A vendor who sells to a third party holds the purchase price as trustee for the original purchaser, who can accordingly trace it and recover it–Dicta concerning the position of a vendor who enters into a contract and then receives better offers–Semble, these should in an appropriate case be passed on
By this
interpleader originating summons, Mr Joel Seth Lake, solicitor, of Cardiff,
asked the court to determine what he should do with the sum of £50,000 received
by him on behalf of his client, Miss Mervyn Victoria Bayliss, on sale of some 3
1/4 acres of land at Overndale Road, Mangotsfield, Bristol, to a purchaser
other than Dr Henry Andrew Mullen, plaintiff in an action against Miss Bayliss
for breach of a contract to sell the land in question to him.
Mr P J Millett
QC and Mr C I Howells (instructed by Field Fisher & Martineau, agents for
Hallinan, Blackburn, Gittings & Hambleton, of Cardiff) appeared for Dr
Mullen, and Miss S Cockburn (instructed by Seifert, Sedley & Co)
represented Miss Bayliss. The plaintiff took no part in the argument.
Giving
judgment, WALTON J said that on December 27 1968 Miss Bayliss entered into a
written agreement to sell Dr Mullen certain land at Mangotsfield, Bristol. The
consideration was unusual, and it was that, in a sense, which had given rise to
the present proceedings. The consideration was primarily to withdraw two writs
which Dr Mullen had issued against Miss Bayliss and to assume certain liability
in respect of a planning application. Having entered into that agreement, Miss
Bayliss sold the land elsewhere, notwithstanding that Dr Mullen had issued a
writ on June 13 1969 claiming specific performance of his agreement. There was
either a muddle in a proper search by the blameless purchaser, or the purchaser
described the land in a slightly different way from that in which it was
described in the application for the registration of the estate contract. Miss
Bayliss sold the land for approximately £50,000. The proceeds were received by
her solicitor, Mr Lake, who, having received the proceeds, began to have qualms
about accounting to Miss Bayliss for the money. Ultimately, by the present
summons he applied for directions as to what he ought to do with the money. An
order was made in the proceedings by which an issue was to be tried ‘whether
the funds . . . should be paid forthwith to the defendant in the issue or
should remain in court pending the determination of the action now proceeding
in the Cardiff District Registry of the Chancery Division of this court between
the parties to the issue, the short title of which is Mullen v Bayliss.
. . .’
What now ought
to be done with the money? Counsel for
Dr Mullen urged that although the relief sought was unusual, if one went back
to first principles there was really no difficulty, as it was one of the
standing doctrines of the court that on a contract for the transfer of property
being entered into, the vendor or intending transferor became a trustee for the
purchaser or transferee. Admittedly, it was a qualified trusteeship. It did not
have all the usual incidents of a bare trusteeship for a cestui que trust, and
the most glaring departure from such normal incidents was that the trustee had
his own interest, the receipt of the purchase money, to protect and a lien on
the property until he had been paid his purchase money in the normal course.
Nevertheless counsel said that basically, in regard to the land contracted to
be sold or transferred, no matter what might be the case in relation to other
collateral matters such as moneys paid
there was no doubt that the property was held as by a trustee. That being the
case, if the contract was completed and the vendor wrongfully–as was
alleged–sold the property, then the purchaser was entitled to say that what had
happened was that the vendor had sold trust property, and he was entitled under
those circumstances to follow the trust property and say when it came to the
final performance of the contract that he would take the proceeds of sale
instead of the property. There was a dearth of authority on the point, but
counsel suggested that the reason was that four matters must concur before it
was worthwhile for a purchaser to pursue this remedy. First, the vendor must
have sold the property twice over, and that was rare, because most people
honourably fulfilled their obligations; secondly, for some reason the
registration of an estate contract by the purchaser must either not have taken
place, or if it had taken place it must have been for some rare reason, such as
an error in searching, of no effect; thirdly–and this was most vital–the
purchaser must be in time to intercept the purchase money, to trace the
purchase money, for once it had been paid into an overdrawn bank account or
something of that nature, which was the only likely occasion on which these
prior circumstances would concur, it was too late to follow it; and lastly, the
purchaser must prefer to pursue the tracing of the purchase money rather than
to pursue his remedy in damages. Where the vendor was solvent there would be
little in it, and again, where the vendor had a lien on the trust property for
a purchase price which would normally be roughly the amount of the sale price,
there would not be much in it, and probably it would be hardly worthwhile in
these days seeking to trace the proceeds of sale rather than simply taking the
remedy in damages. In the present case, however, the consideration to be
provided by Dr Mullen was rather special, and if he could not trace the
purchase money in the way suggested, he would be forced into a completely
different contract from the one he intended to enter into, because he would be
left with the rights which he was going to give up in exchange for the land,
and he would get nothing but damages. That would be a very extraordinary result
as far as he was concerned.
Authority was
silent on the point at issue save for one case, a decision of Lord Eldon LC in Daniels
v Davison (1809) 16 Ves Jun 249, where he said at 254:
‘My judgment
on that point [after dealing with other points in the case] lays out of
consideration the question, whether, taking Cole not to be affected with
notice, Davison, the vendor, is to be considered in equity as holding the
money, derived from the second purchase, viz, the difference between the
prices, in trust for the person, to whom he had first agreed to sell the
estate. The estate by the first contract becoming the property of the vendee,
the effect is, that the vendor was seised as a trustee for him; and the
question then would be, whether the vendor should be permitted to sell for his
own advantage the estate, of which he was so seised in trust; or should not be
considered as selling it for the benefit of that person, for whom by the first
agreement he became trustee; and therefore liable to account.’
It was true
that Lord Eldon put it in the form of a query, but his words were to be
understood in the sense that he would have given, if pressed, as answer to that
query, that that indeed represented the law. Counsel for Dr Mullen had also
found out that Sir George Jessel, when Solicitor-General, arguing the leading
case of Shaw v Foster (1872) LR 5 HL 321 in the House of Lords,
had stated flatly at 327,
‘Daniels
v Davison shows that after a contract for the sale of an estate, if the
vendor sells to another person for valuable consideration, he is accountable
for the money as a trust.’
He (his
Lordship) considered that that was in line with authority and represented the
law.
Counsel for
Miss Bayliss took a number of points on her behalf, but her main point was that
in the sort of circumstances where the vendor entered into one contract and
then resold the property elsewhere, the purchaser was restricted to damages.
The trusteeship, she said, was as if it never had been, and the purchaser must
accept that accordingly. He (Walton J) thought it would be pessimi exempli
if a vendor was entitled to shed the character of a trustee by a wholly
wrongful act on his or her part. Once one had undertaken the role of trustee it
was a role which, unless discharged by some external circumstance, one must
carry out to the bitter end if so required by the other party to the contract.
The vendor could not be heard to say that because of her wrongful act in
reselling the property she never was a trustee. She remained a trustee right
down to the moment of resale, and accordingly was bound to hold the purchase
price as trust property to transfer to the purchaser on the purchaser
completing the obligations on the purchaser’s part. Counsel for Miss Bayliss
had raised a very good point, which was how far this concept of trusteeship
went. Did it follow, for example, if counsel for Dr Mullen were right, that if
a vendor obtained better offers for the property after having entered into a contract
for sale, he would be under an obligation to pass them on? If so, said counsel, that would be an
extraordinary result. He (his Lordship) did not think it was such an
extraordinary result, but he also did not think that that sort of question–good
question though it was–could be asked in vacuo. One must have a concrete
case in which that sort of thing happened before one knew what the duty of the
vendor was. In most cases, one knew that the purchaser was purchasing the
property for his own occupation. Under those circumstances, unless the
subsequent offer was astronomical, there would be no real reason for thinking
that it would be of any interest to the purchaser. In other cases the vendor
might well know that the purchaser was buying for speculation, and although he
(his Lordship) did not say that it would necessarily be the case he could see
that under certain circumstances it might very well be the case that the vendor
ought to pass the offers on.
Another point
taken on Miss Bayliss’s behalf was that by the pleadings in the action for
specific performance (which had been referred to as ‘the Cardiff action,’
because it was commenced in the Cardiff District Registry) Dr Mullen ought not
to be allowed to amend the pleadings in that action, because the amendment
relating to the following of the proceeds of sale would be something new and
different which had happened subsequent to the issue of the writ, and therefore
a new writ and a new proceeding would be called for. He (Walton J) would be
very sorry to think that the Rules of the Supreme Court were so ossified and
stylised that it was impossible to pursue an action when it was changed
somewhat into a protean shape by reason of the conduct of the defendant. But in
any event it seemed that there was an implied term, as it were, in the
statement of claim following on the allegation of the written agreement, ‘and
thereby the defendant became a trustee of the property for the plaintiff’; and
if one read that in, which was implied anyway, the transition, if the defendant
had wrongfully disposed of the trust property in exchange for much fine gold
which Dr Mullen sought to trace, became a simple and clearly allowable
amendment. Of course, the Cardiff action was still being very bitterly fought,
and at the end of the day there might be no such contract as alleged by Dr
Mullen, but on the basis that there was, the money should remain in court to
abide the outcome of the Cardiff action. There could be no grounds for an order
that Miss Bayliss pay the money to Dr Mullen, because in fact she had not got
it. It was a trust fund under the jurisdiction of the court, and all Dr Mullen
would need was a declaration that he was entitled to it.
