Howe v Smith
(1884) 27 Ch.D. 89[1881 H. 3315.]
(Decision by: Fry LJ)
Between: Howe
And: Smith
Judges:
Cotton LJ
Bowen 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
Decision by:
Fry LJ
On the 24th of March, 1881, the Defendant and Plaintiff entered into an agreement in writing, by which the Defendant agreed to sell and the purchaser agreed to buy certain real estate for £12,500, of which £500 was in the contract stated to have been paid on the signing of the agreement as a deposit and in part payment of the purchase-money. The contract provided for the payment of the balance on the 24th of April, 1881, and it further provided by the 8th condition that if the purchaser should fail to comply with the agreement the vendor should be at liberty to resell the premises, and the deficiency on such second sale thereof, with all expenses attending the same, should be made good by the defaulter and be recoverable as liquidated damages.
The Plaintiff, the purchaser, did not pay the balance of his purchase-money on the day stipulated, and he has been guilty of such delay and neglect in completing that, according to our judgment already expressed, he has lost all right to the specific performance of the contract in equity.
The question then arises which has been argued before us, although not before Mr. Justice Kay, whether or not the Plaintiff is entitled to recover the £500 paid on the signing of the contract.
The £500 was paid, in the words of the contract, as "a deposit and in part payment of the purchase-money." What is the meaning of this expression? The authorities seem to leave the matter in some doubt. Some lean in the direction of the view that in the absence of express stipulation the deposit is not forfeited by mere non-performance. Thus, in Palmer v. Temple, a sum of £300 was paid, as in the present case, by way of deposit and in part payment, and the agreement stipulated that if either party should refuse to perform the agreement he should pay £1000 to the other party as liquidated damages; the purchase made default and the vendor resold the estate, and the Court of Queen's Bench held that the vendor's remedies were restrained by the contract, that he might have sued for the penalty and recovered such damages as a jury might award, "but he cannot," said Lord Denman, C.J., "retain the deposit; for that must be considered, not as an earnest to be forfeited, but as part payment. But the very idea of payment falls to the ground when both have treated the bargain as at an end; and from that moment the vendor holds the money advanced to the use of the purchaser." It is to be observed that the Lord Chief Justice does not seem to have given any force to the words of the contract which shewed that the money was paid by way of deposit as well as in part payment.
In Ockenden v. Henly the question was whether in ascertaining the deficiency on a resale credit was to be given for the deposit or not, and there Lord Campbell, in delivering the judgment of the Court, said, "Now it is well settled that, by our law, following the rule of the civil law, a pecuniary deposit upon a purchase is to be considered as a payment in part of the purchase money and not as a mere pledge: Sugd. V. & P. ch. 1, sect. 3, art. 18 (13th ed.). Therefore in this case had the deposit been paid, the balance only of the purchase-money would have remained payable. What then, according to the seventh condition, is the deficiency arising upon the resale which the seller is entitled to recover? We think the difference between the balance of the purchase-money on the first sale and the amount of the purchase-money obtained on the second sale; or, in other words, the deposit, although forfeited so far as to prevent the purchaser from ever recovering it back, as, without a forfeiture, he might have done (Palmer v. Temple ), still is to be brought by the seller into account if he seeks to recover as for a deficiency on the resale."
On the other hand, in Collins v. Stimson, Baron Pollock said: "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."
These authorities appear to afford no certain light to answer the inquiry whether, in the absence of express stipulation, money paid as a deposit on the signing of a contract can be recovered by the payer if he has made such default in performance of his part as to have lost all right to performance by the other party to the contract or damages for his own non-performance.
Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of acontract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract.
The practice of giving something to signify the conclusion of the contract, sometimes a sum of money, sometimes a ring or other object, to be repaid or redelivered on the completion of the contract, appears to be one of great antiquity and very general prevalence. It may not be unimportant to observe as evidence of this antiquity that our own word "earnest" has been supposed to flow from a Phoenician source through the Greeks, the arra or arrha of the Latins, and the arrhes of the French. It was familiar to the law of Rome, and without going into the distinctions of that law on the subject (see Vinnius on the Institute, Pothier, Contrat de Vente), it will be enough to observe that the general rule appears to have been that expressed in the Institutes iii. 24: "Is qui recusat adimplere contractum siquidem est emptor, perdit quod dedit: si vero venditor, duplum restituere compellitur, licet super arrhis nihil expressum sit."
Furthermore the earnest did not lose that character because the same thing might also avail as part payment. "Datur autem arrha vel simpliciter," says Vinnius, "ut sit argumentum duntaxat et probatio emptionis contractae, veluti si annulus detur: vel ut simul postea cedat in partem pretii, data certa pecunia." From the Roman law the principles relating to the earnest appeared to have passed to the early jurisprudence of England. "Item cum arrarum nomine," says Bracton, "aliquid datum fuerit ante traditionem, si emptorem emptionis poenituerit et a contractu resilire voluerit perdat quod dedit: si autem venditorem, quod arrarum nomine receperit emptori restituat duplicatum." Though the liability of the vendor to return to the purchaser twice the amount of the deposit has long since departed from our law, the passage in question seems an authority for the proposition that the earnest is lost by the party who fails to perform the contract. That earnest and part payment are two distinct things is apparent from the 17th section of the Statute of Frauds, which deals with them as separate acts, each of which is sufficient to give validity to a parol contract.
Taking these early authorities into consideration, I think we may conclude that the deposit in the present case is the earnest or arrha of our earlier writers; that the expression used in the present contract that the money is paid "as a deposit and in part payment of the purchase-money," relates to the two alternatives, and declares that in the event of the purchaser making default the money is to be forfeited and that in the event of the purchase being completed the sum is to be taken in part payment.
Such being my view of the nature of the deposit, it appears to me to be clear that the purchaser has lost all right to recover it if he has lost both his right to specific performance in equity and his right to sue for damages for its non-performance at law. That the purchaser has by his delay lost all right to specific performance we have already decided. It remains to inquire whether he has also lost all right to sue for damages for its non-performance.
In my opinion the time fixed by a contract for the payment of the balance of the purchase-money and the completion of the contract was, according to law, as it stood before the Judicature Act, 1873, of the essence of the contract, so that non-payment on that day, provided it was not caused by the default of the vendor, authorized the vendor at law to treat the contract as rescinded. The cases of Wilde v. Fort, Stowell v. Robinson, Noble v. Edwardes, and the opinion of Lord St. Leonards on Vendor and Purchaser, are some amongst many authorities to which I might refer in support of these propositions.
The 25th section of the Judicature Act, 1873, enacted that stipulations in contracts as to time, which would not before the passing of the Act have been deemed to be of the essence of such contracts in a Court of Equity, should receive in all Courts the same construction and effect as they would theretofore have received in equity. The effect of this clause is, in my opinion, that the purchaser seeking damages is no longer obliged to prove his willingness and readiness to complete on the day named,but may still recover if he can prove such readiness and willingness within a reasonable time after the stipulated day; and the inquiry therefore arises whether the purchaser in the present case could aver and prove such readiness and willingness within a reasonable time.
The contract was entered into on the 24th of March - the 24th of April being fixed for completion - but by a letter written at the same time the vendor's solicitor agreed that the clause for resale should not be put in force till the lapse of six weeks from the 24th of April. This was not a stipulation postponing the time for completion generally, but merely limiting the exercise of a consequential power. The 24th of April arrived, and the draft conveyance had not been sent, and the vendor pressed for completion, but in vain. It appears that on the 20th of June the vendor agreed to give a month's time for completion on the purchaseragreeing to pay certain costs (to which the purchaser assented). Having regard to all that had occurred before, I consider that the expiration of this month was the latest time at which the purchaser could require the vendor to accept the purchase-money and complete. The month expired and no payment was made, and though this action was begun shortly after, I do not find that any tender of payment has ever been made.
I conclude, therefore, that the purchaser could not shew a readiness and willingness to complete, either on the day fixed or within a reasonable time after; but I find on the contrary such a protracted default on the purchaser's part, notwithstanding the urgency of the vendor, as, in my opinion, justified the vendor in treating the purchaser as refusing to complete (notwithstanding his protestations of good intentions for the future), and as further justified the vendor in treating the contract as rescinded. In a word, the purchaser has, in my opinion, been guilty of such delay, whether measured by the rules of law or equity, as deprives him of his right to specific performance, and of his right to maintain an action for damages - and under these circumstances I hold that the purchaser has no right to recover his deposit.
Yet another point has been raised and demands decision. The 8th clause of the agreement gives, as I have already stated, a power to the vendor to resell if the purchaser fail in his performance, and declares that the deficiency on such second sale shall be made good by the defaulting purchaser and be recoverable as liquidated damages. In the present case the Defendant, the vendor, declined to perform the contract on the ground of delay on the part of the Plaintiff, the Plaintiff brought this action, and about six months subsequently the vendor resold the property at the original price; and it is contended by the Plaintiff that the Defendant thereby lost all right of retaining the deposit. If the vendor had chosen to resell under this power and to sue the purchaser for the deficiency, he would, in my opinion, and in accordance with the case of Ockenden v. Henly, have been obliged to bring the deposit into account; but that is not the course which he has pursued. It appears to me that when the purchaser had failed on his part down to the last moment which law or equity gave to him, the vendor's title was absolute, both to the whole legal and equitable estate in the land sold, and also - by force of the terms of the deposit - to the deposited money, and that the purchaser could recover no right in this deposit because the vendor chose to sell his land as he was entitled to do under his title as absolute legal, and equitable owner.
The observations of Lord St. Leonards on this subject appear to me very cogent. Whether a clause such as the 8th in the present contract gives the vendor a power of resale for a default in performance on the very day named, it is not now necessary to inquire. But in my opinion there has been such default as justifies the vendor in treating the contract as rescinded; it affords the vendor an alternative remedy, so that he may either affirm the contract and sell under this clause or rescind the contract and sell under his absolute title. If he act under the clause, he must bring the deposit into account in his claim for the deficiency: if he sell as owner, he may retain the deposit, but loses his claim for the deficiency under the clause in question.
For these reasons I conclude that the appeal must be dismissed, with costs.