ON APPEAL FROM LEICESTER COUNTY COURT
MR RECORDER WHITEHURST
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOULSON
LADY JUSTICE BLACK
| MR RAJESH SHARMA
MRS P N KURUPPU
|- and -
John Small (instructed by Bond Adams LLP) for the Respondent
Hearing date: 9 November 2011
Crown Copyright ©
Lord Justice Toulson :
"(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each."
The section implemented the recommendations of the Law Commission in its report on Transfer of Land (1987) Law Com 164.
"…where an anticipated contract is void because not made in accordance with statutory formalities, it does not follow that the parties will simply be left remediless by the law. Apart altogether from any possibilities there may be of suing for damages in tort (e.g. deceit or negligence), either of the parties would where appropriate be able to seek restitution. Thus if money has been paid as a deposit or part of the price by a prospective purchaser, recovery would generally be permitted because there would be a total failure of consideration."
Arguments on appeal
Discussion and conclusion
"Transactions may be or become ineffective for a variety of reasons. But the reason why the courts will award restitution is in each case fundamentally the same, namely, that the plaintiff's expectations have not been fulfilled."
"If money has been paid under a contract which is or becomes ineffective, the recipient is evidently enriched. It is a distinct question whether that enrichment is an unjust enrichment…In most of the situations, however, the ground of recovery is that the expected return for the payment, or consideration, as it is confusingly called, has failed."
"In English law an enforceable contract may be formed by the exchange of a promise for a promise or by the exchange of a promise for an act…but when one is considering the law of failure of consideration and the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise that is referred to as the consideration but the performance of the promise."
"Failure of the consideration for a payment…means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist has failed to sustain itself."
"This case…does not involve a decision of what a deposit may be in all cases, but simply what it is in this particular case.
In Howe v Smith where the nature of a deposit was considered and the right of a purchaser to the return of it, Bowen LJ said: "The question as to the right of the purchaser to the return of the deposit money must, in each case, be a question of the conditions of the contract. In principle it ought to be so, because of course persons may make exactly what bargain they please as to what is to be done with the money deposited. We have to look to the documents to see what bargain was made." And Cotton and Fry LJJ say substantially the same thing. Therefore we have to consider what in fact was the effect of the document of July 10, 1922, not forgetting the contemporaneous documents, and to ask ourselves whether this deposit was by those documents intended to pass irrevocably to the vendor if the purchasers did not carry out the transaction. In all the circumstances of this case, I think the deposit is recoverable by the purchasers. There was no provision made in the documents which would justify the vendor in declining to return it; though if he had, by appropriate words, made provision for that in the document, such a provision could have been upheld."
"All the judge was saying was that if that [the 10 July document] had been a binding contract, suitable wording could have been inserted into it to make the deposit non-refundable."
"There was no provision made in the documents which would justify the vendor in declining to return it; though if it had been a binding document and if he had, by appropriate words, made provision for that [i.e. for the deposit to be non-refundable] in the document, such a provision could have been upheld."
"If the document were a binding contract, there would of course be no doubt as to the result."
"Whether a vendor is entitled to retain a deposit depends in each case upon the construction of the document under which that deposit is made."
He concluded at page 112, that it was "a deposit paid in anticipation of a final contract and nothing more."
"I look on the whole payment as being sufficiently explained as being an anticipatory payment intended only to fulfil the ordinary purpose of a deposit if and when the contemplated agreement should be arrived at."
"Although the transaction between the plaintiff and the defendant was illegal, nevertheless it was fully executed and carried out: and on that account it was effective to pass the property in the lorry to the plaintiff."
"But the basis of a payment is not always specified in a contract or as a contractual reciprocation. Take the case in which I see a house which I want to buy. I immediately pay a small deposit, say £200. My intention is merely to show bona fides and establish good will. The payment is made 'subject to contract'. A month later I call the whole thing off; no contract materialises. I can recover the £200. There is no need to twist the facts into an implied contract under which you promise to repay in the event of the negotiations being aborted. That is one way to conclude for repayment, but the temptation to adopt that approach is a reflection of the old insecurity about all non-contractual analyses. It is quite sufficient to say that when my purchase goes off the consideration for the payment fails. There can be a consideration in this sense without there being a contract about the payment. The phrase 'subject to contract' means, as matter of construction, that my payment was conditional on the successful conclusion of the contract. That is, the only consideration for the payment was the making of that contract. Without that contract, the consideration failed. It would have been different if the exercise of construction had shown that the payment was intended to operate as a sanction against my withdrawal. If that had been the basis of payment, there would have been no failure of consideration when I did withdraw."
"No direct authority is cited for the last proposition (the reader is invited to compare R v Smith (1884) 27 Ch D 89 and Mayson v Clout  AC 980, both cases in which there was a concluded contract). But in principle the proposition must be right, if the sanction of forfeiture has been clearly stipulated."
"If a prospective vendor has been as sorely tried as Mr Gribbon was by a prevaricating purchaser, and if he stipulates for the payment of a non-returnable deposit linked to a clearly-defined condition, the purchaser should lose any claim to the return of the deposit if he fails to meet the condition. I agree with the judge that Sir Ernest Pollock MR was right in his dictum in Chillingworth v Esche  1 Ch 97, 108" [which he then set out].
"Those were summarised in the judgment of Sir Ernest Pollock MR in Chillingworth v Esche  1 Ch 97 at page 108, where he said that it was possible for the deposit not to be recoverable;
"If he had, by appropriate words, made provision for that in the document, such provision could have been upheld."
That formula was picked up by Robert Walker LJ in the case of Gribbon v Lutton & anr  QB 902, where the Lord Justice said that:
"If the vendor stipulates with a payment of a non-returnable deposit linked to a very clearly-defined condition, the purchaser should loose any claim to return the deposit if he fails to meet the condition.""
Lady Justice Black:
Lord Justice Laws: