Contract of sale signed by one joint tenant without the authority of the other–Signatory held to have represented to purchaser that he owned the house and was in a position to sell it–Substantial damages may be awarded for such a misrepresentation–Damages not limited by the rule in Bain v Fothergill–Gosling v Anderson [1972] Estates Gazette Digest 709 cited and passages from Lord Denning’s judgment quoted
This was a
claim by Mr Nigel Francis Kingsford Watts against Mr John Lloyd Spence and his
wife, Mrs Phyllis May Spence, both of 121 Clapham Manor Street, London SW4, for
specific performance of a contract dated February 8 1972 for sale of 121
Clapham Manor Street by them for £7,000. By an amendment allowed at the
hearing, the plaintiff claimed in the alternative damages for
misrepresentation.
Mr J R
Cherryman (instructed by H B Wedlake, Saint & Co) appeared for the
plaintiff, and Mr J F Parker (instructed by Clintons) represented the
defendants.
Giving
judgment, GRAHAM J said: In this case the plaintiff, Mr Watts, who is a
fine-art dealer and is also interested in a
Mr and Mrs Spence, who are coloured people and came to this country from
Jamaica some 18 years ago. The defendants jointly own a terraced house at 121
Clapham Manor Street, London SW4, and the action is about that house. The
plaintiff claims that he is entitled to specific performance of a contract
dated February 8 1972 and signed by Mr Spence to sell the house to him, and
failing a decision in his favour on that head, to a number of alternative heads
of relief against both or one of the defendants. The defendants’ main answer is
that the house is jointly owned by them and that Mrs Spence never signed the
contract or authorised Mr Spence to do so on her behalf.
The decision
on the issue of specific performance by both the defendants to convey the whole
of the title in the house to the plaintiff depends on a resolution of the
conflicting evidence in the case, a task which I have not found easy, since
there is little in the way of confirmatory written evidence and the balance of
probabilities does not point clearly in any direction. Certain matters are,
however, agreed or not disputed, as follows: Mr Spence signed the contract on
February 8 1972, at the house, and after discussion with the plaintiff. The
contract is exhibit P3, and consists of two sheets of paper each containing the
essential terms and each signed, and apart from Mr Spence’s signatures, the
document is in the handwriting of the plaintiff. The total price mentioned in
the contract is the figure of £7,000, and at that interview a sum of £500 was
paid to the defendant, Mr Spence, by the plaintiff. He gave Mr Spence a cheque
for that amount and wrote out the contract there and then in longhand. It also
now appears that at the same interview the plaintiff wrote out nearly identical
copies of the two sheets of the contract and gave these copies to Mr Spence for
retention. These copies, exhibit P4, were not disclosed by the defendant until
half-way through the trial, and I will deal with the evidence given by the
plaintiff in respect of them later. It is agreed that no suggestion can be
made, and none was made, that £7,000 consideration for the house was anything
other than a fair price at the time for the house in its existing condition.
The plaintiff was anxious to get it at that price so that in due course his
property company could renovate it and make a profit thereby. The plaintiff’s
evidence was that the £500 was paid as a deposit, but Mr Spence says it was not
a deposit but a loan, as mentioned hereafter.
Although
paragraph 4 of the defence alleges that Mrs Spence was ill in hospital on
February 8 1972, her answers to interrogatories Nos 1 and 3, ordered on July 3
1974, show that this allegation is incorrect and that she was in fact ill in
bed on February 8 1972 at 121 Clapham Manor Street. This is now not disputed.
The evidence of what happened at the interview is however disputed. The
interview took place in the front room of No 121, and only the plaintiff and Mr
Spence were present. The plaintiff says that Mr Spence made it clear that he
would not agree to sell the house without his wife’s concurrence, and in
particular her agreement as to the date of giving up possession. The original
proposal which the plaintiff made, as he says, was for possession within two
months, and (the plaintiff goes on) Mr Spence went and consulted his wife, who
was, it turns out, in the front bedroom above that where the interview took place.
He returned, saying that his wife objected to so short a period as two months
for giving up possession, and eventually the date of two years mentioned in P3
was agreed upon. The plaintiff says Mr Spence left the room three times for
periods of ‘about eight minutes,’ and the plaintiff says he assumed that he had
been upstairs to consult his wife and to get her consent. When he gave his
evidence for the first time, before P4 was discovered, the plaintiff was very
precise in his story as to his actions, particularly in relation to the
drafting of P3 and his insistence that Mr Spence should have a copy of the
second sheet of P3, which was signed by both of them for record purposes. There
was at that time no suggestion from him that he could not remember the precise
details of the interview. On the second occasion, after P4 had been discovered,
he gave evidence again and in relation to it was much less precise, being
uncertain whether he had drafted P3 and P4 at the same time and whether the
four pages were all signed together, or whether P3 had been drafted and signed
first and had been followed by the drafting and signing of P4. Mr Spence, on
the other hand, said that he never left the room except on one occasion to put
the kettle on because he had to go to work shortly thereafter. He denied that
he had ever consulted his wife and indeed insisted that he had never told her
anything about the sale.
These stories
conflict and cannot be reconciled, unless it be that Mr Spence in fact left the
room on more than one occasion and, though he may have given the impression of
having visited his wife to consult her, in fact did not do so. I am, however,
at this point bound to say that Mr Spence was an unsatisfactory witness and I
find it difficult to place any real reliance on anything he said unless I can
find something which corroborates it. He was vague, incoherent, and often
inconsistent. His main theme of what took place at the interview was that the
plaintiff was, he thought, a very nice man and was anxious to lend him £500
(the amount of the deposit) to make improvements to his house. When asked why
he thought the plaintiff should do this, he replied that the plaintiff owned a
house next door but one to No 121 and wanted him to do up No 121 so that there
would be less likelihood of the council taking over any of the houses in the
terrace, including that already owned by the plaintiff. I cannot give any
credence to most of Mr Spence’s utterances, which I found unconvincing. Turning
now to Mrs Spence, she was, it is agreed, in the front bedroom ill in bed at
the time of the interview. She gave her evidence in a careful, restrained and
dignified way and I believe what she said. She stated positively that she had
never given her husband authority to sell her share of the house. She said she
was happy in the house, which suited her and her children, and she certainly
did not want to move them on now. She said her husband ‘never told her
anything,’ by which she clearly was referring to business matters, and that he
certainly did not come and consult her on the day of the interview as presumed
by the plaintiff. It is also clear from the evidence that both Mr and Mrs
Spence were very hard-working and did not have much time to discuss business
matters. He was holding down two jobs and working shifts, and she was cooking
in an hotel till late in the evening or the early hours of the morning. She
positively denied that this was a case where she had originally agreed to the
sale of her share in the house but had afterwards had second thoughts, and said
that the first she knew of the proposed sale was when she saw the transfer form
(correspondence p 10) which was sent with the plaintiff’s solicitors’ letter of
February 17 1972 (p 8) to the defendants’ solicitors and sent on by them to Mr
Spence, as stated in their letter of February 22 1972 (p 12). She says she
protested to her husband, and it is certainly true that the defendants’
solicitors wrote their letter of March 6 1972 to the plaintiff’s solicitors (p
14) which is consistent with her protest having been made and transmitted to
them.
The plaintiff
sought to corroborate his story by the evidence that he, in company with his
brother-in-law, Mr Bowden, who is a shareholder in the property company of
which Mrs Bowden, his wife, is also a director, visited No 121 to have a look
around it one evening, about 7 to 8 pm, in November 1971. They both said that
Mr and, more important, Mrs Spence showed them round. Mr Bowden said there was
no discussion about prices. When this was put to Mrs Spence she firmly denied
that she was present at any such visit and said she had never seen Mr Bowden
before he came into the witness-box. At that time she was working in the
evenings as a cook in an hotel, and did not get home till very late.
She then said she had a sister, Monica Lewis, living in the house at that time,
and possibly the plaintiff and Mr Bowden might have seen her. Monica Lewis got
married about three years ago, and she was not called, so it is impossible to
check the story further. On the whole, I am not prepared to disbelieve Mrs
Spence on this point, and it may well be that the plaintiff and Mr Bowden were
mistaken in thinking that it was Mrs Spence who had shown them round on that
occasion. They had no reason to take particular notice of Mrs Spence, since
neither of them had any idea that she was part-owner of the property. The
circumstantial evidence given about the smell of cooking in the house at the
time of the visit does not unfortunately give any clue to the identity of the
cook. The truth of the matter, as appears from the evidence, may well be that
Mr Spence took it upon himself to sell the house without, at first at any rate,
bringing his wife into the matter, hoping no doubt that, if successful, he
would be able to get her to agree, willingly or unwillingly. Whether this is so
or not, and whatever the precise truth of what happened at the interview of
February 8 1972, I am satisfied that Mrs Spence never agreed to or gave her
authority to Mr Spence to sell her share of the house on her behalf.
The other
ground on which it is sought to show that Mrs Spence authorised the sale is
that of estoppel. The allegation is to be found in paragraph 3 of the reply to
defence of the second defendant, and is based on her conduct, and that of her
solicitors, in not promptly informing the plaintiff that her husband had no
authority to sell on her behalf when she knew that the plaintiff was incurring
expense in investigating title, believing that such authority had been given.
That conduct, it is said, amounted to a representation of the existence of such
authority which induced the plaintiff to act to his detriment by continuing his
investigation of title. I am, however, satisfied, and it was not really
disputed by Mr Cherryman for the plaintiff, that there is no real evidence to
show that Mrs Spence ever made any such representation. She never saw Cyril
Ralton & Co, the solicitors, until later, and there is no evidence that
they made any such representation themselves. In the circumstances I hold there
is no basis for the estoppel pleaded. The above position being as set out
above, there is an end of the claim for specific performance and for damages
for loss of the bargain against both the defendants jointly.
There could
not properly be a decree of specific performance against Mr Spence alone for
his part or share of the house in the present case. First, he could not convey
the legal estate, as he is only one of the two trustees for sale. The only
beneficial interest which he could convey is in the proceeds of sale under the
trust for sale. The conveyance of such a beneficial interest could not be said
to be a conveyance of a part of the fee simple in the land. As was said by
Farwell J in Rudd v Lascelles [1900] 1 Ch 815 at 819: ‘The court
should confine this relief (part specific performance) to cases where the
actual subject-matter is substantially the same as that stated in the contract,
and should not extend it to cases where the subject-matter is substantially
different.’ It is not strictly necessary,
therefore, to say any more about specific performance or damages in lieu of it.
However, apart altogether from the reasons just given, it would be unreasonable
to decree specific performance here, since quite clearly Mrs Spence, a third
party interested in the property, would be seriously prejudiced: see the
reasoning of Lord Langdale MR in Thomas v Dering (1837) 1 Keen
729 at 747-8. The court would not therefore exercise its discretion to grant
specific performance in the case in any event.
Since Mrs
Spence goes out of the case from the point of view of liability, and since
specific performance is out of the question, it remains to consider whether the
plaintiff can recover against Mr Spence and on what basis. As the pleadings
originally stood, the plaintiff was suing for breach of contract, and it was
argued by Mr Parker for the defendants that on the authority of Bain v Fothergill
(1874) LR 7 HL 158 the plaintiff must be limited to recovering damages measured
only by the cost of the expenses incurred, that is of investigating title, and
it was said that he could not recover the loss of his bargain. Fraud, it was
said, was not alleged, and fraud was the only exception to Bain v Fothergill
which entitled a plaintiff to recover also for his loss of bargain. An
examination of Bain’s case shows that the House approved the principles
of Flureau v Thornhill (1776) 2 WB1 1078, decided almost exactly
100 years earlier, and confirmed that in the absence of fraud, the mere failure
to make out a good title to real estate only gives rise to damages measured by
the cost of expenses incurred, that is, to the cost of investigating such
title. At page 207, Lord Chelmsford stated that ‘if a person enters into a
contract for the sale of a real estate, knowing that he has no title to it, nor
any means of acquiring it, the purchaser cannot recover damages beyond the
expenses he has incurred by an action for the breach of the contract; he can
only obtain other damages by an action for deceit.’ These words at first sight might seem to go
further than those of Pollock B at page 170, where he says: ‘Where the vendor, without
his default, is unable to make a good title, the purchaser is not by law
entitled to recover damages for the loss of his bargain.’ The same words, ‘without his default,’ were
also used by Denman J at page 176 and by Pigott B at page 193, and of course
came in fact from the first question proposed for consideration of the judges
(see page 170). They do not, if taken out of context, seem to me necessarily to
connote fraud sufficient to found an action for deceit. On the other hand, when
one looks at Flureau v Thornhill it is clear that the court held
that the presence of fraud was necessary before the purchaser could get damages
for the loss of his bargain: see the words of Grey CJ at page 1078:
Upon a
contract for a purchase, if the title proves bad, and the vendor is (without
fraud) incapable of making a good one, I do not think that the purchaser can be
entitled to any damages for the fancied goodness of the bargain which he
supposes he had lost.
It follows, I
think, that the words ‘without default’ in Bain’s case must be taken to
mean ‘without fraud,’ and that on the authority of that case, the purchaser
must be able to go as far as proving fraud before he can recover for the loss
of his bargain. In a recent case, Wroth v Tyler [1974] Ch 30,
Megarry J was able to distinguish the case before him from Bain’s case
on the basis of the facts and in particular on the nature of the charge there
in question. He was dealing with a case where the wife of the defendant,
against whom specific performance was being sought, had entered on the land
charges register a notice of her rights of occupation under section 1 of the
Matrimonial Homes Act 1967. That Act, he held, gave her a personal and
non-assignable statutory right not to be evicted from the matrimonial home
during marriage, and such right constituted a charge on the estate of the
owning husband which required registration to obtain protection against third
parties (see p 417D-E). At p 426 Bain v Fothergill was discussed,
and at p 426 Megarry J concluded that the wife’s rights under the statute were
not dependent on the vicissitudes of a particular title to property. He said:
The charge is
sui generis. . . . If her rights are rights of property at all they are
at least highly idiosyncratic. They do not seem to me to fall within the spirit
or intendment of the rule in Bain v Fothergill.
In the case
before me, unfortunately, I find it impossible to say that there is present
some defect in title not contemplated in and covered by the principles of Flureau
v Thornhill and Bain v Fothergill. As already stated,
fraud was not alleged in the statement of claim here as originally delivered,
and in the absence of any amendment adding a plea of misrepresentation, I think
the plaintiff here would have been limited to
and Bain v Fothergill. Having regard to the nature of the
evidence, however, it appeared to me at its conclusion that I ought to
give Mr Cherryman, for the plaintiff, an opportunity of considering whether or
not he should apply for amendment of his pleading by adding an allegation of
misrepresentation so as to enable, if thought fit, reliance to be placed on the
Misrepresentation Act 1967 and in particular on the possible effect of section
2 (1) of that Act upon Bain v Fothergill. If this were not done,
it seemed to me that the case might well have to be decided without the real
issue between the parties being dealt with. Amendment at this late stage was
objected to by Mr Parker, for the defendant, inter alia on the basis
that if it was made he ought to be permitted to reopen his defence again and
cross-examine further all the witnesses called for the plaintiff. Although of
course amendment at this late stage is unusual and will only be allowed in
exceptional cases, I was satisfied that justice here could only be done by
permitting it, and I gave leave accordingly. My reasons were that the evidence
given satisfied me that Mr Spence, by his conduct, clearly made a false
representation to the plaintiff that he was the owner of the house in question
and therefore able to sell to the plaintiff. The plaintiff relied on this
representation and was induced to enter into the contract by it. Mr Spence, as
I find, in the words of the section, ‘had no reasonable ground to believe, nor
did he believe up to the time the contract was made, that the facts represented
were true.’ I do not think that any
further evidence by or cross-examination of the witnesses would change my
conclusions on this matter, nor do I think that there it could properly be said
that in the circumstances permitting the amendment was unfair to the
defendants. By it they were faced, albeit for the first time, with the real
point in the case, and it would I think have been unfair to the plaintiff not
to have allowed him to bring out the legal consequences of the evidence which
had been given. I therefore adjourned the case to enable the matter to be considered.
In due course, the amendments were put forward, I allowed them, and they are
set out in the amended statement of claim and in the amended defence.
It is now
necessary to consider and come to a conclusion upon the effect, if any, of the
Misrepresentation Act 1967 on Bain v Fothergill. The material
facts I have already found above mean that Mr Spence represented to the
plaintiff that he owned the house in question and was in a position to sell it.
That representation was false at the date it was made; that is, the date of the
signing of the contract. It was false to the knowledge of Mr Spence, who knew
perfectly well that he and his wife were joint owners of the property and that
he could not sell without her agreement. It may well be, and I would have been
quite prepared to believe, that Mr Spence, though he did not in fact say so,
was at the time of the contract confident that he would be able to persuade his
wife to sell her share of the house by the time of completion, and that he had
no intention to cheat the plaintiff, but that does not make the representation
any less false at the time it was made. Although, on the assumption made above
as to the state of mind of Mr Spence, it would be right to say that he was not
intending to be fraudulent, nevertheless, legally, it seems to me the true
position is that he was guilty of fraud within the definition of deceit by Lord
Herschell in Derry v Peek (1889) 14 App Cas 337 at 374, where he
said:
To prevent a
false statement being fraudulent there must I think always be an honest belief
in its truth. And this probably covers the whole ground, for one who knowingly
alleges that which is false has obviously no such honest belief. Thirdly, if
fraud be proved the motive of the person guilty is immaterial. It matters not
that there was no intention to cheat or injure the person to whom the statement
was made.
Here, as
already stated, the plaintiff has never suggested that Mr Spence made a
fraudulent representation in the sense of wishing to cheat him, and fraud is
not pleaded. Although, therefore, if it had been, it would be necessary to deal
with the case on that basis, it is fortunately not necessary to do so. Can the
plaintiff, then, on the facts found, rely on the Misrepresentation Act 1967,
and if so, what is the result of his being able to do so? Section 2 (1) of the Act reads as follows:
Where a
person has entered into a contract after a misrepresentation has been made to
him by another party thereto and as a result thereof he has suffered loss,
then, if the person making the misrepresentation would be liable to damages in
respect thereof had the misrepresentation been made fraudulently, that person
shall be so liable notwithstanding that the misrepresentation was not made
fraudulently, unless he proves that he had reasonable ground to believe and did
believe up to the time the contract was made that the facts represented were
true.
In Gosling
v Anderson, The Times, February 8 1972, also now reported in [1972]
ESTATES GAZETTE DIGEST 709, at p 713 Lord Denning said:
This is the
first case we have had under the Misrepresentation Act of 1967. It gives a
cause of action for innocent misrepresentation just as if the misrepresentation
had been made fraudulently.
He then quotes
section 2 (1), and says:
That is a
very long sentence, but it means that if there is an innocent misrepresentation
which leads another person to enter into a contract, then he can recover
damages for it, unless the person making the misrepresentation can show that he
had reasonable ground for believing it to be true. This Act has a considerable
impact on the law, and especially in a case like the present.
Gosling’s case was one where, on the sale of a flat and plot, there was a
representation that planning permission for the erection of a garage on the
plot had been obtained. The representation was made by an agent, Mr Tidbury,
who honestly believed in its truth, but where his principal, Mrs Anderson, knew
quite well it was false. Lord Denning continued:
Before this
Act Miss Gosling (the plaintiff) would have failed unless she proved that one
or other of them was guilty of fraud: see Armstrong v Strain
[1952] 1 KB 232. Now there need be no question of fraud. Sufficient that the
agent, Mr Tidbury, made a statement which was in fact untrue, although he
believed it to be true.
An inquiry was
ordered on the basis of the difference in value of the land with and without
planning permission. Now here it seems to me that the words of section 2 (1)
cover the present case on the facts as I have found them. Mr Spence made a
false statement which induced the plaintiff to enter into the contract. Legally
that statement was, I think, fraudulent and would entitle the plaintiff to
secure damages on that basis. If, however, as here, the representation is not
treated by the plaintiff as fraudulent, it is none the less false, and the
defendant has no defence under the last part of the section, because he did not
believe it to be true nor had he reasonable ground for any such belief.
The so-called
‘exceptional rule’ in Bain v Fothergill, and its rationale, are discussed at
length in chapter 21 of McGregor on Damages 13th ed, starting at p 465.
In para 667 on p 471 the learned author discusses the effect of Bain’s
case in finally closing the loophole opened by Hopkins v Grazebrook
(1826) 6 B & C 31, and mentions that subsequent decisions have set up other
limitations upon the application of the restrictive rules established by Lord
Chelmsford in Bain’s case. Megarry J’s decision in Wroth v Tyler
is a case in point. The Misrepresentation Act is, however, not discussed in
chapter 21 of McGregor, and so far as I know the present case is the
first in which the bearing of the Act upon Bain v Fothergill has
been considered. Its effect, in my judgment, is considerable, and the
legislation has altered the law as stated by Lord Chelmsford in that case. If
the Misrepresentation Act had been in force at the time of Bain v Fothergill,
it seems at least probable that the vendor’s immunity against damages
for loss of bargain ought to have been confined to cases where there was no
misrepresentation, innocent or fraudulent, which induced the contract; for
example, where the defect in title was something which was unknown at the time
of entering into the contract and which was only found out on investigation. In
that event Lord Chelmsford’s words at 7 App Cas 207 quoted above, ‘If a person
enters into a contract for the sale of real estate knowing that he has no title
to it nor any means of acquiring it,’ and so on, down to the words, ‘other
damages by an action for deceit,’ might well have read:
In those
cases where a person enters into a contract for the sale of real estate knowing
that he has no title to it and has made no representation, innocent or
fraudulent, that he will be able to acquire it by the time for completion,
thereby inducing the purchaser to enter into the contract, the purchaser cannot
recover damages beyond the expenses he has incurred by an action for the breach
of the contract; he can only obtain other damages by an action based on
innocent misrepresentation or deceit where such exists.
The law should
I think be so stated now the Misrepresentation Act is in force, and I so hold.
The truth of the matter is that Bain v Fothergill limits the
damages for breach of contract; it does not limit damages for fraudulent
misrepresentation. The Misrepresentation Act 1967 for the first time enables a
plaintiff to sue for innocent misrepresentation, a cause of action now made
akin to an action for damages for fraud. The Act of 1967 has thus created a new
cause of action, one with which Bain v Fothergill never had
anything to do. The practical effect is, however, that some purchasers who
would have been caught by Bain v Fothergill if the 1967 Act had
not been passed can now, by suing on the new statutory right, get damages for
loss of their bargains which they could not have recovered before. It follows
that in my judgment the present case falls outside the restrictive rule of Bain
v Fothergill as that rule should now be limited in the light of the
Misrepresentation Act 1967. If the representation here had been treated as
fraudulent, the plaintiff would, on the authority of Bain’s case itself,
have been entitled to recover for loss of his bargain, and in my judgment he is
equally outside the case and equally entitled to recover for the loss of his
bargain on the ground that there was a representation which was in fact false
and which the defendant, Mr Spence, had no ground for believing to be true and
which he did not in fact believe to be true.
No figures are
agreed in this case, so it will be necessary to order an inquiry. On the basis
on which I think the plaintiff is entitled to recover, such inquiry should
arrive at the value of the house at the dates of the contract and of
completion. The plaintiff will then, in my judgment, be entitled to damages
equal to the rise in value, if any, of the house between those dates. The costs
of such inquiry will be reserved.
His Lordship
ordered the plaintiff to pay the costs of both defendants up to the date of his
amendment, subject to a set-off for costs due from Mrs Spence in respect of
proceedings to strike out her defence. The plaintiff was awarded the costs of
the restored hearing. An order was also made for repayment of the plaintiff’s
deposit, with interest at 4 per cent from February 8 1972, the damages,
deposit, interest and plaintiff’s costs to be secured by a lien on the
property.
