Specific Performance of a residential conveyance contract

johnnyskeleton

Arising from this thread, does anyone have any views on whether specific performance would be granted in the following situation (not related to the OP in that thread but a different hypothetical):

A person enters a contract for the sale of land, but due to a change in economic circumstances they are no longer able to complete the contract (e.g. they can't get sufficient finance, they have lost their job etc).

While the courts will grant specific performance of other contracts for sale of land, how likely is it that they will grant specific performance here? My take is that the vendor should try to sell the property to mitigate his losses and then try to recover the difference from the purchasor. It seems to me that damages could be an adequate remedy, and would be preferable to foisting an untenable property onto the purchasor.

hullaballoo

I would imagine that the courts would view that contract as having been frustrated. In that case, they wouldn't grant an equitable (and discretionary) remedy in favour of the person seeking to rely on and enforce the contract.

Without more, and without looking any of the law up! I can't tell you much about the law in relation to frustration and whether that allows the contract to be rescinded without damages owing.

Dandelion6

That's not a million miles from Patel v Ali (1984), where the court declined to order specific performance on the grounds of the hardship it would cause to the defendant.

Tom Young

Damages will not be an adequate remedy in circumstances where the subject matter of the contract is unique, as is the case in contracts for the sale of land; and in such contracts, specific performance is the ordinary remedy.

In Patel v. Ali [1984] Ch 238 specific performance of a contract of sale of a residential house was refused where, after the contract was entered into, a four year delay resulted during which time the vendor’s husband went bankrupt while she herself became disabled.

In Denne v. Light (1857) 8 DM & G 774 the vendor of farmland sought specific performance as against the purchaser of the contract of sale. The court, however, refused this remedy when it was shown that to order specific performance would leave the purchaser with an entirely landlocked piece of land: i.e. surrounded by land belonging to others and with no right of way to it.

Tom Young

Quantum Meruit is sticking in my head for some reason .....thoughts?

One party will have conferred a benefit on the other, for which both parties ultimately expected that payment would be made. It is, therefore, entirely fair that payment should be made.

johnnyskeleton

Tom Young wrote: »

Damages will not be an adequate remedy in circumstances where the subject matter of the contract is unique, as is the case in contracts for the sale of land; and in such contracts, specific performance is the ordinary remedy.

Damages would not be adequate for the purchasor because they are expecting a unique piece of land, but for the vendor damages are adequate because all he wants is money.

Victor

johnnyskeleton wrote: »

Damages would not be adequate for the purchasor because they are expecting a unique piece of land, but for the vendor damages are adequate because all he wants is money.

I concur with johnnyskeleton J.

Further, the contract is not frustrated by the mere shortage of money on the purchaser's behalf. For Patel v. Ali to apply, one would need a near complete absense of money.

Tom Young

johnnyskeleton wrote: »

Damages would not be adequate for the purchasor because they are expecting a unique piece of land, but for the vendor damages are adequate because all he wants is money.

Are you agreeing with me?

The issue of laches also arises I assume in re. Patel.

johnnyskeleton

Tom Young wrote: »

Are you agreeing with me?

Well I think damages would be an adequate remedy for the vendor because all the vendor wants is money, not the property.

Tom Young

Ah sorry, I wasn't reading it correctly.

In Healy v. Healy (unreported, High Court, 3 December 1973) where a contract for the sale of land was agreed at £46,000, but the memorandum mistakenly gave the price as £40,000. The plaintiff was able to waive this defect in the memorandum (which was of course entirely in his favour) and to obtain specific performance at the higher price.

The leading case on this point is the decision in Hadley v. Baxendale (1854) 9 Ex 341, where the defendants were in breach of contract by making late delivery of a mill-shaft. The mill was out of operation for this period, resulting in a loss of profits. Could these be recovered as against the defendant? The court held that damages were available either if the damages were (a) such as would flow naturally from a particular breach of contract, or were (b) such as may reasonably have been supposed to be in the contemplation of both parties, at the time of making the contract, to be a probable result of a particular breach.

Applying these principles, the court held that the defendant was not liable for the lost profits. The shutting down of the mill was not a natural consequence of their breach of contract; it could reasonably be supposed that the mill possessed a spare shaft. Nor was the shutting down of the mill a factor which was in the contemplation of the parties at the time the contract was entered into. The lost profits were, therefore, too remote to be recoverable.

Hadley v. Baxendale (1854) 9 Ex 341 establishes the limits of remoteness, beyond which loss will not be recoverable. It does not, however, specifically with the question of what types of loss can be recovered. Three types or heads of loss are generally recognised as existing. I guess from this test reliance and expectation loss arise in your example. However, may fail the test..

Quaere: Were the difficulties encountered at the outset in the contemplation of the parties at the time the contract was entered into? The lost profits are, therefore, too remote to be recoverable.

So effectively I'd tend to agree with your assumption. I think that damages might be adequate but not sufficient in terms of a remedy. The issue of unjust enrichment also does not arise.

johnnyskeleton

Tom Young wrote: »

Quaere: Were the difficulties encountered at the outset in the contemplation of the parties at the time the contract was entered into? The lost profits are, therefore, too remote to be recoverable.

So effectively I'd tend to agree with your assumption. I think that damages might be adequate but not sufficient in terms of a remedy. The issue of unjust enrichment also does not arise.

I don't think they would be lost profits. I think there was one of those old contract cases where there was a contract for sale of land and between agreement and completion the price dropped. The decision was based along the lines that it could equally have gone up in value and that the courts weren't there to correct a bad bargain. But if the purchasor agrees to purchase a property and unfairly repudiates the contract, the vendor is entitled to what he would have received for the sale of the property if the contract had been performed. In the above example, the vendor could sell the property and sue the purchasor for the difference between the agreed price and the price it was sold to the third party.

Grawns

I'm digging up this thread as I find myself in this situation where the purchaser pulled out 1 week before agreed completion date. 28 day completion notice has been served. I understand thet then there is then a 2 week period in which purchaser can issue proceedings for return of deposit.

All that having passed and on going on to the High Court for specific peformance. What kind of costs are we talking? the purchaser has deep pockets, we don't.

Obviously I have a good solicitor but would be interested in opinions.

maidhcII

All I can say is the normal practice is to issue an Equity Civil Bill on foot of the Contract for Sale. I Issued about 10 of them in the past 18 months, most of which settled, none of which have actually made it to hearing (yet).

It really has to depend on whether or not the purchaser can purchase at the contract price. Often they cannot.

Reloc8

With almost no exceptions, subject to compliance with the requirements of equity on the vendor's part, post-contractual hardship (i.e. circumstances arising after contract is entered into i.e. lack of finance where contract is not made 'subject to finance') is no defence to an action for specific performance.

This leaves a vendor with an action seeking an order to perform; if the purchasor comes clean and says they simply cannot perform, and is believed in this regard (often following a discovery and cross-examination process in respect of their funds, assets and liabilities) a court will award damages in lieu of specific performance.

The measure of damages in e.g. a sale/purchase of a freehold/long leasehold property is the sale price contracted for less the sale price at the point where damages are assessed modified by any failure on the vendors part to mitigate loss (i.e. when the purchasor formally tells them they can not and therefore will not complete there is an obligation to mitigate loss from that point by putting the property on the market asap thereafter).

Where the purchasor defends by simply refusing to complete/does not formally indicate an inability to complete and 'permits' the vendor to resell the property, there is no failure to mitigate loss by not reselling.

In a practical sense many cases settle at an agreed lower sale price or by the property going on the market again but the purchasor losing their deposit, or a rent-to-buy agreement being entered into. Those settlements are at the discretion of the parties and are often affected by their respective means, i.e. what use is an order for damages against a party who can't pay them.

To Grawns : its impossible to estimate costs in your case without knowing all of the facts - you'll have to ask your solicitor.

Quantum meruit does not apply as this is a situation where an entire contract was entered into, not e.g. one where a party does work in the expectation of being paid at a reasonable rate for the work to be done.

Damages not being an adequate remedy will only relate to a purchasor who seeks to force the vendor to complete, and not vice versa.

Grawns

Thanks so much for your very detailed reply.

Victor

Some cases from today related to Specific Performance.

http://www.irishtimes.com/newspaper/ireland/2010/0223/1224265035961.html
http://www.irishtimes.com/newspaper/finance/2010/0223/1224265034050.html

No quite the same. Money was advanced on the basis that planning permission would be obtained, to be refunded if PP not obtained. Delays occurred. Lenders seeking return of money. Borrower doesn't have the cash flow to repay. Can obtaining PP be brought into SP or is it merely a contract term?
http://www.irishtimes.com/newspaper/finance/2010/0223/1224265034441.html

Grawns

Lets say a 28 day completion notice has been issued and has expired and the purchaser has not responded. Now a notice of forfeiture of deposit as per the contract is issued and the purchasers have 14 days in which to issue proceedings.

What grounds can they issue proceedings on? Can they refer back to the escape clauses in standard sale contract ie. failure to secure finance ( the finance is in place) or refusal of insurance ( get a new doctors note or something) or do they have to have other reasons now?

dermot_sheehan

There are several grounds in which the purchasers seek an order of rescission in respect of the contract.

The first is fundamental breach. Since it is a contract for the sale of land, if the vendor can't provide good title to the land at the time of closing that is a fundamental breach entitling the purchaser to rescind.

Questions as to whether the vendor had good marketable title can be determined quickly by summary high court proceedings under the s. 55 of the Land and Conveyancing reform act 2009 (originally s. 9 vendor and purchasers act 1874).

Secondly for a completion notice to issue, the vendor must be ready, willing and able to complete the contract. The purchaser can dispute that the vendor was ready, willing and able to complete therefore was not entitled to issue the completion notice and make time of the essence and therefore seek specific performance or forfeiture of the deposit when the contract was not completed on the completion date.

Grawns

Thanks for that info. So I'm correct in that they have to come up with something new (non-contractual ) as a reason for not completing and issue proceedings on us. I live in interesting times :rolleyes:

Victor

Where people have paid only holding deposits, on what basis are vendors suing? assuming that such deposits are subject to contract (or are they)?

maidhcII

Victor wrote: »

Where people have paid only holding deposits, on what basis are vendors suing? assuming that such deposits are subject to contract (or are they)?

nope, they are suing pursuant to a Contract & Building Agreement

maidhcII

Grawns wrote: »

Thanks for that info. So I'm correct in that they have to come up with something new (non-contractual ) as a reason for not completing and issue proceedings on us. I live in interesting times :rolleyes:

Delay is the famous one. It goes along the line of the Building Agreement said house would be finished by x date. We could have got finance then, but not now.

Not sure if it will avoid the contract, but it is all worst case scenario stuff anyway and common sense should ultimately prevail.

Victor

maidhcII wrote: »

nope, they are suing pursuant to a Contract & Building Agreement

But if only the holding deposit has been paid, surely no contract has been signed, indeed the receipt will specifically deny contract.

Grawns

Contracts signed since Sept. Since the closing date in December passed we have agreed to purchasers having 2 additional valuations done, in the most recent case and during the 28 day completion notice they were only 2 weeks apart!
We understood he was trying to get the bank to withdraw the loan but due to circumstances outside his control the property had risen in value. We applied for and got full commercial planning premission in our name as per his request. Now that the completion notice has expired we are waiting to see what happens next. There are no clues forthcoming and our solicitor while very experienced hasn't come across many cases like this.

maidhcII

Victor wrote: »

But if only the holding deposit has been paid, surely no contract has been signed, indeed the receipt will specifically deny contract.

No, generally a booking deposit (in the region of 5-10k) is paid to the auctioneer. Then the contracts are signed and a contrauctual depoist up to a max of 15% of the purchase price is paid to the vendors solicitor. The existance of this contractual deposit (and the booking deposit) is governed by the combined Contract and Building Agreement.

Grawns

Grawns wrote: »

Contracts signed since Sept. Since the closing date in December passed we have agreed to purchasers having 2 additional valuations done, in the most recent case and during the 28 day completion notice they were only 2 weeks apart!
We understood he was trying to get the bank to withdraw the loan but due to circumstances outside his control the property had risen in value. We applied for and got full commercial planning premission in our name as per his request. Now that the completion notice has expired we are waiting to see what happens next. There are no clues forthcoming and our solicitor while very experienced hasn't come across many cases like this.

I have read the contract back to front several times and his behaviour doesn't make sense. We have complied with every condition and been more than reaonable. I think the purchaser may be a sociopath

lawman24

Sorry to go back to this topic but it is slightly relevant to something I'm looking for advice on.

I bought a site in the West of Ireland in November 2004.
Got planning in August 2005.

Site is at the end of a lane and as soon as I got planning I received a solicitors letter from my new next door neighbour to say he owns the road and I had no access to my site.

My Solicitor HAD asked the question to be told there was free access.

The vendor claims there is no question but that it is a public road.

The vendor issued proceedings against my neighbour but it still has not come to court 5 years later. My neighbour is now quite ill and unable to attend court cases.

It is now nearly 6 years after I bought the site and I still do not have access. Is there any facility for reversing the sale? The site cost 180k plus I have paid interest on the loan for 6 years.

Is there a limit beyond which I should not have to wait for the vendor to sort out the contract?