#6686 - Johnson V. Agnew Ii - Commercial Remedies BCL

Johnson v. Agnew

Facts

My Lords, this appeal arises in a vendors’ action for specific performance of a contract for the sale of land, the appellant being the purchaser and the vendors respondents. The factual situation is commonplace, indeed routine. An owner of land contracts to sell it to a purchaser; the purchaser fails to complete the contract; the vendor goes to the court and obtains an order that the contract be specifically performed; the purchaser still does not complete; the vendor goes back to the court and asks for the order for specific performance to be dissolved, for the contract to be terminated or "rescinded," and for an order for damages.

The contract for sale was dated November 1, 1973. The property sold was called Sheepcote Grange, Woodburn Common. Bucks; it consisted of the grange itself and some grazing land. On the grange there was a first legal charge to a building society for 15,600 and two other charges. On the grazing land there was a first legal charge to a finance company for 6,000 and a second legal charge to a bank. The purchase price under the contract was 117,000 and so was ample to pay off the charges and to leave the vendors with money to buy another property. In fact on November 1, 1973, they contracted to buy one for 34,000, and raised the purchase money by loan from a bank. If the first contract had been completed according to its terms, no difficulty would have arisen: the bank loan would have been discharged from the purchase price.

Purchasers don’t complete the contract of sale: A deposit of 10 per cent. was to be paid but the purchaser only paid 3,000. Before December 6, 1973, the purchaser had accepted the vendors' title (this of course disclosed the existence of the mortgages) and a form of conveyance was agreed. However the purchaser did not complete on that date. On December 21, 1973, the vendors' solicitors served a notice, under condition 19, making time of the essence of the contract and fixing January 21, 1974, as the final date by which completion was to take place. The purchaser failed to complete on that date. On March 8, 1974, the vendors issued a writ claiming specific performance and damages in lieu of or in addition thereto and alternatively a declaration that the vendors were no longer bound to perform the contract and further relief.

Mortgagees enforce their mortgage: Meanwhile action was taken by the vendors' mortgagees. The building society obtained an order for possession of the grange on August 22, 1974, they sold it on June 20, 1975, and completion took place on July 18, 1975. The finance company obtained an order for possession of the grazing land on March 7, 1975; they sold it on April 3, 1975, and completion took place on July 11, 1975. Thus by April 3, 1975, specific performance of the contract for sale had become impossible.

The vendors took no action upon the order for specific performance until November 5, 1976, when they issued a notice of motion seeking (a) an order that the purchaser should pay the balance of the purchase price and an inquiry as to damages or (b) alternatively a declaration that they were entitled to treat the contract as repudiated by the purchaser and to forfeit the deposit and an inquiry as to damages. On February 25, 1977, Megarry V.-C. dismissed the motion. He rejected the first claim on the ground that, as specific performance was no longer possible, it would be unjust to order payment of the full purchase price.

Question

These propositions being, as I think they are, uncontrovertible, there only remains the question whether, if the vendor takes the latter course, i.e., of applying to the court to put an end to the contract, he is entitled to recover damages for breach of the contract.

Holding

Claim for damages after claim for specific performance has failed

On principle one may ask "Why ever not?" If, as is clear, the vendor is entitled, after, and notwithstanding that an order for specific performance has been made, if the purchaser still does not complete the contract, to ask the court to permit him to accept the purchaser's repudiation and to declare the contract to be terminated, why, if the court accedes to this, should there not follow the ordinary consequences, undoubted under the general law of contract, that on such acceptance and termination the vendor may recover damages for breach of contract?

Then, in a case very similar to the present, McKenna v. Richey [1950] V.L.R. 360, it was decided by O'Bryan J. in the Supreme Court of Victoria that, after an order for specific performance had been made, which in the events could not be carried into effect, even though this was by reason of delay on the part of the plaintiff, the plaintiff could still come to the court and ask for damages on the basis of an accepted repudiation. It was held:

“If for any reason the contract cannot be specifically enforced, the plaintiff may, in my opinion, turn round and say: 'Very well, I cannot have specific performance; I will now ask for my alternative remedy of damages at common law.' This, in my opinion, is equally applicable both before and after decree whether the reason for the refusal or the failure of the decree of specific performance is due to inability of the defendant to give any title to the property sold, or to the conduct of the plaintiff which makes it inequitable for the contract to be specifically enforced....”

My Lords, I am happy to follow the latter case. In my opinion Henty v. Schr”der, 12 Ch.D. 666, cannot stand against the powerful tide of logical objection and judicial reasoning. It should no longer be regarded as of authority: the cases following it should be overruled.

No Election by the mere seeking of specific performance

The main argument there accepted was that by deciding to seek the remedy of specific performance the vendor (or purchaser) has made an election which either is irrevocable or which becomes so when the order for specific performance is made. A second limb of this argument (but in reality a different argument) is that the vendor (or purchaser) has adequate remedies under the order for specific performance so that there is no need, or equitable ground, for allowing him to change his ground and ask for damages.

In my opinion, the argument based on irrevocable election, strongly pressed by the appellant's counsel in the present appeal, is unsound. Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity. It is easy to see that a party who has chosen to put an end to a contract by accepting the other...