‘Anti-gazumping device’–Supposed oral contract combined with receipt for deposit–On facts, no binding contract ever made–Vice-Chancellor’s criticisms of device–‘Comes very near sharp practice and could easily be used as engine of fraud’–Receipt could be used as memorandum only against vendor–Further criticism of overstatement of price in draft contract
This was a
claim by Mr Michael Damm, of Sanderstead Road, Sanderstead, Surrey, against Mrs
Zena Rosemary Herrtage, of Danecroft, Rose Walk, Purley, Surrey, for specific
performance of a contract of sale of Danecroft dated February 8 1972. By
counterclaim and by claim in a consolidated action, the defendant sought a
declaration that no such contract had been entered into, and an order vacating
a caution registered by the plaintiff.
Mr L Price QC
and Mr E G Nugee (instructed by Mortlake & Co) appeared for the plaintiff,
and Mr G Godfrey QC and Mr D Iwi (instructed by Wilkinson, Kimbers &
Staddon, agents for M J Whelton & Co, of Guildford) represented the
defendant.
Giving
judgment, PENNYCUICK V-C said: In this action the plaintiff, Mr Michael Damm,
seeks against the defendant, Mrs Zena Rosemary Herrtage, an order for specific
performance of the contract for sale by her to him of a property known as
Danecroft, Purley, alleged to have been made orally on February 8 1972. The
situation is unusual in that Mr Damm, in pursuance of an ‘anti-gazumping
device’ recommended by his solicitor, took from Mrs Herrtage contemporaneously
with the alleged oral contract a written receipt setting out the terms of the
contract. I will state the history of the matter as I find it upon the
documents and oral evidence, leaving for subsequent consideration the single
crucial issue of fact, namely, did Mr Damm and Mrs Herrtage on February 8 1972
enter into a binding oral contract?
Mrs Herrtage
is the owner in fee simple of Danecroft, a substantial residence where she has
lived for many years with her husband and family. Mr Herrtage had become an
invalid, and they decided to sell Danecroft and move into a smaller house. Mr
Herrtage, who dealt with all their business affairs, put Danecroft into the
hands of two agents, one being the firm of Garrard Smith, who in turn
instructed Herring, Daw & Manners, of Croydon, as their subagents. Mr Damm
obtained particulars of Danecroft from Herring, Daw & Manners. Mr Damm is
of Polish origin and has lived in England since 1963. He is a man of
considerable ability, and now a director of a firm of technical consultants. He
speaks English fluently. Early in 1971 he was looking for a house in South-East
London. He had previously had some unhappy experiences of ‘gazumping.’ It would not be useful to give particulars of
Mr Damm’s experiences in relation to the purchase of other properties before and
after his purchase of Danecroft. In January 1972 he went to Danecroft with his
wife and her sister and looked over the property, by which he was much
attracted. Then by appointment he called again, accompanied by Mr Doe, a
surveyor, on February 8. They were received by Mrs Herrtage, her husband being
then in hospital. Mr Doe made an inspection and left after an hour or two. Then
came the critical interview between Mr Damm and Mrs Herrtage. It is not in
dispute that they agreed in principle upon the price of £45,000 plus £500 for
certain fixtures and fittings, and upon a deferred completion date.
According to
Mr Damm, at the opening of the interview he made clear to Mrs Herrtage that he
wished to enter into an immediate binding contract, and again according to him,
when they came to terms on the price and completion date they came to those
terms on the footing that they were making an immediate binding contract. On
that footing, he paid a deposit of £1,000 and she signed a receipt. According
to Mrs Herrtage, there was no reference to an immediate binding contract, and
she received the deposit and signed the receipt on that footing. The receipt
was in the following terms: ‘February 8 1972. Received from Mr M Damm of 79
Dora Road, SW19, a deposit of £1,000 on account of sale of my freehold house ‘Danecroft,’
Rose Walk, Purley, for the sum of £45,000 [in figures and words] plus £500 for
carpets, curtains and other fixtures and fittings. The completion to be agreed
mutually and to take place within one year from today. Vacant possession will
be given on completion.’ That was
written out by Mr Damm and was then signed ‘Zena R Herrtage, Danecroft, 24 The
Rose Walk, Purley.’ Mr Damm then
departed, taking the receipt with him. He posted a copy of the receipt to Mrs
Herrtage that evening. I will refer at a later stage in more detail to the
evidence as to what took place at this meeting.
Mr Damm
proceeded to call on Mr F Coningsby, his solicitor, handed him the receipt and
instructed him to act in the purchase. Mr Coningsby’s attendance note reads as
follows: ‘Damm. Purley. Clutton, Moore & Lavington, 679 London Road, Mrs
Gardiner’–that is the name of Mrs Herrtage’s solicitors, Mrs Gardiner being the
partner who acted in the matter–‘Thornton Heath. Send copy receipt. Not more
than 5 per cent deposit. Vendor responsible for property. Delay completion one
year from exchange, ie move in spring’; and over the page: ‘(1) Area of land.
(2) Solicitor. (3) All buildings in garden included. (4) Confirm carpets,
curtains and other fixtures and fittings. (5) Private estate road etc. (6)
About 60 years old. (7) Copy of building scheme.’ The attendance note is undated. There was a
conflict of evidence in connection with the date upon which Mr Damm called upon
Mr Coningsby. Mr Damm deposed that Mrs Herrtage gave him the name of her
solicitors at the end of the meeting on February 8 and that he went the same
day to Mr Coningsby. The latter said that Mr Damm probably came on the
afternoon of the 8th. On the other hand, Mrs Herrtage deposed that she did not
know the name of her solicitors until her husband gave it to her on the evening
of the 8th. Mr Herrtage confirmed giving the name. Then, according to Mrs
Herrtage, she telephoned Mr Damm with the name of her solicitors next morning,
the 9th. On this point I accept the evidence of Mrs Herrtage and also Mr
Herrtage. It follows that the meeting cannot have been on the 8th but must have
been on the 9th. The matter then proceeded between the solicitors and also the
estate agents in the same way as if the principals had merely agreed terms
subject to contract, and as if the solicitors were preparing a written contract
to implement those terms. This, as I will explain in a moment, was a feature of
the anti-gazumping device.
I should at
this stage refer to a few letters which passed between Mr Coningsby, on behalf
of Mr Damm, and Mrs Gardiner, the partner in Clutton, Moore & Lavington, on
behalf of Mrs Herrtage. On February 9 Clutton, Moore wrote to Coningsby:
We understand
that you are acting for Mr Michael Damm on his purchase of the above freehold
property from our client, Mrs Herrtage, for the sum of £45,000. We have
bespoken office copy entries and will send you a draft contract for approval
shortly.
On February
10–these letters must have crossed–Coningsby to Clutton, Moore:
We have been
instructed by Michael Robert Damm in connection with his purchase of the above
freehold property from your client Mrs Herrtage. Our client has handed to us a
document a photostat copy of which we enclose
–I interpose
to say that is the receipt–
and we look
forward to hearing from you in due course. Our client requests that he shall be
called upon to pay not more than a 5 per cent deposit in view of the magnitude
of the price and that he shall be entitled to interest upon the same in a
building society deposit. We are instructed to obtain details of the exact area
of the land, confirmation that all the buildings within it are included in the
price, which also includes all carpets, curtains and other fixtures and
fittings. We understand that this property is on an estate in relation to which
there is a building scheme and that the property fronts a private road. You
will no doubt let us have a copy of any relevant documents in these respects
when you reply.
On February
18, Coningsby to Clutton, Moore:
Our client
has now written to us stating that his architect estimates that it will be
necessary to spend approximately £5,000 in repairs and redecoration of this
property. This is a sum which apparently your client vendor agrees.
Accordingly, our client would prefer the consideration shown in any transfer
document to be £50,500 and that an allowance of £5,000 shall be made at
completion for the necessary repairs.
On February
28, Coningsby to Clutton, Moore:
Please let us
hear from you as soon as possible in relation to this matter. We would say,
incidentally, that having perused the receipt dated February 8 1972 this
appears to be a satisfactory memorandum of sale, particularly if taken with the
cheque for the deposit sum therein mentioned.
March 1,
Clutton, Moore to Coningsby:
We enclose
herewith a list of the fixtures and fittings which are to be sold to your
client for the sum of £500.
March 6,
Coningsby to Clutton, Moore:
The fixtures
and fittings listed are agreed. Please send us office copy entries immediately
since this matter was negotiated on February 8 and our client wishes to proceed
without delay. If you prefer to cover the matter by the use of a normal
contract, please supply the same in duplicate.
April 5,
Clutton, Moore to Coningsby:
We now
enclose draft contract for approval together with a copy for your use.
The draft
contract enclosed is a contract in ordinary form by reference to the Eighteenth
Edition of the National Conditions of Sale. The purchase price is stated as £50,000.
Then the special conditions included this condition:
Notwithstanding
that the completion date is fixed by this contract to take place on the (blank)
day of (blank) 1972
–in fact the
completion date is left blank–
should the
vendor desire to do so she shall be at liberty to give to the purchaser six
weeks’ written notice that she requires completion of the sale and purchase and
the purchaser shall be required to complete his purchase six weeks from the
date of the receiving of such notice.
On April 13,
Coningsby to Clutton, Moore:
We now have
pleasure in enclosing some preliminary inquiries to which as a matter of
courtesy we shall be glad to have your replies. We also return the form of
contract prepared by reference to the National Conditions of Sale to which we
have no objection other than for the deletion of Special Condition F.
That is the
special condition which I have just read.
We think that
the position is that there is already an existing agreement for sale dated
February 8 1972 providing that completion is to be agreed mutually and to take
place within one year from that date when vacant possession is to be given.
Accordingly the outside date for completion appears to be February 8 1973
unless mutually agreed before then, and it is upon this basis that the deletion
from the contract has been made. When we hear from you with replies to the
enclosed inquiries we expect exchange of the contract under the National
Conditions of Sale can take place with completion on or before February 8 1973.
Then on April
26, Clutton, Moore to Coningsby:
We now return
your preliminary inquiries with our replies and look forward to receiving the
part of the contract signed by your client.
May 9,
Coningsby to Clutton, Moore:
We enclose
the contract signed by our client purchaser in this matter with a further
cheque for £1,000. The date for completion is, of course, on or before February
8 1973.
Then followed
a delay of some two months. On July 11 1972, Clutton, Moore to Coningsby:
As arranged
with you on the telephone, we return your cheque for £1,000 in respect of the
above property. P.S. If your client wishes our client to return the £1,000 paid
to Mrs Herrtage we will send you a cheque immediately on hearing from you.
July 13,
Coningsby to Clutton, Moore:
Thank you for
your letter of July 11 with the return of the cheque enclosed. Is your client
going to exchange the contracts prepared or are we to rely on the memorandum of
sale, registered on May 8?
August 3,
Clutton, Moore to Coningsby:
Mrs Herrtage
has instructed us to write on her behalf to clarify the situation with regard
to your client’s proposed purchase of her property at the above address. A
situation has arisen since your client saw Mrs Herrtage on February 8 1972
which will preclude her from proceeding with negotiations and exchange of
contracts with your client. Her husband was at the time seriously ill in
hospital and is now unable to move around other than within the confines of his
home. It has made it impossible for them to look for alternative accommodation,
added to which Mr Herrtage may have to return to hospital for an indefinite
period shortly. In view of these unforeseen circumstances, we are returning
your client’s initial deposit together with our client’s sincere apologies for
any inconvenience caused. Our client has asked us to say that any reasonable
expenses which your client may have incurred will willingly be met by him if
necessary. A cheque for £1,000 is enclosed.
Then on August
7, Coningsby to Clutton, Moore:
We thank you
for your letter of August 3, upon which we have taken our client’s instructions
in detail, but he has instructed us to return to you your client’s cheque which
he is not prepared to accept. The memorandum of sale stands, as does also the
caution registered on May 8 in the Land Registry, and completion in the
transaction is due on February 8 1973. Perhaps we may add for ourselves that we
have every sympathy with your client’s position.
I need not
read the subsequent correspondence, which led up to the issue on October 16 1972
of a writ in an action intituled 1972 D 2370. There was in evidence some
correspondence between Herring, Daw & Manners and Mr Damm, and also between
Garrard Smith and Herring, Daw & Manners. This correspondence, as is the
careful habit of estate agents, is copiously interlarded with the expression
‘subject to contract,’ but there is no evidence to suggest that Mr Damm himself
authorised the use of this expression. The most that could be said against him
on this correspondence is that on February 10 1972 Herring, Daw wrote to him,
‘Further to our recent conversation we understand that you are prepared to
proceed with the purchase of the above freehold property in the sum of £45,000
subject to contract,’ and in his reply next day he merely said, ‘I am pleased
to inform you that my offer for the sale of the house has been accepted.’ I do not think that really goes anywhere.
Pleadings were
delivered in that action, 1972 D 2370. Mr Damm, however, for reasons not now
material, discontinued that action, and on November 16 issued the writ in the
present action, 1973 D 600. I should read some two or three paragraphs from the
pleadings in the action. In the statement of claim, endorsed on the writ,
paragraph 2:
By a contract
made on February 8 1972 it was agreed that the defendant would sell and the
plaintiff would purchase the property [described in paragraph 1] for the sum of
£45,000; that the plaintiff would in addition purchase certain carpets and
other fixtures and fittings for a further £500; that the contract should be
completed on February 8 1973 or on such earlier date as might be mutually
agreed; and that vacant possession of the property would be given on
completion.
Paragraph 3:
The said
contract was made orally between the plaintiff and the defendant at a meeting
at the property. At the said meeting the plaintiff paid the defendant the sum
of £1,000 by way of deposit on account of the said sale, and the defendant
signed and gave to the plaintiff a receipt for the said deposit, in which the
terms of the said contract were set out.
Paragraph 4:
The defendant
alleges that it was a further term of the said contract that the plaintiff
would complete at any time the defendant required on being given one month’s
prior notice by the defendant. The plaintiff is willing to perform the said
contract with the addition of such further term as an alternative to the
contract pleaded in paragraph 2 hereof.
I need not
read the rest of the claim. The defence, paragraph 3:
It is
admitted that a meeting between the plaintiff and the defendant at the property
took place on February 8 1972. It is admitted that at the said meeting the
plaintiff paid to the defendant by cheque the sum of £1,000 and that the
defendant signed and gave to the plaintiff a receipt for such sum. It is denied
that any contract was made at such meeting or that such receipt set out the
terms of the contract alleged in paragraph 2 of the statement of claim or of
any other contract. The said sum was paid on account of any deposit which would
be payable under any contract for the sale of the property by the defendant to
the plaintiff if any such contract were to be made subsequently. No such contract
was ever made.
Paragraph 4:
The defendant
denies that the contract referred to in paragraph 4 of the statement of claim
was made but alleges that if such contract was made it contained the further
term therein mentioned and the defendant relies on section 40 of the Law of
Property Act 1925. The last sentence of that paragraph is not admitted.
I will mention
at this stage, in order to get the point out of the way, that I am not
satisfied that the parties ever agreed upon an amended date for completion as
alleged in paragraph 4 of the statement of claim and paragraph 4 of the
defence. I use the word ‘agreed’ without prejudice to the question whether they
became contractually bound at all.
The action was
consolidated with an action intituled 1972 H 9589 commenced by Mrs Herrtage, in
which she claims a declaration that no contract had been made and an order for
vacation of the caution. The actions came on for hearing on April 8 1974. The
principal witnesses were Mr Damm and Mrs Herrtage themselves. Significant
evidence was also given on one side by Mr Coningsby and on the other side by Mr
Herrtage. Certain other witnesses were called on behalf of Mr Damm, but it
would not be useful to refer specifically to their evidence, which in the event
threw no light on what took place on February 8. Before I return to the meeting
of February 8 1972, I should say something about the antigazumping device
recommended by Mr Coningsby and put into practice by Mr Damm. The basis of this
advice was that the purchaser should enter into an immediate binding contract
orally with the intending vendor, paying a deposit and taking a receipt which
would represent a memorandum sufficient to satisfy section 40 of the Law of
Property Act. The matter would then be put in the hands of the purchaser’s
solicitors, with instructions to proceed in the ordinary way with the
preparation of a written contract. Then, if all went well, the respective
solicitors would agree the terms of a written contract and the written contract
would be signed, the memorandum never being mentioned again. Only if the vendor
resiled from entering into a written contract would the oral contract and the
memorandum be relied upon. Whatever the ethical merits of gazumping, it seems
to me that this counter-device comes very near sharp practice and could easily
be used as an engine of fraud. I would make it clear that I am not intending to
imply that Mr Damm was guilty of any fraud in the present case. A lay vendor
and purchaser normally discuss terms in the expectation that if they reach
agreement in principle, the terms will be incorporated in a written document
with a number of other terms, and that they will not be contractually bound
until that written document is signed. It is, of course, possible for them to
bind themselves orally, and the purchaser may make it clear to the vendor that
that is what he is proposing, but bearing in mind the normal practice in this
connection, there is obviously room for misunderstanding, and worse, in this
transaction at an oral interview from discussion to binding contract. Then
again, the transaction is recorded in the document described as a receipt. This
receipt would serve as a memorandum against the vendor but not against the
purchaser. If indeed the parties intend to bind themselves forthwith, the
obvious and straightforward course would be for both of them to sign a document
containing the terms of the contract and for that document to be described as
an agreement. Mr Coningsby in his evidence described the nature of this device
in detail, and gave the interesting reply that it was not particularly tricky
or unfair.
I must mention
one other point, although this point has no direct bearing on the issue in the
present action. In the draft contract the purchase price is stated to be £50,000,
whereas it was in truth £45,000, the difference representing repairs which the
purchaser would expect to do in order to bring the property into proper
condition. The object of this overstatement of the price was to facilitate a
mortgage. This overstatement of the purchase price was obviously improper, and
the solicitors concerned ought not to have lent themselves to it.
I turn now to
the events of February 8 1972. Mr Damm is a youngish man, as I have said, of
very considerable intelligence. He was not a man who would lightly permit
himself to be overreached, and he had been put on his guard by previous
experience of gazumping. He approached the present transaction with the purpose
of tying Mrs Herrtage down if he could. This was in itself in no way improper,
but the method employed, the anti-gazumping device, was one which calls for
careful scrutiny of what took place. Mrs Herrtage is a well-to-do lady,
sensible, but without business experience. She was accustomed to rely in all
business
8 and is still very much an invalid, although he was able to give evidence from
a wheel chair. Mr Damm’s account of his interview with Mrs Herrtage on February
8 is as follows. It will be remembered that Mr Doe, the surveyor, left, and Mr
Damm and Mrs Herrtage then went together into another room, actually the study,
and discussed the intended purchase. Mr Damm says: ‘I said that provided there
was a binding agreement on the spot, I would make a firm offer and pay a
non-returnable deposit straightaway and commit myself to the purchase.’ He said: ‘I told Mrs Herrtage I was being
pressed by my own purchaser, and that was a reason for binding myself there and
then.’ Then they discussed the time for
completion. Mrs Herrtage said she would be willing to sell at £45,000 plus £500
for fixtures and fittings. He agreed. ‘We reached a firm agreement at
£45,500.’ She said, as was the fact,
that she was the sole owner. Then he identified the memorandum as being in his
handwriting and said: ‘That was intended as a record of our agreement.’ Then he said he would leave a deposit of
£1,000 as part of the agreement. This £1,000 related to late completion. ‘It
would be unreasonable to leave £4,500,’ that is, 10 per cent. He said: ‘I
insisted on an outside date, and suggested one year.’
Then,
according to Mr Damm, Mrs Herrtage took the document out of the room with her,
returned and said it was OK to sign, and did sign. He gave her a cheque when
she signed the memorandum, and she appeared delighted with the sale. ‘I would
not have handed her £1,000 unless there had been a binding agreement.’ Then he said: ‘She made no mention of her
solicitors until I was about to leave, and then told me their name.’ I have already said that I do not accept his
evidence on that point. He then goes on to the interview with Mr Coningsby. In
cross-examination he adhered to his account. He said: ‘I told her verbally on
February 8 that it was to be binding’–that is, the contract; and he was anxious
to get on that day a binding agreement. Mrs Herrtage knew it, and nothing was
said about her husband in hospital. He denied telling her that the contract
would be binding when drawn up; that means a future written contract. He
explained his instructions to Mr Coningsby to pay another £1,000 as being by
way of goodwill. He also said he asked Mrs Herrtage whether she wanted to speak
to her husband and she replied that she was the sole owner. So, according to Mr
Damm, he set the scene from the start for the formation of an immediate binding
oral contract, and they came to terms as to price and the date for completion
on that footing.
I turn next to
Mrs Herrtage’s account. She refers to a discussion as to the date of
completion, and she says: ‘Mr Damm told me he would like to give me £1,000
deposit. There was no mention of a contract. He wrote things down and asked me
to sign. Then I said I would prefer to leave it; my husband deals with my
business.’ He said: ‘I cannot leave
£1,000 without a receipt.’ She then made
an abortive telephone call to her bank, where she wanted to speak to the
manager. Then she telephoned to the hospital where her husband was. She could
not speak to him directly, because he was in a public ward where there was no
telephone, but she did give a message to a nurse who answered the telephone,
asking whether it was all right to sign the receipt, and the nurse came back
with the message that it would be all right. That was confirmed by Mr Herrtage.
Then, as I have already said, she deposed that she did not give Mr Damm the
name of her solicitors because she did not know it. It was not until the next
day that she telephoned the name through to him. The expression ‘subject to
contract’ was not used in the discussion between Mr Damm and Mrs Herrtage. So
Mrs Herrtage’s account is that although the discussion was not expressed to be
subject to contract, there was no reference to a binding contract; they simply
came to terms in principle; and she said she telephoned her husband, through
the nurse, and got the reply that it was all right to sign the receipt. I need
not, I think, refer further to Mr Herrtage’s evidence.
I am unable to
accept the evidence of Mr Damm in so far as he deposes that at the outset or in
the course of the meeting of February 8 he told Mrs Herrtage that he wished to
make an immediate binding contract and that she came to terms on that basis.
Equally, I accept the evidence to the contrary of Mrs Herrtage. The latter
seemed to me to be a reliable witness, and the inherent probabilities favour
her account. It must be unlikely to a degree that this lady, with no business
knowledge and having to rely on her husband in business matters, would have
considered binding herself in this rather offhand way, without any advice, to
the sale of her extremely valuable property. Again, if that had been her
intention, she would naturally have put her signature to a document described
as an agreement rather than as a receipt. It is not possible to find a great
deal of support for either account, or the reverse, in the correspondence. It
is, however, worth pointing out that in Mr Coningsby’s attendance note there is
no reference to a binding contract having been made. In the first letter which
he wrote on February 10 1972 Mr Coningsby made a request that his client should
‘be called upon to pay not more than a 5 per cent deposit in view of the
magnitude of the price.’ That looks like
the negotiation of a term of a prospective contract. Then again, in the course
of the correspondence Mr Coningsby, although he sent the receipt with his
letter of February 10 describing it as ‘a document,’ did not until April 13
take specifically the point that there was a written and existing agreement for
sale. The nearest he came to that before April 13 was his reference in the
letter of February 28 to the receipt being ‘a satisfactory memorandum of sale,’
which to my mind is something quite different. I appreciate that Mr Coningsby’s
reticence as to the existence of a binding contract was part of the anti-gazumping
device as explained by him, but it seems to me that a party who plays this sort
of double game cannot complain if the evidence does not turn out to support the
contention he ultimately makes as to what really happened.
As I have
said, there is very little in the subsequent correspondence or the
documentation which corroborates or otherwise the oral evidence of the two
principal parties as to what took place on February 8 1972, and I do not think
I can usefully elaborate my finding further. It is perhaps unnecessary to point
out that where parties use words of offer and acceptance in connection with a
transaction, it depends on the circumstances whether their intention is or is
not to bind themselves contractually. Prima facie, no doubt, unqualified
words of offer and acceptance have this result. On the other hand, the parties
may intend no more than to agree in principle terms which are to form part of
the contract, and this position arises particularly in the case of a contract
for the sale of land, where the contract normally includes a variety of terms
in addition to price and date of completion. In order to determine the
intention of the parties, one must look at the whole of what took place and
passed between them. I was referred in this connection to the well-known
statement of Lord Cairns in the case of Hussey v Horne-Payne
(1874) 4 App Cas 311. The observations in this passage are equally applicable
to an oral contract or to an oral contract with a written memorandum. It is not
necessary, although obviously prudent, in this connection that the parties
should expressly use the words ‘subject to contract,’ or the like, if they wish
to exclude the implication of a contractual intention. For the reasons which I
have given, I conclude that no binding contract was made between Mr Damm and
Mrs Herrtage. I must therefore dismiss this action D 600 and make an order for
vacation of the caution as asked in the other action, H 9589.
The defendant
was awarded the costs of the consolidated action.
