Howe v Smith
(1884) 27 Ch.D. 89[1881 H. 3315.]
(Judgment by: Cotton LJ)
Between: Howe
And: Smith
Judges:
Cotton LJBowen LJ
Fry LJ
Subject References:
VENDOR AND PURCHASER OF DEPOSIT
Purchaser's Failure to complete
Case References:
Palmer v. Temple - 9 Ad. & E. 508.
Judgment date: 29 May 1884
Judgment by:
Cotton LJ
On a sale of real estate the purchaser paid £500, which was stated in the contract to be paid "as a deposit, and in part payment of the purchase money." The contract 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 re-sell and to recover any deficiency in price as liquidated damages. The purchaser was not ready with his purchase-money, and, after repeated delays, the vendor re-sold the property for the same price.
The original purchaser having brought an action for specific performance, it was held by the Court of Appeal, affirming the decision of Kay, J., that the purchaser had lost by his delay his right to enforce specific performance:-
Held, also, that the deposit, although to be taken as part payment if the contract was completed, was also a guarantee for the performance of the contract, and that the Plaintiff, having failed to perform his contract within a reasonable time, had no right to a return of the deposit.
This action was brought for specific performance of a contract for sale of certain freehold lands known as Hill's Farm, in the county of Middlesex, for £12,500.
The contract was dated the 24th of March, 1881, and thereby the Plaintiff, T. H. Howe, agreed to purchase the premises in question "for the price of £12,500, £500 part thereof having been paid on the signing of this agreement as a deposit and in part payment of the purchase-money." Various stipulations were made as to the title, and it was agreed that the purchaser should pay the balance of the purchase-money on the 24th of April, 1881, and that if any delay should take place from any cause whatsoever except the default of the vendor, the purchaser should pay interest at £5 per cent. on the balance of the purchase-money. And it was further agreed (clause 8) that if the purchaser should fail to comply with this agreement the vendor should be at liberty to re-sell the premises in any manner, and the deficiency on such second sale thereof, with all expenses attending the same, should be made good by the defaulter at this present sale, and be recoverable as liquidated damages.
The purchaser at first objected to this clause, but it was eventually retained, the vendor undertaking not to act upon it for six weeks after the 24th of April, 1881.
The purchaser paid the deposit of £500, and an abstract was delivered according to the agreement.
After some negotiation the purchaser sent a draft conveyance to the vendor, on the 23rd of May, which was approved on the following day on behalf of the vendor.
The completion of the purchase was however delayed by the purchaser, and the vendor, after pressing for completion, agreed, on the 20th of June, 1881, to extend the time for completion for a month, on payment of certain costs, but at the same time warned the purchaser that unless the purchase-money was then paid he should re-sell the property.
On the 25th of July the purchaser, fearing that the vendor would re-sell the property, brought the present action against the vendor for specific performance of the agreement.
On the 31st of January, before the defence was delivered, the vendor re-sold the property at the original price. In his defence he relied on the delay of the Plaintiff as justifying a rescission of the contract.
The action was heard before Mr. Justice Kay, on the 27th of February, 1883, when his Lordship dismissed the action with costs, being of opinion that the Plaintiff had precluded himself by his delay from insisting on the completion of the contract.
From this judgment the Plaintiff appealed.
W. Pearson, Q.C., and Batten, for the Appellant:-
Time was not of the essence of the contract; and there was no such delay on the part of the purchaser as to deprive him of his right to enforce specific performance of the contract. But if the Court should be against us on this point we claim the return of our deposit; and, if necessary, we ask for leave to amend the statement of claim in order to raise that question.
Cotton, L.J.:- We are all of opinion that the Plaintiff is not entitled to enforce specific performance in this case, and we do not desire to hear any further argument on that point. But we think, subject to what may be said on the other side, that the Plaintiff ought to have leave to amend the statement of claim in order to claim the return of his deposit. We therefore wish to hear the counsel for the Defendant on that point, which was not raised before Mr. Justice Kay.
Hastings, Q.C., and Kingdom, for the Defendant:-
The Plaintiff has forfeited his deposit by his own default. The deposit is not merely part payment of the purchase-money, it is a guarantee that the contract should be performed: Collins v. Stimson; Essex v. Daniell; Ex parte Barrell; Depree v. Bedborough; Hinton v. Sparkes; Casson v. Roberts. The fact that there has been a re-sale by the vendor makes no difference. It is outside the contract, and cannot purge the default of the purchaser; nor does the purchaser's present willingness to perform the contract alter his position; his default has placed him in the same position as if he had refused to perform it.
But, assuming that the purchaser has a right to a return of the deposit, it is subject to the vendor's claim for damages: Laird v. Pim; Icely v. Grew.
W. Pearson, in reply:-
The question whether the deposit is forfeited depends upon the terms of the contract. If the purchaser had refused to perform the contract it may be that he would have forfeited his deposit, but here the vendor abandons the contract and nevertheless claims the deposit. There is no case that goes so far as that: Gee v. Pearse is very similar, and there the vendor had to return the deposit. Palmer v. Temple is directly in our favour, and that is recognised as good law in Sugden's Vendors and Purchasers. With respect to the claim by the Defendant to deduct damages, he has not shewn that he has sustained any, for he sold the property for the original price; and if he has, he cannot claim damages, because he has himself put an end to the contract.
1884. May 29. Cotton, L.J.:-
This was an action for the specific performance of a contract for the purchase and sale of land, the Plaintiff, being the purchaser, seeking to insist on specific performance. At the hearing of the appeal we decided the only point raised by the Plaintiff by the pleadings, viz., that inconsequence of the delay the Plaintiff was not entitled to the equitable remedy of specific performance, which is only granted to those who are ready and prompt. But the counsel for the Appellant asked liberty to raise a claim to the return of the deposit, the deposit being £500, which had not been raised in the Court below, and he asked leave to amend his statement of claim, and we gave the leave, and considered the necessary amendments made.
Now the claim for this return of the deposit of £500 is essentially a claim at Common Law, and one which has not arisen in Equity except in bankruptcy cases, and that accounts for the little authority there is on the point. The first thing one must look at is the contract. The contract contains no clause at all as to what is to be done with the deposit if the contract is not performed. It states that "£500 part of the purchase-money of £12,500 has been paid as a deposit and in part payment of the purchase-money." There is nothing else which is material, but there is a clause, clause 8, which I must read (as it was relied on, having regard to a case which I shall refer to) as giving the Plaintiff the right to the return of the deposit. It is this:
"If the purchaser shall fail to comply with this agreement the vendors shall be at liberty to resell the premises in any manner, and the deficiency on such second sale thereof, together with all expenses attending the same, shall be made good by the defaulter at this present sale, and be recoverable as liquidated damages."
It was contended that, having regard to the case of Palmer v. Temple, this had fixed what was to be the penalty imposed on the purchaser if he made default - that this was to be the only liability in the case of default, and therefore the deposit must be returned to the purchaser, of course subject to any claim which there might be to any sum to be deducted in respect of deficiency under the sale.
Now that case, no doubt, did lay down that under that contract the parties had settled what was to be the result of a default, but that was on a somewhat different provision from this. It was under a provision which laid down that if either vendor or purchaser made default a sum of £1000 should be paid as liquidated damages. It may be that this clause induced the Court to come to the decision which they arrived at in that case, and that they thought the vendor was precluded by it from retaining the deposit in consequence of the default of the purchaser. That decision turned on the express terms of that proviso, which is different from the proviso in the present case. If so, of course it is no authority here; but if that case is taken as laying down this proposition (which I do not think it could have done), namely, that such a clause, however varied in terms, would prevent the vendor on the default of the purchaser from retaining the deposit, I cannot agree with it, and do not feel bound to follow it. In my opinion this is a clause which merely fixes the amount which the vendor is to be entitled to if he follows the course which is there pointed out - it fixes the amount which he is to claim in that event; but, in my opinion, if the vendor had irrespective of that clause a right to retain the deposit under the circumstances existing in the present case, this clause would not give the purchaser the right to recover the deposit. The mere fact that there has been a re-sale, even if it were under this clause which is in dispute, in my opinion can make no difference if the purchaser had made such a default as precluded him from demanding the transfer of the estate. That being so, when the vendor sold the estate he was only selling that which the purchaser had no possible right to demand, and his doing so cannot, in my opinion, affect the rights of the vendor and purchaser to the deposit.
But there is something more to be considered. In Palmer v. Temple, undoubtedly, the Judges did say that independently of contract the vendor cannot on the default of the purchaser retain the deposit, and there are similar expressions in other cases. There is a similar expression of opinion in Hinton v. Sparkes, and I think similar expressions of opinion in other cases at Common Law. But that, as I understand the expression used by Lord St. Leonards, in his book on Vendors and Purchasers, is not in accordance with his view; for he says there, "Where a purchaser is in default and the seller has not parted with the subject of the contract, it is clear that the purchaser could not recover the deposit; for he cannot, by his own default, acquire a right to rescind the contract." Then he goes on and states his opinion that the mere re-sale of the estate after the purchaser's default cannot in any way affect the right of the vendor to retain the deposit.
Then we have a case of Collins v. Stimson in which Baron Pollock refused to order the return of the deposit under circumstances somewhat different from this. What he says is this, "According to the law of vendor and purchaser the inference is that such a deposit is paid as a guarantee for the performance of the contract, and where the contract goes off by default of the purchaser, the vendor is entitled to retain the deposit." That was the principle of his decision.
But the case does not quite stop there. There is a decision under somewhat different circumstances from the present case in Depree v. Bedborough, where there was a purchase under a sale by decree of the Court. I will not refer further to that case, but it is in accordance with a subsequent decision of the Court of Appeal in Ex parte Barrell, where the purchaser had become bankrupt, and the trustee in bankruptcy had disclaimed the contract under which he sought to recover the deposit. That was refused. What Lord Justice James says is this,
"The trustee in this case has no legal or equitable right to recover the deposit. The money was paid to the vendor as a guarantee that the contract should be performed. The trustee refuses to perform the contract, and then says, Give me back the deposit. There is no ground for such a claim."
There is a variance, no doubt, in the expressions of opinion, if not in the decisions, with reference to the return of the deposit, but I think that the judgment of Lord Justice James gives us the principle on which we should deal with the case. What is the deposit? The deposit, as I understand it, and using the words of Lord Justice James, is a guarantee that the contract shall be performed. If the sale goes on, of course, not only in accordance with the words of the contract, but in accordance with the intention of the parties in making the contract, it goes in part payment of the purchase-money for which it is deposited; but if on the default of the purchaser the contract goes off, that is to say, if he repudiates the contract, then, according to Lord Justice James, he can have no right to recover the deposit.
I do not say that in all cases where this Court would refuse specific performance, the vendor ought to be entitled to retain the deposit. It may well be that there may be circumstances which would justify this Court in declining, and which would require the Court, according to its ordinary rules, to refuse to order specific performance, in which it could not be said that the purchaser had repudiated the contract, or that he had entirely put an end to it so as to enable the vendor to retain the deposit. In order to enable the vendor so to act, in my opinion there must be acts on the part of the purchaser which not only amount to delay sufficient to deprive him of the equitable remedy of specific performance, but which would make his conduct amount to a repudiation on his part of the contract. In those circumstances, in my opinion, the rule is correctly laid down in Lord Justice James's judgment (of course the case there was stronger than the one we have to deal with) where the representatives of the purchaser had neither in law nor in equity the right to the return of the deposit.
What are the facts here? The contract was to be performed according to their arrangement on the 24th of April. It is not necessary now to enter into the question how far time would be considered as of the essence of the contract, because since the Judicature Acts, when the question whether time is of the essence of the contract arises, all contracts must be governed by the rules of Equity concerning that subject.
What took place was this. Not only was the contract not performed on that day, but there was a delay from time to time, the purchaser asking for, and at one time, under terms of payment of costs, obtaining an extension of the time. He obtained it knowing that the vendor considered it of importance, as it was of importance, that the contract should be performed, if not to the very day, at least within a reasonable time. It was not performed within a reasonable time, and from the conduct of the purchaser, as I read the letters and understand what took place, I come to the conclusion that he never was up to, and even at, the time when he brought this action, ready with the money to perform the contract. He was not ready with the money in order to purchase the estate, and at the time when the action was commenced if the vendor had said, "Where is your money? Produce it, and then I will make the conveyance," he would not have been able to produce the money.
In my opinion, without at all laying down that whenever the Court refuses specific performance it will allow the vendor to retain the deposit, in this case and under this contract the purchaser has so acted as to repudiate on his part the contract, and he cannot under those circumstances take advantage of his own default to recover this deposit from the vendor. Therefore on this point also the appeal fails.