintiff was entitled to give the
stakeholder a good receipt and discharge for the deposit, a claim for interest
on the deposit–which is in any event a misconception, since, the deposit having
been paid to stakeholders, there is no question of obtaining interest thereon
from the defendants–and then a claim for the plaintiff’s costs in investigating
the title, providing insurance protection and so on and further or other
relief, the application being made under sections 49 and 203 of the Law of
Property Act 1925.

I think that
logically the first matter which falls to be decided is that Mr Simpkiss
submitted on behalf of the plaintiff that the references to entries on the
registers of title in the special conditions of sale as matters which the
properties were sold subject to required a restricted interpretation of the
word ‘entries.’  I do not think that he
quite put it like this, but more or less forensically he asked, ‘Supposing
there had been a mortgage for £100,000 on the property, would it have been intended
to cover that?’  His object was to
restrict, if he possibly could, the construction of the word ‘entries’ on the
register of title to things flowing logically from and connected with tenancies
and leases to which the property was made subject. But I regret that I do not
think that, as a matter of construction, I can so read it. It seems to me that
the entries on the registers of title mean exactly and precisely what they say
and that the property is sold subject to all those entries, whatever they turn
out to be, as a matter of strict construction.

Mr Raffety for
the defendants relies upon two matters. First of all he says that on the true
construction of the contract there can be no doubt at all but that the
purchaser is bound to take the property subject to the entries on the register
of title, whatever they may be, and, as a matter of strict law and
construction, I think that Mr Raffety’s case on that point is unanswerable. As
a matter of strict construction, he is plainly right. The contract provides in
express terms that the plaintiff is to take the property subject to the entries
on the register. That is reinforced, if reinforcement is needed, by general
condition 6(3).

Mr Raffety
then goes on to say, ‘But even supposing that equity in some way were to regard
the contract as being in any sense unfair, look at special condition 6(3). It
was always open to the purchaser, if he wished to find out what he was buying
the property subject to, to go along to the solicitors named in the special
condition of sale and inspect the entries on the register at their offices in
accordance with that condition.’ 
Therefore, he says, the vendors gave the purchaser a fair and proper
opportunity of seeing what he was buying, of seeing the documents subject to
which, to the extent to which it is possible to know what they are, he was
buying the property, and certainly of inspecting the entries on title.
Therefore, the purchaser has had a fair opportunity of knowing what he was
letting himself in for and, therefore, there is no conceivable reason why
equity should interfere.

It seems to me
that that is an argument to which I can under no circumstances pay any regard
whatsoever. It has152 for a long time been the view of equity that if there is a defect in the title
and the vendor knows that there is a defect–and in the present case there can
be no question but that the vendor knew there was a defect–then it is the duty
of the vendor to disclose the same fully and frankly in the particulars or in
the conditions, or at any rate in some place where the purchaser’s attention
will be drawn to it. I need cite only three very short passages from the
authorities.

If the
doctrine was not well known before, it was established by Williams v Wood
(1868) 16 WR 1005, one of the leading cases on this subject. In that case the
interesting thing was that the condition which set out the defect in title set
it out absolutely accurately, so that the trained equity conveyancer, reading
it, would know, after he had put on a wet towel and consulted all the works
available, precisely and exactly what the trouble was. Lord Romilly said this:

The
conditions of sale had been very carefully framed, and the facts were correctly
stated, and so stated as to lead a practised lawyer to the legal inference that
no title was shown in the vendor–

one would have
thought that the vendor could not possibly have done anything more, but it did
not satisfy Lord Romilly–

but they were
drawn in a way which would not lead an ordinary purchaser to this conclusion.
Conditions of sale ought to be drawn in a perfectly fair and straightforward
way, and ought distinctly to explain any difficulty of title.

Therefore, of
course, he refused to grant specific performance.

That was a
case where the sale was a sale under the direction of the court and it may be
that with our somewhat simplified conveyancing these days, if the matter were
set out in that way again, a different result might now be arrived at in a case
between an ordinary vendor and an ordinary purchaser, but the principle remains
exactly the same. That principle is referred to–again in slightly different
language, but it is precisely and exactly the same principle–by Fry J in Re
Marsh and Earl Granville
(1883) 24 Ch 11 at p 17, where he says:

The
principles applicable to the decision of the question appear to me to be not in
dispute. According to the view which I take, a vendor who desires to limit the
rights of a purchaser must do so by explicit and plain conditions, and he must
tell the truth, and all the truth, which is relevant to the matter in hand.

Again, in Nottingham
Patent Brick and Tile Co
v Butler (1885) 15 QBD 261, a case which
went to the Court of Appeal and was there dealt with on a different point,
Wills J said:

The fourth
condition provides that the property is sold subject to any matter or thing
affecting the same, whether disclosed at the time of the sale or not. Such a
condition, however, does not relieve the vendor from the necessity of
disclosing any incumbrance or liability of which he is aware, but simply protects
him if it should afterwards turn out that the property is subject to some
burden or right in favour of a third person of which he is unaware. It would be
nothing short of direct encouragement to fraud if a vendor were at liberty to
sell to a purchaser as an absolute and unburdened freehold a property which he
knew to be subject to liabilities which would materially reduce its market
value.

Of course
there may well be circumstances where it is difficult to frame a suitable
condition for sale in such a way that an ordinary purchaser–because that, as we
have seen from Lord Romilly, is the test–would understand what the difficulty
is. Under those circumstances, there can of course be no objection to a
condition somewhat along these lines: ‘The property is subject to the contents
of a deed dated so-and-so which materially affects it, but it is impossible to
summarise the contents of this deed, which can be inspected at,’ and a suitable
place for inspection given. If something along those lines is put into the
conditions, if the purchaser then goes on and purchases the property he cannot
be heard to say that his attention has not been called to the difficulty and he
has been given a fair opportunity of seeing to what the property is subject.
But in the present case there is no attempt whatsoever, either in the special
conditions or in the general conditions, at saying that there is a particular
difficulty and snag with the title here–namely, that the whole of the property
is subject to something that cannot even be hinted at. That being so, it
appears to me quite clear that this title is not such a one as equity would
ever force upon an unwilling purchaser.

The case of Blenkhorn
v Penrose (1880) 43 LT 668, which was referred to by Mr Raffety as
assisting his argument that general condition 6(3) did afford a fair
opportunity, appears to me on close examination to be very much the other way
round. The effect of the condition in that case was to say to the purchaser,
‘The deed of 1861 is important with regard to this title and, rather than tell
you a part of what it contains or tell you incorrectly what it contains, I
invite you to come and see the whole document and judge for yourself and form
your own conclusions upon it.’  There is
nothing like that here. Any purchaser reading these general and special
conditions of sale would be entitled, I think, to assume that of course there
were entries on the register but that those entries were only of what I may
call the usual sort, which do not in any way affect the value of the property
adversely. He would be most surprised to learn, as I am certain that the
purchaser here was most surprised to learn, that he was literally buying a pig
in a poke because he was taking the property subject to the contents of a deed
which could not even be produced.

So it seems to
me that, consistent with the whole way in which equity has always approached
these matters, this is not a contract of which the court would ever enforce
specific performance. Prior to the enactment of section 49(2) of the Law of
Property Act 1925 that might have led to injustice, in that, as I have already
indicated, at law Mr Raffety’s argument is unanswerable. That would therefore
have entitled his clients to keep the deposit, even though the court would not
force the title upon the purchaser. But now that we have section 49(2) there is
no difficulty in ordering a return of the deposit or, in the present case, what
amounts to the same thing–a declaration that the plaintiff is entitled to give
a good receipt and discharge for the deposit to the stakeholder, and I think
that the declaration must run that it is only the plaintiff who is entitled to
give a good receipt and discharge for that sum.

So far as the
other relief claimed by the originating summons herein is concerned, I do not
feel disposed to make any such declarations as are claimed by paragraphs 1 and
2 thereof, because it appears to me that strictly the answer probably is that
in accordance with the terms of the contract those requisitions had been sufficiently
answered. Although at law the contract is a good one and the purchaser bound to
take the title provided by the defendant. in equity that is not the case.
Equity does not set aside a contract; it merely says that, first, it will not
grant specific performance of it and, secondly, it will order the return of the
deposit. As the Vice-Chancellor pointed out in Schindler v Pigault
(1975) 30 P&CR 328, whatever the technical effect of that may be, its
practical effect is to put a complete end to the contract.

Therefore I
propose to declare that the plaintiff and only the plaintiff is entitled to
give a good receipt and discharge for the deposit to Messrs Willmotts, the
stakeholders. I do not order the defendants to pay any interest on the deposit,
because I think the claim is misconceived once it is appreciated that Messrs
Willmotts are stakeholders, and I do not think that I can order the defendants
to pay the plaintiff his costs of investigating the title of the said property
and of providing insurance, because it seems to me that I could do that only if
it could be said that the defendants had broken the contract at law, and at
law, as I have already indicated, they have not done so. The plaintiff owes his
position solely to the interposition of equity.

It does not
appear to me that any further or other relief is required and therefore the
only other thing that I have to deal with is the costs of the matter. Since the
matter has been resisted on behalf of the defendants, it seems to me that costs
must follow the substantial event. Under those circumstances I propose to order
that the defendants should pay the costs of this application in the usual way.

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