Sale of land–Case involving third party proceedings raising interesting points on law of sale–A right to recover damages for breach of contract may remain unaffected in circumstances where equity might have intervened to relieve a party of other consequences of breach–Failure of vendor to complete on due date for reasons unconnected with title–Loss caused to purchaser (through liability in other transaction)–Notice given to complete sale within a stipulated reasonable time–Completion by party in default within that time–Right of purchaser to damages not affected–Incorrect view that vendors are bound only to complete on completion date or within a reasonable time thereafter–Proposition in Smith v Hamilton criticised–Notice to complete does not discharge any accrued right of action–Third parties held liable to indemnify defendants against claim for loss by plaintiff purchaser from defendants
This was an
appeal from a decision of Whitford J in third party proceedings in which
Gruffydd Miles and Beryl Miles, defendants in an action brought by Carlo
Raineri as plaintiff for expenses incurred by delay in completion, sought an
indemnity from the third parties, Sygmunt Wiejski and Matilda Wiejski, in
respect of the plaintiff’s claim. The plaintiff had recovered summary judgment
against the defendants for damages. The facts and the arguments are set out in
the judgment of Buckley LJ. Whitford J had dismissed the defendants’ claim
against the third parties and the defendants appealed from his decision.
Alan Steinfeld
(instructed by Collyer-Bristow & Co, agents for Barlows and Wells &
Philpot, of Guildford) appeared on behalf of the appellants (defendants); John
Weeks (instructed by Waterhouse & Co, agents for Hart, Brown & Co, of
Guildford) represented the respondents (third parties); the plaintiff was not
represented and took no part in these proceedings.
Giving
judgment, BUCKLEY LJ said: This case raises a point of general interest on the
law of the sale of land. It seems, surprisingly, to be devoid of direct
judicial authority. If one party to a contract for the sale of land fails to
complete the contract on the stipulated completion date for reasons unconnected
with making or accepting a good title to the land or other conveyancing
reasons, the other party being then able, ready and willing to complete,
whereby the innocent party suffers damage, and if the innocent party thereafter
serves a notice to complete the contract within a stipulated reasonable time
and the party in default does complete the contract within that time, can the
innocent party recover the damage he has suffered by reason of the original
default?
By a contract
dated June 14 1977 the third parties in this action agreed to sell a freehold
residential house in Guildford to the defendants for £25,500. The contract
incorporated the Law Society’s Conditions of Sale 1973, with the exclusion of
Condition 6(1) and 16(4). It provided that the purchase should be completed on
or before July 12 1977, when vacant possession should be given to the
purchasers.
The
defendants, also on June 14 1977, entered into a contract for the sale by them
to the plaintiff of the house in Ealing in which they were then living. That
contract also stipulated that the transaction should be completed on July 12
1977, with vacant possession on completion.
In neither
case was the time for completion expressed to be of the essence of the
contract.
The third
parties had contracted to buy another house. For this purpose they apparently
needed to raise £30,000, which they proposed to do by way of two mortgages of
that other house, each for £15,000. One of the lenders, however, proved at a
very late stage to be unwilling to lend more than £10,000 with the result that
the third parties were £5,000 short of the amount necessary to complete their
purchase.
Late on Monday
July 11 the defendants’ solicitors were told that the third parties could not
complete their contract with the defendants on the following day. They
immediately informed the plaintiff’s solicitors, but the plaintiff himself had
already vacated his previous house, which was in Warrington, and was on the
road to London with his furniture, intending to take possession of the house in
Ealing on the following day, July 12.
In consequence
of the third parties’ failure to complete their contract with the defendants on
July 12 1977, the defendants were prevented from giving the plaintiff vacant
possession of the house at Ealing and so could not complete their contract with
the plaintiff on that day in accordance with its terms.
On July 13
1977 the defendants, being then able, ready and willing to complete the
contract, gave the third parties notice pursuant to condition 19 of the Law
Society’s General Conditions of Sale to complete their contract within 28 days.
The third parties’ financial difficulties were resolved in time to enable them
to vacate the house in Guildford and complete their contract with the
defendants on August 11 1977. The defendants’ contract with the plaintiff was
completed on the same day and the plaintiff was let into possession of the
Ealing house. Between July 12 and August 11 the plaintiff had necessarily
incurred expense in providing himself and his family with living accommodation.
He sued the defendants in damages and recovered summary judgment for damages to
be certified on inquiry. The defendants served the third parties with a third
party notice claiming indemnity against the plaintiff’s claim on the ground of
the failure of the third parties to give vacant possession of the house at
Guildford on or before July 12. The third party proceedings came before
Whitford J who, on October 19 1978, dismissed them. The defendants appeal from
that decision.
It was common
ground before Whitford J that, if the third parties were in breach of their
contract by reason of their failure to complete on July 12 1977, they were
liable to indemnify the defendants against their liability to the plaintiff.
The third parties’ case here and below has been that they were never in breach
of their contract. They contend that on the true construction of that contract
they were only bound to complete on July 12 1977 or within a reasonable time
thereafter. Consequently there could be no breach until a reasonable time after
July 12 had elapsed. They further submit that the effect of the notice to
complete was to substitute for July 12 1977 a new date for completion, and that
they fulfilled the contract as so varied. The learned judge reached his
conclusion on the following ground stated at the end of his judgment:
I have come
to the conclusion that accepting, as on the authorities I think I ought to
accept, that notwithstanding the fact that a failure to meet an original date
for completion may not constitute a breach sufficient to bring an agreement to
an end it may none the less in appropriate circumstances amount to what could
be described as a partial breach giving rise to a good claim in damages; it
does in fact only do so if the failure arose from some unreasonable action or
inaction on the side of the person who failed. The claim can only be good if it
can be established that a person in default had not acted reasonably in doing
what they in fact did. It was not suggested before me that any such case could
be made out against the third parties on the facts and in the result I have
come to the conclusion that the defendants are not entitled to the relief which
they seek against the third parties.
It will be
convenient to deal first with the point of construction. Upon this Mr Weeks,
for the third parties, relied
[1973] 3 All ER 873; Woods v Mackenzie Hill Ltd [1975] 1 WLR 613
and Smith v Hamilton [1951] Ch 174. In the first of these cases
purchasers, having given a notice to complete which was held to have made time
of the essence of the contract, and with which the vendors had not complied,
sued for return of their deposit and damages. They were successful. The
original time for completion in that case was 60 days after July 12 1972, which
was the date of the contract. On October 31 1972 the purchasers wrote the
letter set out in the judgment at p 874 at H. Goff J held (at p 877 at H) this
letter to be a sufficient notice to make time of the essence pursuant to the
contract. The learned judge, having held that the purchasers’ case did not
there depend on repudiation by the vendor, said: ‘As time was originally not of
the essence, there was no breach of contract either at law or in equity at the
expiration of 60 days, but provided proper steps were taken to make time of the
essence, then the defendants’ failure to perform on the date so made essential
would be a breach of contract at law and in equity.’ He then cited a passage from Williams on
Vendor and Purchaser, 4th ed p 991, which includes the following:
It follows
that, except where time is of the essence of the stipulation, a breach of
contract is only committed in the case of unreasonable delay in the performance
of any act agreed to be done. For example, where time is not essential, a party
failing to complete a sale of land on the day fixed therefore by the agreement
does not then commit a breach of contract either in equity or law; it is only
on failure to complete within a reasonable time after that date that the
contract is broken.
The
plaintiffs’ right to relief in that action did not depend upon whether there
had been a breach of contract at the expiration of the 60-day period. Once it
had been decided that the letter of October 31 1972 was an effective notice to
complete for the purposes of the contract, the plaintiffs’ right to relief
flowed from the undoubted breach of contract involved in the vendors’ not
completing in accordance with that notice. Consequently the passage which I
have read from the judgment was, in my opinion, obiter.
In Woods
v Mackenzie Hill Ltd vendors sued for specific performance for a
contract of sale of land. The contractual date for completion was September 30
1974, but the contract was not then completed. Two of the three vendors
purported to give a notice to complete pursuant to the contract, but this was
invalid. On November 8 1974 the vendors issued a writ claiming specific
performance. Megarry J held that the service of a notice to complete was not a
condition precedent for the enforcement of the contract and that, since more
than a reasonable time for completion had elapsed, the plaintiffs were entitled
to specific performance. In the paragraph which starts at the foot of p 615,
Megarry J twice refers to the contractual obligation of the parties ‘to
complete on the date fixed for completion or within a reasonable time
thereafter.’ He was not concerned with
the question whether a breach of contract had occurred on September 30 1974,
but with whether the delay after that date had been so great as to amount to an
unreasonable delay justifying a decree of specific performance without any
notice to complete having been served.
In Smith
v Hamilton a purchaser sued for the return of her deposit and the vendor
counterclaimed for a declaration that the deposit was forfeited. By the terms
of the contract completion with vacant possession was fixed for April 4 1949.
The purchaser was unable to complete on that date. By a letter dated April 5
1949 the vendor agreed to an extension of the time to complete in terms which
were held not to have made time of the essence of the contract. On May 4 1949
the purchaser was in a position to complete but the vendor had in the meantime,
but after the end of the agreed extension, sold the property elsewhere. The
contract incorporated the following Condition 25 from the National Conditions
of Sale:
If the
purchaser shall neglect or fail to complete his purchase according to these
Conditions, his deposit shall thereupon be forfeited (unless the court
otherwise directs) to the vendor . . . and the vendor may, with or without
notice or without previously tendering a conveyance, resell the property at
such time, and in such manner and subject to such conditions as he shall think
fit.
Harman J held
that the vendor’s rights under the contract were governed by that condition,
and that the true construction of the special condition fixing the date for
completion was that the purchaser should complete on the day fixed or within a
reasonable time thereafter; but that such a time had not elapsed and the
remedies given by National Condition 25 did not become available until the
purchaser had, by her delay, deprived herself of the right to specific
performance, which would not be so at the end of only 14 days after the date
fixed for completion. He therefore held that the purchaser was entitled to the
return of her deposit.
In all three
of these cases the learned judges used language capable of giving colour to the
third parties’ contention in the present case, but only in Smith v Hamilton
can it be said that the relevant remarks formed part of the ratio decidendi.
As I understand Harman J’s judgment, he was saying that the special condition
in that case which required completion on April 4 1949 should be construed as
requiring completion on that date or within a reasonable time thereafter with
the consequence that the rights of forfeiture and resale under Condition 25 of
the National Conditions could not accrue until the purchaser had failed to
complete within a reasonable time after April 4.
The authority
cited in Williams on Vendor and Purchaser (4th ed p 991) for the
proposition that it is only on failure to complete within a reasonable time
after the date contractually fixed for completion that the contract is broken
is Howe v Smith (1884) 27 Ch D 89. In that case a contract for sale
provided that the purchase should be completed on a day named and that if the
purchaser should fail to comply with the agreement the vendor should be at
liberty to resell and to recover any deficiency in price as liquidated damages.
The purchaser was not ready with his purchase money on the date fixed for
completion, and after repeated delays on the purchaser’s part the vendor resold
the property. The purchaser brought an action for specific performance. Kay J,
who was affirmed in this court, held that the purchaser had lost his right to
enforce specific performance by reason of his delay. In the Court of Appeal the
purchaser was allowed to raise an additional claim to repayment of his deposit.
The judgments in this court were mainly concerned with the nature of a deposit
and the rights of the parties in it. The court decided that the purchaser had
by his delay not only debarred himself from any right to seek specific
performance but had repudiated the contract. In these circumstances the
purchaser was held not to be entitled to the return of his deposit. In my
judgment, the case is no authority for the proposition in support of which it
is cited in Williams.
At common law
a term of a contract stipulating when the contract should be performed was
always regarded as an essential term of the contract, but, as Lord Parker
pointed out in Stickney v Keeble [1915] AC 386 at p 415, in
contracts for the sale of land equity, having a concurrent jurisdiction, did
not look upon the stipulation as to time in precisely the same light. Where it
could do so without injustice to the contracting parties it decreed specific
performance notwithstanding failure to observe the time fixed by the contract
for completion, and as an incident of specific performance relieve the party in
default by restraining proceedings at law based on such failure. See also per
Lord Loreburn at p 400 and Lord Atkinson at p 401. Since the statutory fusion
of law and equity in 1873 it has been enacted (Supreme Court of Judicature Act
1873, section 25 (7) now re-enacted in slightly different language in the Law
of Property Act 1925, section 41) that stipulations of a contract, as to time
or otherwise, which according to rules
are also to be construed and have effect at law in accordance with the same
rules. The third parties rely on section 41 on the point of construction. But,
as was pointed out by Lord Cairns and Rolt LJ in Tilley v Thomas
(1867) 3 Ch App 61, the construction of a contract must be the same in equity
as in a court of law (see also Stickney v Keeble per Lord
Atkinson at p 402 and Lord Parker at p 417, and Lock v Bell
[1931] 1 Ch 35, per Maugham J at p 43). A clause which provides in terms that
the contract shall be completed on a named day cannot, in the absence of a
clear context, be construed as meaning that it shall be completed on some later
day. Its effect may be modified by equitable rules, but the meaning of the
language cannot be.
In equity a
party to a contract who is seeking equitable relief was not barred merely by an
earlier failure on his part to comply precisely with a completion date. So long
as a court of equity would have disregarded a failure to comply with a time
stipulation for the purpose of granting the equitable remedy of specific
performance, it would have restrained an action at law based on that failure.
In considering whether to restrain an action at law the Court of Chancery took
cognizance of everything which had happened up to the date of the decree
restraining the action at law. Since the fusion of law and equity the High
Court is to have regard to all those events and is to grant or withhold the
common law remedy of damages for breach of contract upon the principles which
would have actuated the Court of Chancery in permitting or restraining
proceedings at law (Stickney v Keeble, per Lord Parker at p 417).
This is, in my opinion, the whole effect of the Law of Property Act 1925,
section 41, relevant to this case. It does not negative the existence of a
breach of contract where one has occurred, but in certain circumstances it bars
any assertion that the breach has amounted to a repudiation of the contract.
Thus, if a purchaser has failed to complete on the contractual completion date,
he may still recover damages which he has suffered by reason of some default by
the vendor if he was ready and willing to complete within a reasonable time
after that date (Howe v Smith supra per Fry LJ at p 103). This is
not because the purchaser committed no breach of contract in failing to
complete on the fixed date, but because equity would not allow the vendor to
rely upon that breach in the circumstances.
In the present
case the third parties undoubtedly committed a breach of their contract with
the defendants in the contemplation of the common law by failing to complete
with vacant possession on July 12 1977. It was also, in my judgment, a breach
of the contract as it would be construed in equity, since the contract would
fall to be construed in precisely the same way in equity as at law. Had the
third parties had occasion to sue for specific performance of the contract, the
defendants could very probably not have relied upon that breach as a ground for
avoiding an order for specific performance; but the third parties, being the
parties in default, never had occasion to seek equitable relief. None of this,
in my judgment, affords any ground for construing the contract otherwise than
in accordance with its clear terms. In my judgment, Harman J, whose attention
was not drawn in Smith v Hamilton to either Tilley v Thomas
or Stickney v Keeble, was mistaken in accepting the argument in Smith
v Hamilton that the condition fixing the completion date at April 4 1949
should be construed as though it required completion on that date or within a
reasonable time thereafter. For these reasons, in my judgment, the third
parties fail on the question of construction.
The next
question is the effect upon the rights and obligations of the parties of the
service of a notice to complete under Condition 19 of the Law Society’s General
Conditions of Sale, paragraphs (2) and (3) of which provide as follows:
(2) If the sale shall not be completed on the
date fixed for completion either party may on that date or at any time thereafter
(unless the contract shall first have been rescinded or become void) give to
the other party notice in writing to complete the transaction in accordance
with this condition but such notice shall only be effective if the party giving
the same at the time the notice is sent is either ready, able and willing to
complete or is not so ready, able and willing by reason of the default or
omission of the other party to the contract.
(3) Upon service of an effective notice pursuant
to the preceding clause it shall be an express term of the contract that the
party to whom the notice is given shall complete the transaction within
twenty-eight days after the day of service of the notice (excluding the day of
service) and in respect of such period time shall be of the essence of the
contract but without prejudice to any intermediate right of rescission by
either party.
Paragraph (4)
of the condition states what shall be the consequences of failure by a
purchaser to comply with such a notice and paragraph (5) what shall be the
consequences of failure by a vendor.
The third
parties contend that upon the service of a notice pursuant to this condition
the contract is varied by the substitution of the date for completion
stipulated in the notice for the original contractual date fixed for
completion, thus eliminating the latter and substituting a new term of the
contract that the contract shall be completed on the date specified in the
notice. If the party upon whom the notice is served completes the sale on or
before the new date for completion, the third parties submit that there has
been no breach of contract, for the contract has been completed in accordance
with the substituted term. True, Condition 19(3) preserves any intermediate
right to rescission by either party, but not subsisting right of action based
on failure to complete on or before the date originally fixed for completion is
preserved. If the contract is completed within the time permitted by the
notice, there has in the event been no breach of the contract. So runs the
argument.
In my judgment
this is not the true effect of the condition. The service of a notice under the
condition, which presupposes that the sale has not been completed on the
contractual date, makes new rights and remedies available to the party who
serves the notice in the event of the party served failing to comply with it.
There is nothing in its terms which has the effect of discharging any accrued
right or cause of action vested in the party who serves the notice. In other
words, as Mr Steinfeld submitted, the service of a notice under Condition 19
gives the party serving the notice additional rights and remedies, but does not
detract from pre-existing rights or remedies. Accordingly, in my judgment, the
service of the notice to complete in the present case did not deprive the
defendants of any cause of action in damages which may have accrued to them
before the service of the notice by reason of their failure to complete the
contract on July 12 1977.
There is, of
course, a distinction to be drawn between a breach of contract of so grave a
character as to constitute a repudiation of the contract by the defaulting
party and a breach of contract which will sound only in damages without
amounting to a repudiation; but with deference to Whitford J I do not think
that there can be such a thing as a ‘partial’ breach, unless the expression be
used to describe a breach of part only of a contract. An alleged breach of a
contract must either be, or not be, a breach. If it is a breach, the fact that the
offending party asserts that he acted reasonably cannot make it any less a
breach. At law a failure to complete punctually in accordance with a time
stipulation is a fundamental breach amounting to repudiation; but not so in
equity if the time stipulation is not of the essence of the contract. At law
every breach of contract sounds in damages, but in some circumstances already
referred to equity will not permit the injured party to pursue that remedy. For
reasons which I have already given I do not think that equity can in the
present case shield the third parties from liability for their breach in
failing to complete on July 12 1977. Since it is conceded that, if the third
parties are liable in damages, the measure is that which is necessary to indemnify
the defendants against their liability to the plaintiff, I have reached a
different conclusion from that of the learned judge.
For these
reasons I would allow this appeal.
BRIDGE LJ
agreed.
Agreeing that
the appeal should be allowed TEMPLEMAN LJ said: A contract for the sale of a
dwelling-house provided for completion on July 12 1977. The vendors did not
complete until August 11 because they could not raise enough money to complete
the purchase of their new dwelling-house. The vendors now dispute their liability
to the purchasers for damages arising out of the delay.
The question
is whether a vendor of land under a contract which does not make time of the
essence, who fails to complete on the contractual date for completion, is
liable for damages for the delay. Where time is not of the essence, a breach of
contract as to time will not entitle the aggrieved party to treat the contract
as at an end or constitute a bar to specific performance at the suit of the
party in default, unless there has been unreasonable delay or there are other
circumstances which render specific performance unfair.
Thus in Stickney
v Keeble [1915] AC 386 the effect of a breach of contract as to time was
explained by Lord Parker of Waddington at p 415 as follows:
In a contract
for the sale and purchase of real estate, the time fixed by the parties for
completion has at law always been regarded as essential. In other words, courts
of law have always held the parties to their bargain in this respect, with the
result that if the vendor is unable to make title by the day fixed for
completion, the purchaser can treat the contract as at an end and recover his
deposit with interest and the cost of investigating the title. In such cases,
however, equity having a concurrent jurisdiction, did not look upon the
stipulations as to time in precisely the same light. Where it could do so
without injustice to the contracting parties it decreed specific performance
notwithstanding failure to observe the time fixed by the contract for
completion, and as an incident of specific performance relieved the party in
default by restraining proceedings at law based on such failure. This is really
all that is meant by and involved in the maxim that in equity the time fixed
for completion is not of the essence of the contract, but this maxim never had
any application to cases in which the stipulation as to time could not be
disregarded without injustice to the parties, when, for example, the parties,
for reasons best known to themselves, had stipulated that the time fixed shall
be essential, or where there was something in the nature of the property or the
surrounding circumstances which would render it inequitable to treat it as a
non-essential term of the contract. It should be observed too that it was only
for the purposes of granting specific performance that equity in this class of
case interfered with the remedy at law.
Likewise,
Harman J in Smith v Hamilton [1951] Ch 174 at p 179, said:
The equitable
view which . . . has prevailed for a long time in the case of real estate, is
that the court looks to the substance of the matter and will not allow the
existence of dates to alter the general view that the contract is to be
performed if it is just and equitable to do so, notwithstanding that the time
may be overrun in certain respects.
It appears
that equity intervenes to prevent a breach of contract which sounds in damages
from being exploited by a vendor so as to recover, or by a purchaser so as to
repudiate, the equitable interest in land created by the contract. But there is
no justification for the intervention of equity to relieve either vendor or
purchaser from liability for damages which he has caused by his breach of
contract in failing to complete on the contractual date for completion.
In Jacques
v Millar (1877) 6 Ch D 153 damages were awarded against a vendor in
addition to specific performance in respect of delay caused by his refusal to
carry out a contract. The measure of damages was held to be such damages as may
reasonably be said to have arisen naturally from the delay or which may
reasonably be supposed to have been in the contemplation of the parties.
In Jones
v Gardiner [1902] 1 Ch 191 damages for delay were awarded because ‘a
very considerable part of the delay which has occurred in carrying out the
contract (after making full allowance for the time which may fairly be
considered to have been due to difficulties in making out title and to a
controversy as to the form of the conveyance) has arisen entirely from the
default of the vendor . . . default, that is, in doing what he reasonably and
fairly could have done had he been duly careful to fulfil his contract.’
In Phillips
v Lamdin [1949] 1 All ER 770 Croom-Johnson J held that damages for delay
can be awarded against the vendor where a contract is completed or enforced,
where time is not of the essence and where the delay has been caused by default
of the vendor and not by want of, or defect in, title or conveyancing difficulties.
In the present
appeal Mr Weeks, who appeared for the vendors, relied on dicta in two
authorities and passages in textbooks in support of a submission that where
time is not of the essence, the contract only requires completion on the date
fixed for completion or within a reasonable time thereafter; the vendors,
having completed in a reasonable time in the present case, have not committed a
breach of contract and are therefore not liable in damages for the delay.
In Smith
v Hamilton [1951] Ch 174 the contract provided a date for completion and
authorised the vendor to forfeit the deposit and resell ‘if the purchaser shall
neglect or fail to complete his purchase according to these conditions.’ The purchaser failed to complete on the
contractual date and the vendor then purported to forfeit the deposit and treat
the contract as at an end. Harman J held that time was not of the essence and had
never become of the essence. The right to forfeit and resell never became
exercisable because the purchaser had not by excessive delay or other
circumstances deprived himself of the equitable remedy of specific performance.
In reaching that conclusion, the correctness of which is not in question, the
learned judge expressed the view that because time was not of the essence the
contract must be construed as a contract for completion on the day fixed ‘or
within a reasonable time thereafter.’
In Babacomp
Ltd v Rightside Properties Ltd [1973] 3 All ER 873 the validity of a
notice making time of the essence was upheld and the correctness of that
decision is not in question. In the course of his judgment Goff J quoted a
passage from Williams on Vendor and Purchaser 4th ed (1936) p 991 which
correctly advised that a notice making time of the essence must (in the absence
of special conditions governing the sale) allow a reasonable time for
compliance. But the reason proffered for this advice was that ‘where time is
not essential a party failing to complete a sale of land on the day fixed
therefor by the agreement does not commit a breach of contract either in equity
or law; it is only on failure to complete within a reasonable time after that
date that the contract is broken.’
That
proposition, and similar statements in other textbooks, is relevant where the
court is considering whether a contract in respect of which time is not of the
essence is still subsisting. In deciding whether specific performance should be
awarded notwithstanding delay, it may be helpful to treat the contract as
though it had expressly provided for completion on a fixed date or within a
reasonable time thereafter. But if in truth the contract provides for
completion on a fixed day, there is no warrant for any implication and it is
not the task of equity to amend or rewrite the contract. Where time is not of
the essence a breach of contract with regard to completion is not a bar to
specific performance unless unreasonable delay or other circumstance renders
specific performance unfair. But equity does not need to expunge a breach of
contract in order to award specific performance and has no need to deprive, and
no warrant to deprive, the party aggrieved by the breach of a claim for damages
which the aggrieved party has suffered by reason of the breach. Equity only
modifies those consequences of a breach which prevent specific performance,
consequences which would otherwise be out of all proportion to the damage
suffered as a result of the breach.
Mr Weeks
relied in the alternative on section 41 of the Law of Property Act 1925. That
provision only preserved the priority and did not alter the nature of the rules
of equity.
Mr Weeks also
relied on Condition 19 of the Law Society’s General Conditions of Sale (1973),
which were incorporated in the contract under discussion. The condition allows
a notice to complete to be served, and by Condition 19(3) thereupon ‘it shall
be an express term of the contract that the party to whom the notice is given
shall complete the transaction within twenty-eight days after the day of
service of the notice . . . and in respect of such period time shall be of the
essence. . . .’ Mr Weeks submitted that
this power when exercised substituted a new and later date of completion for
the date originally agreed. But a notice to complete can only be served in the
words of Condition 19(2) ‘if the sale shall not be completed on the date fixed
for completion.’ Condition 19 creates a
second date for completion. As regards that date time is expressly made of the
essence. As regards the first date fixed by the contract if the vendor or
purchaser is in breach of contract, damages are payable. Of course, if a
reasonable offer to complete is made before the second date arrives it will be
the duty of the aggrieved party to mitigate damages by using his best
endeavours to accept earlier completion.
Finally Mr
Weeks submitted, as Whitford J had held, that the vendors in the present case
are absolved from liability because they were not guilty of wilful default. For
present purposes the definition of wilful default contained in Bennett v
Stone [1902] 1 Ch 226 at p 232 is appropriate, namely: ‘The result of
the authorities, I think, is this: that by the word ‘wilful’ is meant that the
vendor, being a free agent and in a position to do either one of two acts,
chooses to do the one and not to do the other; and that ‘default’ includes the
case where the vendor, owing to the purchaser the duty to act reasonably in all
matters relating to completion, does an act in breach of that duty.’
In the present
case the vendors had a choice between completing or breaking the contract. They
chose to break their contract and thereby to inflict damages on the purchasers.
For those damages the vendors are liable. In a good many cases a short delay
will not cause damage and if sufficient advance warning is given a purchaser
will be able to mitigate or prevent any damage and is under a duty to do so.
But where, as in the instant case, damage cannot be avoided, a vendor who
chooses not to complete must take the consequences.
For these
reasons, and for the reasons expressed by my Lord, Buckley LJ, I too would
allow the appeal.
The appeal was allowed with costs in the Court of
Appeal and below. An order was made in favour of the defendants in the action
in the terms of the third party notice. Leave to appeal to the House of Lords
was refused.
