Property purchased jointly by uncle and great nephew — Both contributed to purchase price — Nephew obtained mortgage to provide his share — Uncle entitled to live at property for life — Parties disagreed and house sold — Fall in value between purchase and sale — Whether uncle entitled to look to nephew personally to make good whole of shortfall — Decision that parties should bear loss proportionally upheld in Court of Appeal
In May 1990, C, 88 years old, paid T, his great nephew, £43,000 for the purchase of 4 Jonson Close, Hayes, Middlesex. The house was bought in T’s sole name and to cover the rest of the price and expenses, T borrowed £40,000 on security of a mortgage. In June 1990 C moved in intending to live there for life. T continued to live in his own house at Bedfont. Over the next four months T failed to pay the mortgage instalments. When C found out, he decided to withdraw from the arrangement and sought repayment of his £43,000.
The house was sold, but after payment of the mortgage the net balance remaining of the proceeds was only £17,667. C contended that he was entitled to look to T personally to make good the whole of the shortfall. The county court held that the transaction was manifestly disadvantageous to C, who had not entered into it after free and informed thought and had insufficient advice and understanding to make a proper judgment. However, the court held that as the loss was brought about by the fall in the market value of the house, and as the parties went into a joint venture, investing approximately similar sums, they should bear the loss equally. C appealed and T cross-appealed.
Held The appeal and cross-appeal were dismissed.
1. When the court set aside the transaction between C and T the inflexible rule of equity which came into play was that C was entitled to have restored to him the benefits he passed to T under the impugned transaction. Restitution had to be made not damages paid: see Newbigging v Adam (1886) 34 ChD 582.
2. C paid money to T as part of the half-purchase price. T also contributed to the purchase albeit with borrowed money. Thus the transaction had to be reversed: first, the house should be sold; and, second, each party should receive back his contribution to the price. The first requirement had been fulfilled. However, the second could not be achieved as the house had lost one third of its value.
3. That difficulty was not allowed to stand in the way of setting aside the transaction. A court of equity granted that type of relief even where it could not restore the parties precisely to the state they were in before the contract. The court would grant relief whenever, by directing accounts and making allowances, it could do what was practically just: see Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218.
4. Justice required that each party should be returned as near to his original position as was possible. Each should get a proportionate share of the net proceeds of the house before deducting the amount paid to the building society. Thus, the £55,400 should be divided between C and T in the proportions 43:40. C should receive about £28,700 and T, £26,700. To achieve this T should pay £11,033 on top of the net proceeds of £17,667 remaining after discharging the mortgage.
Kenneth Hamer (instructed by K E Davis & Sons, of Hayes, Middlesex) appeared for the plaintiff; Jonathan Ferris (instructed by Mackenzie Persaud, of Southhall) appeared for the defendant.
