Plaintiff's claim for collateral warranty damages dismissed as house was completed before contract execution.

[*252] 1976 June 12

(PIKIS, AG. P.D.C.)

IN THE DISTRICT COURT OF LARNACA

Eleni Yiannakou,

Plaintiff,

and

Michael Costi Stylianou,

Defendant.

(Civil Action No. 37/75).

Contract - Collateral warranties - Terms of - Principles on which they may be received in evidence - No evidence to support the existence of a collateral agreement in this case.

Evidence - Contract - Collateral warranties - Terms of - Principles on which they may be received in evidence.

C. Varda, (Mrs.), for the Plaintiff.

A. Mathicolonis, for the Defendant.

JUDGMENT

The following judgment was delivered by:-

PIKIS, AG. P.D.C.: By virtue of a written agreement dated 20th August 1973, the plaintiff agreed to purchase from the defendant a house at 6 Aristophanous street at Larnaca, for £7,300. The execution of this agreement had been preceded by negotiations between the parties in the course of which the plaintiff had the opportunity to see the premises purchased and consult the architectural plans. Following this agreement the house was conveyed to the plaintiff in December 1973.

It is common ground that the building had been completed before the parties signed the sale agreement, the [*253] only dispute being whether a staircase had, in point of fact, been completed before or after the execution of the agreement and which in any event it had been constructed before conveyance. In clause 3 of this written agreement (exhibit 2) the plaintiff declares that she found the building site and premises standing thereon to satisfy her completely. In another clause of this agreement it is stipulated that nothing outside the agreement shall bind the parties unless reduced in writing and bearing the signature of both. The intention of the parties here as manifested by the plain words adopted in clause 9, is that the terms of the sale agreement were exclusively embodied in the contract itself. By her action the plaintiff seeks to recover £1,320 as damages for breach of what is referred to in paragraph 3 of the statement of claim as a guarantee given by the defendant before and at the time of the execution of the agreement to the effect that the building had been constructed in accordance with the architectural plans and the technical terms attached thereto and further that the materials used were of excellent quality. On a study of the statement of claim it emerges that this is the sole alleged breach upon which this action is founded. It is not the case for the plaintiff, as defined in her statement of claim, that any terms should be read into this agreement by necessary implication in order to give business efficacy to the transaction. Her case is limited to an alleged breach of an oral warranty given before and at the time of the execution of the agreement. It is therefore necessary to examine in the first place whether there is room, in the light of the express [*254] written provisions of the sale agreement for recognizing the existence of such a collateral warranty and, if so, whether there has been anything in the nature of breach of such warranty.

Collateral Warranties

In general no evidence is admissible to vary, add or contradict the written terms of an agreement. However, where an agreement has been concluded upon a certain understanding prevailing between the parties prior to the execution of the agreement and such understanding forms part of the consideration for entering into the agreement, in other words an agreement collateral to the main contract, the terms of such agreement may be received in evidence provided they do not conflict with the terms of the principal contract. (See Phipson on Evidence, 11th edition, paragraph 1791). As a matter of evidence it has not been alleged by the plaintiff or any other witness who testified on her behalf that any assurances had been given by the defendant to the plaintiff that the building had been erected in accordance with the architectural plans. Her evidence is merely to the effect that before entering into the agreement in question she asked for the plans, which she obtained from the Municipal Authorities and had the opportunity to study them apparently in consultation with Mr. Loizos Rouvithas, a person known to her. The plaintiff mentioned nothing in her evidence about any technical terms accompanying the plans and in the light of the evidence before the Court no provision was made for such terms outside the plan itself, where limited reference [*255] is made to the details of the construction. The defendant admits that in the course of the negotiations he did tell the plaintiff that the structure was solid, acquainting her of the fact that it was originally destined for his children, a fact that would normally imply that great care had been taken in building the premises. It therefore appears that no guarantee had been given as alleged in paragraph 3 of the statement of claim. At most the defendant warranted that the materials used for the building were of good quality.

In order to establish the presence of a collateral agreement it must be made to appear, as earlier stated, that this agreement was fundamental for the formation of the contract, and formed part of the consideration for entering into the agreement. Exchanges between the parties at the stage of negotiations, not amounting to agreement, are irrelevant and inadmissible. To hold otherwise would leave the door wide open for the admission of "negotiations" evidence. Once negotiations crystallize into a definite agreement their content is irrelevant and inadmissible. Furthermore the existence of any agreement collateral to the main contract is denied by the parties themselves by virtue of the plain provisions of clause 9 of the agreement. Lastly, by clause 3 the plaintiff warrants that she relied on her own judgment in deciding to purchase the premises.

In the light of the above, it emerges that -

(a) there is no evidence to support the existence of the collateral agreement alleged in the statement of claim and in any event, [*256]

(b) the existence of such agreement is denied by the parties themselves in accordance with the express provisions of the sale agreement.

For these reasons the action fails. However, I consider it pertinent to canvass every possible implication of the case, examine the evidence and make my findings in case the matter goes higher and a different view is taken.

2. The Evidence

I shall assume, contrary to my findings, that there does exist a collateral warranty that should be given effect to in the terms as alleged in paragraph 3 of the statement of claim and shall proceed to examine whether the plaintiff proved breach of this warranty.

Mr. Stavros Mavropoulos, a builder and building contractor, testified that in April 1974, after receiving instructions from the agent of the plaintiff in Cyprus, namely Mr. Miltos Vardas (P.W.5) and after having a consultation with Mr. Lykourghos Xenophontos (P.W.3), another builder and building contractor, he carried out certain repairs at the house of the plaintiff at a cost of £1,100. It is the evidence both of Mr. Mavropoulos and Mr. Xenophontos that parts of the fence wall in the yard of the house and a balcony were in a state of collapse. I accept that the fence wall had subsided in part and the balcony was in a state of collapse. In the case of both the wall and the balcony it was necessary to lay new foundations in order to support them. According to the testimony of these witnesses the foundations originally

provided for in respect of these two parts of the building were [*257] inefficient to prevent soil erosion. A different

type of foundations had to be established by the erection of columns and by cementing the yard. It seems that foreign soil had been imported and laid in parts of the building site in order to level the land and that the foundations resting on foreigns oil were insecure to support the aforesaid two parts of the building. It is fortunate that the remaining building rests on secure foundations, that is on soil belonging to the land. Mr. Mavropoulos also testified that there was some damage tothe interior of the building; in particular the skirtings of two rooms were beginning to crack on account of the aforesaid deficiencies and their repair was necessary in order to avoid worse damage.

I accept that the repair of those parts of the building repaired by Mr. Mavropoulos was necessary in order to make the structure secure and find, on balance, that the cost of £1,100 was reasonable. The allegation of the plaintiff that there was in addition some damage to the roof that necessitated repair has not been substantiated and it is dismissed.

This finding does not help the plaintiff in the absence of evidence that, the damage was the result of a breach of the terms of the collateral warranty allegedly given. Mr. Xenophontos, the only witness for the plaintiff who commented on the architectural plans, does not support the complaint of the plaintiff. A fair inference from his testimony is that the building had been constructed in accordance with the plan and there was nothing to indicate that the materials used were of an inappropriate quality. On the contrary, this witness testified that it was a solid structure. The fault [*258] lay in failure to make provision in the plans for a different type of foundations for the support of the fence wall and the balcony on account of the presence of foreign soil be neaththose parts. The building had been erected in accordance with the plans. It may be mentioned that the plans make no reference whatever to the fence wall. For these reasons the case for the plaintiff is again doomed to failure.

3. Implying Terms in a Contract for the Sale of a House.

Learned counsel for the plaintiff, in her final address, invited the Court to read a term into the contract of the parties, as a matter of necessary implication, to the effect that the house when completed shall be fit for human habitation. In support of her submission she cited two cases that support the principle that in every contract for the sale of a house to be built or under construction a term should be implied that the house, when completed, should be fit for human habitation and that this warranty extends to the foundations. (See Jennings v. Tavener (1955) 2

All E.R. 769 and Hancock v. B.W. Brazier (Anerley), Ltd. (1966) 2 All E.R. 901). I hinted to counsel more than once, in the course of

the trial, that her submission cannot be examined in the context of these proceedings in the absence of any allegation in the pleadings denoting the existence of such an implied term and subsequently its breach. Indeed it is not the case for the plaintiff, as set out in her statement of claim, that the defendant is guilty of breach of any implied obligation inherent in the formation of the contract. The necessity to confine the issues to those raised in the pleadings has been repeatedly stressed and need not be emphasized again. Limiting [*259] the issues to matters raised in the pleadings is not merely a matter of formality but a fundamental aspect of our system of both criminal and civil justice requiring notice to one’s opponent of the case he has to meet at the trial. In Eleni Panayiotou Ioannou v. Polycarpos Neophytou Anyftos, 24 C.L.R. 97, Zekia

J. sums up the position as follows:-

"A Court of Law has to confine itself to the issues as appearing at the close of the pleadings or properly aided to at the date of the hearing and not to take up at the trial other issues which the evidence of a particular witness might suggest “(at p. 106).

The need to confine the Court’s deliberations to the issues raised by the pleadings

was stressed by the Supreme Court time and again (see, inter alia, Christakis Loucaides v. C.D. Hay and Sons Ltd. (1971) 1 C.L.R. 134).

In the light of the above, the Court cannot examine the allegation of the plaintiff for alleged breach of an implied term warranting the fitness of the premises for habitation, I may, however, proceed a little further and examine the merits of this submission in the light of the evidence before me, holding, as I do, the view that this would carry the case for the plaintiff no further.

The general principle is that a term will be implied in a contract if this is necessary to give business efficacy to the transaction. Several tests have been propounded as to when business efficacy dictates importing a term in a contract. The most authoritative pronouncement on the subject is to be [*260] found in the decision of the House of Lords in Trollope &Colls v. N.W. Hospital Board (1973) 2 All E.R.260. A term will not be implied merely for the reason that the parties ,if they had addressed their minds to it, they were likely to adopt it. A term should only be implied if it could be said that its presence was assumed by the parties and was so necessary to the extent of inferring its presence without mentioning it in order to give business efficacy to the transaction. In another decision Cairns, L.J. puts the matter in this perspective -

"In order to imply it is necessary to say not merely that it would be a businesslike arrangement to make but that any other arrangement would be so un businesslike that sensible people could not be supposed to have entered into it”. (See Brown & Davis Ltd. v. Galbraith (1972) 3 All E.R.31 (C.A.).

The authorities relied upon by counsel for the plaintiff lay down that in every contract for the sale of a house to be built or in the process of construction a term should be implied that the house, when completed, shall be fit for human habitation. The principles enunciated in these authorities rest on earlier judicial pronouncements and it can be said that it is well established that when a purchaser buys a house from a builder who contracts to build it or is in the process of construction a threefold obligation is implied: (a) that the builder would do the work in a good and workmanlike manner; (b) that he would supply good and proper materials; and (c) that the house would be [*261] reasonably fit for human habitation. However, no such term should be implied if the house is sold after completion as in the present case. (See Chitty On Contract, 23ra edition. volume 1, paragraph 701).

In this case the house sold to the plaintiff had been completed some time before the execution of the sale agreement; that the house was completed is also manifest from the terms of clause 1 of the contract made between the parties. There is some dispute as to whether a staircase for which pro-vision had been made in the plans had been completed before or after the execution of the agreement. At the initialst ages of negotiations for the purchase of this house this staircase, for which provision had been made in the plans, was not completed. The evidence of the plaintiff does not clarify whether it had been constructed before the execution of the agreement though it is admitted that it had been constructed by the time of the conveyance of the house. The defendant testified that the staircase had been completed before the execution of the agreement. In the agreement itself reference is made to the cost of the construction of the staircase but it makes no reference to whether the staircase had been completed by then or not.

I accept the evidence of the defendant on this aspect of the case and find that it had been completed by the time of the execution of the agreement. Even if I were to make a finding to the contrary that would make no difference to my decision as the house in the state it was, even without the staircase, was in every respect a completed building. The question whether a building is completed or [*262] is under construction is one of fact and degree. It would seem to me that the proper test to apply is whether the building has been completed to such a degree as to enable a party interested to buy it to decide whether it is fit for human habitation. One last observation, before leaving this judgment, is that the evidence does not establish that the building, despite its defects mentioned in the course of this judgment, was not fit for human habitation.

For all the above reasons the action is dismissed, with costs in favour of the defendant, to be assessed by the Registrar on the scale, of claims between £500 and £1,000.

Action dismissed with costs

in favour of defendant.