Court dismisses plaintiff's fraud and rescission claims, allowing defendant's counterclaim via promissory estoppel defense.

[*134] 1980 Nov.4

(PIKIS, P.D.C.)

IN THE DISTRICT COURT OF LARNACA

Vassiliki Nicou Morfiti,

Plaintiff,

v.

Athanassia or Loulla Nicou Vassiliade and Another,

Defenants,

(Action No. 1144/79)

Contract - Collateral warranties - Subsequent agreement to rescind - Burden of establishing - Misrepresentation - Principles applicable - Section 18(a) of the Contract Law, Cap. 149.

Acquiescence - Equitable defence - Principles applicable-Contract of sale of land - Seller allowing purchaser to believe that he would not be required to pay outstanding instalments for the time being - Inequitable to require purchaser to meet her obligations unless reasonable notice is served on her.

P. Lysandrou, for the Plaintiff.

A. Poetis, for the Defendants.

JUDGMENT

The following judgment was delivered by:-

PIKIS. P.D.C.: The plaintiff, a housewife of [*135] London, of Cypriot origin, sues to recover a sum of C£800, approximately the equivalent of the amount paid to defendant 1 through her husband and agent, defendant 2, for the purchase of l/8th share in a field at Pyla under a written contract of sale dated 15th September 1971 (exhibit 3). The two main alternative grounds upon which she bases her case, that allegedly give her the right to recover the money, are:

(a) Fraud in the form of misrepresentation, practised by the agent and husband of the vendor, defendant

2 in order to induce her to enter into the agreement; and

(b) rescission of the agreement orally agreed upon between the parties on a visit of defendant 2 to the U.K. in the early months of 1974.

Another cause relied upon, is money had and received, that is to say moneys, owing to the plaintiff because of total failure of consideration.

The defendants deny liability and disclaim any obligation to return the money; further they raise a counterclaim for the recovery of the balance of the sale price due under the aforementioned written agreement; the agreement provided for the sale of l/8th share at Pyla for £3,000 payable by monthly instalments of £80. It is common ground that plaintiff stopped making payments under the agreement about the month of November 1973. The outstanding instalments that make up the balance of the sale price come to £2,141 and carry interest, according to the agreement, [*136] calculated at 7 per cent per annum from the day each instalment fell due.

Another alternative ground adumbrated in the prayer but not articulated in the statement of claim or pursued at the trial is for damages for fraud. This must be deemed to have been abandoned for not an iota of evidence, was tendered to substantiate the claim or indeed to indicate any loss other than the part payment of the: purchase price. The only evidence about the present value of the property sold comes from defendant 2 and such value is estimated at £4,000.-, an amount higher than the purchase price.

The case for the plaintiff and defendants rests on the testimony of the plaintiff and defendant 2 respectively who advanced conflicting stories as to what preceded and what followed the execution of the written agreement. The only other witness was Alecos PapaCleanthous (D.W.1) who testified about the ownership of the property sold, establishing that defendant 1 was and still is the registered owner of l/8th share in the property sold; therefore she has the amenity to fulfil her part of the agreement

after payment of the purchase price, a condition precedent to the transfer of the property. And.now to the evidence of the main witness: The plaintiff maintained she was induced to enter into the agreement by assurances given by defendant 2 that the property would be ripe for division into building sites in about 2-3 years. This was, in her contention, a powerful consideration for her intention was to acquire [*137] land suitable for building a house in furtherance of her plans to resettle in Cyprus after spending years abroad. The plaintiff was reinforced in the soundness of this representation after a visit to the locus where she noticed that an adjoining strip of land had already been divided into building sites. This land referred to as the “POtamitis” estate, was not exactly adjoining the property sold but was situate in its vicinity at a distance of between 1,400 to 2,200 feet from the subject property, according to the testimony of Mr. Vassiliades a former Lands clerk.

Collateral Agreements

The plaintiff was allowed to refer to the background of the agreement notwithstanding the rule against extrinsic evidence because her case, put in its proper legal perspective, is that the written agreement was preceded by a collateral one, the observation of the terms of which was a condition precedent to the fulflment of the agreement. At one time Courts leaned against collateral agreements except in the face of the most compelling evidence. This is no longer the case and Courts may find collateral warranties proved without any excessive burden being placed on the plaintiff, on the ordinary balance governing proof of an agreement in. civil proceedings. (See J. Evans & Son v. Andrea Merzario (1976) 2 All E.R. 930.).

In essence a collateral contract is a preliminary agreement giving rise to the agreement that follows. (See Yannakou v. Stylianou

(1978) 2 J.S.C. 252 - a case where I [*138] dealt at some length with the implications of collateral terms leading to the formation of a contract.)

Mr. Vassiliades denied making any representations to plaintiff about the building potential of the land or indeed its future suitability for division into building sites. And in his evidence nothing was said on the subject calculated or intended to induce the plaintiff to enter into the agreement that followed (exhibit 3). He explained that the division of the land was, both at the time of execution of the agreement (exh.3) and subsequently till. the present day, dependent on securing access to a public road as the land is apparently surrounded by private properties. Further he disputed the assertion of plaintiff that she intimated to him that her primary interest was to acquire land suitable for division into building sites. The person who induced the plaintiff to defendant 2, a certain Dafni, a mutual friend or relation of the parties had previously purchased land from the defendants which was, like that purchased by plaintiff, a field. Mr. Vassiliades is apparently a dealer in land.

The terms of the alleged collateral agreement were so interwoven with the subject matter of the agreement that one would ordinarily expect to find them incorporated in the agreement itself. In fact some terms of the agreement are inconsistent with those of the alleged collateral agreement. For example the instalments’ of the purchase price became immediately payable and were in no way made dependent on fulfilment of the alleged precedent conditions. [*139] Mr. Lysandrou argued that clause 4 of exhibit 3 could be construed as referring to the terms of the collateral agreement. I disagree, with respect, with the soundness of this submission. All that clause 4 purports to regulate, indeed safeguard, is the right of the owner to divide the land in its entirety into building sites at her discretion without the prior consent of the plaintiff. An agreement must be construed in the light of its provisions read

in the context of the agreement as a whole. (See, inter alia, Epco v. Lartico (1978) 1 C.L.R. 201.) Mr. Lysandrou went

further and argued that the business efficacy of the agreement of the parties, embodied in exhibit 3, is dependent on implying terms similar to those included in the alleged collateral agreement of the parties. In other words we were invited to hold that an agreement for the sale of a field is sapped of business efficacy unless a term is implied that the land will, in future, be suitable

for division into building sites. In our judgment this submission is totally unfounded. An agreement for the sale of a

field is perfectly valid without necessity arising to imply any terms as to the likelihood of its divisibility in future .into building sites. A term will be implied only if it is’ absolutely necessary in order to give credence to the agreement of the parties so much so that the parties may be presumed to have had it in mind as a necessary prelude to its enforcement. (See Brown & Davis Ltd. v. Galbraith

(1972) 3 All E.R. 31 (C.A.) and Trollope & Colls v. N.W. Hospital Board (1973) 2 All E.R. 260.). [*140]

Before leaving discussion of the implications of the evidence of the plaintiff on the subject of collateral agreement I should perhaps examine in the proper legal perspective the implications of the alleged representation. Plaintiff’s evidence on the subject is that defendant 2 represented that the land would be ripe for division into building sites in two to three years time. Section 18(a) of the Contract Law, Cap.149 lays down that a positive assertion of that which is not true, in a manner unwarranted by the information available to the maker, amounts to misrepresentation rendering, according to s. 19 of the same law, the agreement voidable at the instance of the deceived party. It appears that a positive representation about a future event, unwarranted by the information available to the maker will taint an agreement founded thereon with misrepresentation. The crux of the matter is the information available to the maker, so if the statement made is unwarranted by the information available to the maker it matters not whether it was made purposely or recklessly. But the statement must consist of

a positive assertion as opposed to the expression of a hope or mere belief. It seems that s. 18(a), Cap. 149 incorporates the common law

approach on the subject that makes possible a finding of misrepresentation regarding the happening of a future event provided it is made without a proper factual foundation. (See D. Bentley Productions, Ltd. and Another v. Harold Smith (Motors) Ltd.(1965) 2 All E.R. 65;

J. Evans (supra) at p. 933. letters D-E.) In the case of a representation [*141] as to the likelihood of a future event the misrepresentation stems from the fact that it is predicated upon an unfounded premise.

In this case assuming I were to accept the evidence of the plaintiff on the subject there is nothing to suggest that the statement made by defendant 2 was not warranted by the information then available to him nor is there anything to contradict Mr. Vassiliades that the division of the land into building sites was, at all times, possible provided the owners, secured the necessary access or adjoining owners made possible, by the division of their land into building sites, access to a public road. No application has been made so far either for the i division of the land into building sites or for gaining access to a public road. Hence even if accepted, the statement would not constitute misrepresentation within the meaning of the law.

The facts following the execution of the agreement may briefly be summarized as follows: The next visit of plaintiff to Cyprus was in the summer of 1973 when she realized, in her contention, that the prospects for the division of the land into building sites were dim. Notwithstanding this realization she kept paying her instalments until November 1973. However she maintained that in her meeting with defendant 2 in London in the early months of 1974 she pressed for the cancellation of the agreement once the land could not be divided into building sites.

And it is her case that defendant 2 consented to this course [*142] leading to a-rescission of the agreement (exh.3) with defendant 2 undertaking to refund to plaintiff the money she had paid, Mr. Vassiliades disputed this version of events and maintained that he never agreed either to the rescission of the agreement or the relief of plaintiff from her obligations thereunder. His evidence is that plaintiff pleaded financial difficulties resulting from the illness of a member of her family whereupon defendant 2 agreed to facilitate the plaintiff by helping in the direction of finding another purchaser, a course that might, depending on the success of the venture, relieve the plaintiff of her obligations under exhibit 3 and lead to the refund of the money she had paid.

He acted promptly in this respect and found a prospective purchaser while in London but the transaction did not go through as a bestman of plaintiff expressed interest to buy the land and would consider the matter after a. visit in Cyprus planned for the summer of 1974 In the meantime defendant 2 asked plaintiff to furnish him with a statement from her bank indicating the instalments she had paid. The information was supplied by letter dated 13th July 1974 (exh.4) received by Mr. Vassiliades after the Turkish invasion. It is significant to note that in this letter plaintiff explains that she stopped making payments under exhibit 3 on grounds of ill-health, a statement that lends force to the contention of Mr.

Vassiliades that this was the ground upon which a short while earlier plaintiff asked to be relieved of her obligations under exhibit 3. [*143] No reply was given to this letter. The shattering events of 1974 left everything in abeyance. Plaintiff maintained that she had another meeting with Mr. Vassiliades in London in 1975 but evidently she must be making a mistake for, as Mr. Vassiliades testified and he is supported in this by the entries in his passport, his next visit to the U.K. took place in 1978 (exh.7). In a second letter to Mr. Vassiliades, dated 16th March 1977 (exh.5) the plaintiff renewed her request to be relieved from the agreement (exh.3) pleading adverse personal circumstances, this time her personal ill health.

In 1978 the parties met but again failed to come to any settlement of their differences. Mr. Vassiliades testified that in 1978 he offered to return the sum of £800 by the end of that year, a suggestion that was turned down by plaintiff. In the contention of plaintiff the attitude of Mr. Vassiliades was negative.

I have carefully considered the evidence before me and had the opportunity to see both the plaintiff and defendant 2 testify. The burden of establishing both a collateral agreement as well as a subsequent agreement to rescind is on the plaintiff. My finding is that she has failed to discharge this burden and failed to prove either a collateral agreement or a subsequent agreement to rescind. In the witness-box plaintiff gave me the impression of an emotional person easily carried away by her feelings and apt to see right and wrong through her own prism of justice. Although. I feel considerable sympathy for her difficulties and those of her family I cannot relieve her of her [*144] obligations under the agreement. I found her to be an unreliable witness. Hence her action is dismissed. The only thing she could infer from the conduct and statements of Mr. Vassiliades is that he would suffer the plaintiff to default in the discharge of her obligations under the agreement because of her difficulties until further notice. As much can be inferred from the evidence of Mr. Vassiliades himself and his professed willingness to respond with sympathy to the difficulties of plaintiff. I consider it pertinent to make my findings in this area for such findings do have a bearing on the outcome of the counterclaim.

Acquiescence

In the defence to the counterclaim a defence of acquiescence is set up and therefore it becomes necessary to consider whether the defendant is entitled to succeed on her counterclaim. The test of acquiescence is, as stated by Buckley L.J. in Shaw v. Applegate

(1978) 1 All E.R. 123, at p. 131. “…. whether on the facts of the particular case the situation has become such that it would be dishonest, or unconscionable, for the plaintiff, or for the person having the right sought to be enforced, to continue to seek to enforce it”. Acquiescence is no doubt a species of waiver requiring clear and unequivocal evidence that a party waived his right to insist on the enforcement of his contractual rights or some of them. (See Mardorf Peach & Co. Ltd. v. Attica Sea Carriers Corporation of Liberia (1977) 1 All E.R. 545 (H.L.).) In turn “waiver” is an aspect of [*145] promissory estoppel,

the principles of which received approval in Cyprus in HadjYiannis v. Attorney-General (1970) 1 C.L.R. 32. The successful raising of a defence based on

estoppel depends on (a) the making of clear and unequivocal representations in consequence of which (b) the addessee alters his position in circumstances that it would be unconscionable to allow him to go back without more ado. If the representation is to the effect that one will not, for the time being, pursue his contractual rights, such rights cannot be enforced unless reasonable notice is first served signifying an intention to activate the agreement . In effect acquiescence puts in abeyance the enforcement of one’s rights without however qualifying or destroying them.

In the light of my findings the defence of acquiescence was successfully set up for the following reason: Although Mr. Vassiliades did not agree either to rescind the agreement of the ;parties (exch.3) or to forego on behalf of his principal any of the rights flowing therefrom he did by words and conduct allow the plaintiff to. believe that she would not be required to pay outstanding instalments, under the agreement for the time being in defence to her financial difficulties. In consequence thereof the plaintiff made default in meeting her obligations under exhibit 3 and it would be inequitable to require the plaintiff to meet those obligations unless reasonable notice is first served on her. No such notice was served upon her and the counterclaim was raised without first giving her reasonable notice of the intention of defendant 1 to enforce her rights under exhibit 3 and generally activate the [*146] agreement. The forbearance of the .defendant to. sue or demand payment of the instalments though not in itself an act of waiver, it must have reinforced the belief of plaintiff that no steps would be taken against her for failure to pay the instalments due before further, notice. To allow the defendants to resile from that position would be unjust and inequitable. (See Ismail v. Polish Ocean Lines (1976) 1 All E.R. 902). In my judgment the counterclaim was raised as a reaction to plaintiff’s claim. The fact that plaintiff made, as the Court found, an unfounded claim does not destroy the estoppel arising in the circumstances. Hence the counterclaim must be dismissed. However I must point out to the plaintiff that by virtue of the counterclaim and the period that elapsed since its filing the plaintiff has had ample notice of defendant’s 1 intention to proceed with the enforcement of her rights under the contract and she can have no excuse for any future default.

In the result, the action is dismissed. The counterclaim is dismissed. An order as to costs is that plaintiff should pay 3/4ths of defendant’s costs with no order as to costs being made with regard to the counterclaim; and we so order.

Action and counterclaim dismissed with order for costs as above.