Sale of land – Contract – Validity – First respondent signing contract to purchase lease of unit in appellant’s “aparthotel” development – Contract specifying purchaser as first and second respondents jointly and severally – Whether contract void where first respondent lacking authority of second respondent to contract on her behalf – Whether contract satisfying requirements of section 2 of Law of Property (Miscellaneous Provisions) Act 1989 – Appeal allowed
In October 2005, a sales fair was held to market the appellant’s “aparthotel” development, which consisted of a 1.021-bed, four-star hotel in London located in the former GLC finance office building at the south end of Westminster Bridge. At the fair, held by the appellant’s agent, individual hotel room units were pre-sold off-plan on 999-year leases; in many cases, exchange of contracts took place on that day. The respondent, a married couple, were interested in purchasing one of the units.
While at the fair, the first respondent, but not the second respondent, signed an “instruction memorandum” to one of the firms of solicitors that had attended to act on behalf of purchasers. The memorandum purported to instruct the solicitor to act on the respondents’ behalf in connection with their purchase of the unit, for a price of £315,000 plus VAT, and to proceed to an immediate exchange of contracts on the purchase. The first respondent also signed what purported to be a contract between the appellant, the respondents and the appellant’s agent, for the grant of a long lease of the unit; the document set out all the particulars of the transaction in question. It further provided for the purchasers to pay an initial deposit, or reservation fee, of £1,000 to the vendors’ solicitor, to be held as stakeholders, followed by a further deposit, payable in stages, representing 25% of the purchase price. of the above at the aforementioned price. The contract further provided: “Where two or more persons constitute the Purchaser all obligations contained in this Agreement on the part of the Purchaser shall be joint and several obligations on the part of such persons”.
The first respondent paid the initial deposit of £1,000 and also, over the next two years, the balance of the 25% deposit in the total amount of £78,750. Those funds were held by the appellant’s solicitor as stakeholder. In the event, the respondents were unable to obtain a mortgage to fund the remainder of the purchase price and could not complete. The appellant gave notice that it was rescinding the contract and forfeiting the deposit.
The respondents, along with several others, brought proceedings against the appellant seeking declarations that the contracts which they had made with the appellant were invalid, or should be rescinded, on various grounds. Determining a preliminary issue, the judge held that the contracts met the requirements for contractual validity in the case of all the claimants except the first and second respondents. In their case, the judge held that no valid contract had been concluded since the first respondent had did not have the actual or ostensible authority of the second respondent to contract for her; he found that the second respondent could not be said to have ratified the contact subsequently since she had been unaware that the first respondent had entered into a contract purportedly on her behalf: see Ratiu v Marlbray Ltd [2013] EWHC 3272 (Ch); [2013] PLSCS 261. The appellant appealed.
Issues remained for trial as to whether the contracts for the purchase of units at the hotel were an unconscionable bargain, whether the 25% deposits were a penalty, or whether they should be returned pursuant to section 49(2) of the Law of Property Act 1925. The appellant was also given permission to counterclaim against the first respondent for breach of warranty of authority.
Held: The appeal was allowed.
(1) The judge had erred in holding that, because the first respondent had no actual, or ostensible, authority to contract on behalf of the second respondent, then there was no contract unless and until there was ratification. That conclusion was based on two assumptions, namely that: (i) there was no contract at all, or that the contract was void, in circumstances where the second respondent had not authorised the first respondent to sign it and had not subsequently ratified it; and (ii) any contract signed by the first respondent alone would not satisfy the formality requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Both of those assumptions were wrong.
(2) Where the contract expressly provided that the obligations of the persons constituting the purchaser should be joint and several, there was no reason why the several obligations of the one person who did sign the contract, and authorise the solicitor to exchange, should not be contractually bound to purchase the property and to pay the deposits and the balance of the purchase price on completion. There was no universal rule that a valid contract of sale could never come into existence between a vendor and a purchaser in circumstances where it was intended at the time of signing the contract that another party, who in the event had not signed the contract, would also be the purchaser. Whether or not a valid contract had come into force between the parties who actually signed would depend on the common intention of the parties, as objectively ascertained from the circumstances surrounding the transaction. The issue was whether, objectively, the agreement of one purchaser to execute, and his execution of, the contract was expressly or impliedly conditional on the other purchaser likewise signing the agreement.
On the facts of the instant case, the first respondent’s agreement was not so conditional. There was nothing to support an objective analysis that the first respondent signed the contract on the understanding, or condition, that he would only be liable if the second respondent had authorised him to sign on her behalf, was contractually bound or subsequently ratified it. Still less was there any support for a finding that the appellant, or its agent, was only contracting on the basis that the second respondent was a joint purchaser. The joint and several provisions of the contract made it clear that the first and second respondents were not being regarded as a “composite” purchaser. It was irrelevant that the first respondent may not subjectively have intended to proceed with the purchase without the second respondent.
(3) A memorandum in writing that adequately documented the essential terms of the several contract between the appellant and the first respondent would be sufficient for the purposes of section 2 of the 1989 Act, notwithstanding that the appellant knew from what was written on the particulars that the first respondent was also purporting to sign the joint contract on behalf of himself and his wife. If, as a matter of analysis, there was no obligation on the appellant to sue both respondents together or under the joint contract, it followed that section 2 was not infringed in relation to the several contract entered into between the appellant and the first respondent. The particulars contained all the terms that the parties had agreed in relation to that several contract. Accordingly, there was a sufficient document in writing “incorporating all the terms which the parties have expressly agreed” and “signed by or on behalf of each party to the contract” for the purposes of section 2: Basma v Weekes [1950] AC 441, Davies v Sweet [1962] 2 QB 300, Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127; [2002] Ch 273; [2002] PLSCS 40 and RG Kensington Management Co Ltd v Hutchinson IDH Ltd [2002] EWHC 1180 (Ch) applied; Suleman v Shahsavarai (1989) 57 P&CR 465; [1989] 1 EGLR 203 distinguished.
The mere fact that the lease was to be granted jointly to the first and second respondents did not preclude liability of the first respondent under the several contract. Under the terms of that contract, the first respondent was entitled on completion to call for the grant of the lease to himself and his wife jointly. In relation to that several contract, it was not necessary for the second respondent, as the proposed co-tenant, to be a party for the purpose of section 2 of the 1989 Act. Nor did the fact that “the Purchaser” was defined in the particulars as comprising both respondents mean that the contract was somehow non-compliant with section 2 on the grounds that the document did not accurately set out the terms of the contract. That definition was an apt description given the provisions setting out the respondents’ joint and several liabilities and given the fact that the contract actually consisted of three separate contracts, namely the several contracts made by each of the respondents respectively with the appellant and the joint contract that they had both made with it. Section 2(3) distinguished between “the document” and “the contract”. All that was needed was a document incorporating all the terms of the several contract, signed by the first respondent on the one hand and by the appellant and its agent on the other.
It followed that the first respondent was contractually bound under his several contract with the appellant to purchase the property, subject to argument at trial in relation to the allegations of unconscionable bargain, penalty and section 49(2) of the 1925 Act.
(4) Per curiam: Even if there had been no binding contract, the first respondent would still not have been entitled to the return of his deposit. The issue in that regard was not whether any estoppel arose so as to preclude the first respondent from recovering his deposit by restitutionary claim; instead, the question was whether there had been a total failure of consideration entitling the first respondent to restitution. There had been not been a total failure of consideration in the sense required under the law of unjust enrichment, since the first respondent had received part of the benefit that underpinned the payment of the deposit: the unit that he had chosen to buy been taken off the market, the developer had completed the works and the appellant was still willing to sell the unit to the first appellant at the agreed price: Sharma v Simposh Ltd [2011] EWCA Civ 1383; [2013] Ch 23; [2012] 1 EGLR 113; [2012] 6 EG 92 applied.
The fact that the deposit was held by the appellant’s solicitor as stakeholder made no difference to the principle of whether the vendor had been unjustly enriched. The first respondent’s entitlement, if any, to the return of the deposit depended on the relationship between himself as prospective purchaser and the appellant as prospective vendor, not on that as between himself and the appellant’s solicitor: Gribbon v Lutton [2001] EWCA Civ 1956; [2002] QB 902; [2001] PLSCS 281 applied. Nor could the respondents claim that the deposit had been paid conditionally on the sale taking place so that title in the money never passed to the appellant. Title in the deposit moneys clearly did, and was intended to, pass to the appellant’s solicitor; there was no question of the solicitor holding those funds on trust for, or to the order of, the first respondent, whether under the terms of the contract or otherwise. While there was no express contractual provision that the appellant would be entitled to retain the deposit in circumstances where the contract turned out to be invalid or void, as opposed to where it was rescinded or repudiated on account of the first respondent’s breach, nonetheless the clear contractual intention was that, in circumstances where the sole reason for non-completion was the first respondent’s fault, then the appellant should be entitled to retain the deposit. Although the situation was a non-contractual one, the factual matrix of the intended contractual result served as a clear guide as to which side the justice of the matter lay.
Romie Tager QC and Henry Webb (instructed by Gordon Dadds LLP) appeared for the appellant; Brie Stevens-Hoare QC and Lina Mattsson (instructed by Berry & Lamberts LLP, of Tunbridge Wells) appeared for the respondents.
Sally Dobson, barrister
Click here to read transcript: Marlbray Ltd v Laditi and another