Court holds vendor liable for breach of land sale due to failure to obtain co-heirs' consent.

[*71] 1977 March 31

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

IN THE DISTRICT COURT OF LARNACA

Georghios Christodoulou, through

his lawful representative Nicos Vassiliou,

Plaintiff,

v.

Loukia Pavlou Sitarenou,

Defendant.

(Action No. 622/76).

Contract - Sale of land - Breach of, through a defect of title - Rule in Bain v. Fothergill (1874-1880) All E,R. Rep. 83 (H.L.) - Section 56(3) of the Contract Law, Cap. limits its application to cases where the promisor could not, with reasonable diligence, ascertain at the time of entering into the contract his inability to make out a good title - Land, subject matter of sale, registered in name of the deceased father of the vendor - Co-heirs of vendor refusing to give their sanction to the transaction

- Vendor could, if she exercised elementary diligence, ascertain the views of her co-heirs before entering into the contract - Liable to pay damages - Measure of damages - Section 56(3) (supra).

Contract - Breach of contract - Non-performance of act known to be impossible - Section 56(3) of the Contract Law, Cap. 149 - Nature of damages recoverable thereunder - "Loss".

Words and phrases - "Loss" in section 56(3) of the Contract Law, Cap. 149.

A. Poetis, for the Plaintiff.

A. Andreou, for the Defendant.

JUDGMENT

The following judgment was delivered by:-

PIKIS, AG. P.D.C.: By a sale agreement executed [*72] on 3rd August 1967, the defendant sold to the plaintiff a plot of land, of an extent of three donums and three evleks - plot 166/3 - at "Kotchinoyia” locality, Aradhippou. The defendant failed to convey the land for reasons to which reference shall be made in due course; and the plaintiff raised the present action seeking to recover £2,500 damages for breach of contract.

The defendant, though admitting being a party to this agreement, alleges, in her defence, that she became a signatory to it after psychological pressure had been exerted upon her by her husband; she does not, however, seek any declaration that the agreement should be set aside; alternatively she maintains that she is absolved of her obligations under this agreement for the reason that the agreement was subject to a condition precedent, viz. securing the consent of co-owners of this property, a condition that never materialized.

During the trial of the case evidence was adduced shedding light on the circumstances pertaining to the execution of the agreement and subsequent events. I believe I would be saving time if I were to say right away that there is hardly any evidence supporting defendant' s allegation that she signed the agreement under anything that may properly be described as pressure. And certainly there is not an iota of evidence capable of giving rise to a finding of coercion, as defined by s. 15 of the Contract Law, Cap. l49. For the defendant to succeed on this score she would have to prove that [*73] there is lack of concensus to the contract to the point of the contract not being her own (non est factum). And certainly she has to overcome many obstacles if she is to succeed in this area, considering the effect of the decisions in Saunders v. Anglia Building Society,

(1970) 3 All E.R. 961 and United Dominions Trust v. Western (1975) 3 All E.R. 1017. Indeed a signatory to an agreement owes, as it was stressed in United Dominions Trust (supra), a duty of care to the other contracting party to ensure that the document signed represents his contractual intentions and the burden of proving that a written document does not achieve that result lay squarely on the shoulders of the defendant. In his final address, counsel for the defendant virtually abandoned his client's plea on this and laid stress on the alleged inability of his client to transfer the property for no fault of her own, a factor that does, in his submission, free her from any liability to pay damages on the authority of the rule approved by the House of Lords in Bain v. Fothergill (1874 - 1880) All E.R. Reprint 83 (H. L.).

The value of the land was a subject of evidence with particular reference to the value of the land in the year 1974, the year in which plaintiff was asked to vacate the land of which he took possession immediately following the execution of the agreement. At the end of the day the parties agreed that the per donum value of the land in the year 1974 was £360. Therefore I shall not concern myself with the value of the land in the year 1974. [*74]

The father of the defendant, namely Pavlos HadjiYanni Kounna was, and still is the registered owner of the land sold to the plaintiff. According to the testimony of the defendant her father died 39 years ago, something that would take us back to the year 1938. The heirs of the deceased were his three children, that is the defendant, her brother Yannis Kounna (D.W.5), another brother, now a resident of Australia and her mother. It seems that their mother has died in the meantime.

The Agreement of 3rd August 1967

By virtue of the written agreement above mentioned, the defendant sold to the plaintiff the immovable property in question for £300; an amount of £50 was paid upon execution of the agreement, The balance was payable within two months upon transfer of the property. By a separate clause of this agreement it was stipulated that the defendant would take all necessary steps in order to secure registration of the property in her name so as to make feasible the discharge of her contractual obligations. Following the execution of the agreement the plaintiff took possession of the property pursuant to an express provision of the contract. It is common ground that he remained in occupation until May 1974, when the property was vacated at the request of the defendant.

The background to the execution of the sale agreement was elicited by the testimony of Mr. Nicos Vassiliades, the attorney of the plaintiff in Cyprus, [*75] the defendant, as well as witness Mouskis HadjiMattheou, the person who acted as a go between the parties in the negotiations that preceded execution of the agreement. In the evidence of Mr. Vassiliades, the husband of the defendant negotiated this sale on her behalf at his Larnaca office in the presence of witness HadjiMattheou, where the agreement was drawn up. The three of them visited the defendant at their coffee shop at Aradhippou and there the defendant signed this agreement without demurring in any way to the agreement reached between the parties. She gave no indication whatever of being unwilling to become a party to this agreement. The defendant alleged that she signed the agreement after some pressure had been exerted upon her by her husband, whereas the testimony of witness HadjiMattheou on this aspect of the dispute is far from clear. Even if I were to accept the evidence of the defendant on this point this would carry her case no further. However, my finding is that Mr. Vassiliades has given an accurate account of the facts leading to the execution of this agreement. Another controversy of the parties relates to the time at which the defendant communicated her unwillingness or inability, as the case may be, to the plaintiff to transfer the property sold. According to Mr. Vassiliades, the first definite indication he ever received from the defendant that she would default in her obligations under the agreement came in May 1974, when the plaintiff and his agent, the person to whom the land was leased by the plaintiff, were asked to vacate it. The parties agree that some time prior to [*76] May 1974, a meeting took place at the office of Mr. Vassiliades in the presence of the defendant in which there took part some of the relations of the defendant. Discussions at the meeting were concentrated on the subject of the execution of this contract and the likelihood of release, of the defendant of the obligations undertaken thereunder.

It is the evidence of Mr. Vassiliades that the defendant made i t impossible for herself to become the owner of the plot of land sold, insisting that the property inherited from their father should be apportioned afresh amongst the heirs, in a way taking account of the fact that properties of the deceased in the area of industrial estate near Aradhippou had gone up in value. The evidence of the defendant on this matter is to the effect that her sister-in-law, the wife of her brother in Australia, intimated that she was unwilling to consent to the registration of the property in her name. Indeed it is the case for the defendant that up to 1974. she was pressing her brothers for their consent, albeit without success. Her brother, Yannis Kounna, supports, to an extent, the evidence of his sister as to what had been exchanged at the aforesaid meeting which took place, as he put it, one to two years before the war of 1974. In cross-examination he disclosed that their conversation turned, inter alia, on the possibility of Mr. Vassiliades releasing the defendant of her obligations upon return of the advance payment made. In my judgment the purpose [*77] of this meeting, convened on the application of the defendant, was to discuss the possibility of the plaintiff releasing the defendant of her obligations under this agreement without imposing upon her any financial obligations, a course to which the plaintiff refused to consent.

It is the case for the defence that soon after the execution of the sale agreement the defendant sought to notify the plaintiff, through Mr. HadjiMattheou, of the fact that her co-heirs withheld their consent to the sale and that this took place three to four months after the execution of the agreement. Despite this allegation no steps were taken to dispossess the plaintiff of the property; in fact Mr. HadjiMattheou was a witness to a contract of lease embodied in exhibit 7, dated 18th July 1968, whereby the property was leased by the plaintiff to a certain Christakis Stylianou, of Aradhippou, for a period of two years. Evidently it is impossible to reconcile the testimony of this witness that he notified, on the one hand, Mr. Vassiliades of the inability of the defendant to honour her obligations under the agreement and, on the other, his evidence that at the time of the execution of exhibit 7 he was unaware of any disability on the part of the defendant to take a good title in her name. According to Mr. Vassiliades, the only communication he had with Mr. HadjiMattheou regarding the delay of the defendant to transfer, took place on his initiative and in his

testimony Mr. Hadji- Mattheou, far from disclosing any reasons of inability [*78] on the part of the defendant did tell him that the delay was

solely due to the fact that the husband of the defendant had won the first prize of the Government lottery and therefore they were not in a hurry to collect the balance due under the agreement.

Lastly, in this summary of evidence, reference may be made to the testimony of Michalis Skoufaris (P.W.3), a clerk in the Lands Department at Larnaca, who said that as late as December 1976 or thereabout the defendant approached him and asked him to supply her with a printed application form for the registration of immovable property in her name. This piece of evidence was led in by the plaintiff in an effort to establish mala fides on the part of the defendant, in support of his allegation that the inability of the defendant to transfer the property was something engineered by her. The brother of the defendant, Yannis Kounnas, her co-heir, testified that he refused to consent to the registration of the property in the name of his sister soon after the execution of the agreement, when asked to do so by his sister.

The evidence of the defendant on the subject of the property inherited from their father is rather confused. She alleged that the heirs never came to any firm agreement. as to the division of inherited property and that the only arrangement made took place in 1964, when her brother was about to leave for Australia and this arrangement was of a provisional nature subject to [*79] a final agreement for the distribution of the property. It was in consequence of this provisional agreement that she was in possession of the immovable property in question at the time of the execution of the sale agreement. Mr.Vassiliades alleged that at the time of the execution of the agreement the defendant had assured him personally, or through her husband, that the property had been in her possession for a long period of time and that she had acquired a right to be registered as its owner.

I have examined the evidence before me with the greatest care and my findings are:-

1. The property sold by the defendant to the plaintiff was, at the time of the execution of the agreement, and still is registered in the name of the father of defendant. The plaintiff was one of the four heirs of her father at the time of his death; her mother having died there remained for all practical purposes three heirs with a right of inheritance, including the defendant.

2. At the time of the execution of the agreement (exh.6) the property was in the physical possession of the defendant. In accordance with a specific clause of this agreement the plaintiff undertook the obligation to secure title in her name, thereby warranting readiness and ability to be registered as the owner of this property without any qualification. This obligation was in no way made subject to the consent or agreement of her co-heirs.[*80]

3. Following the signing of this agreement the plaintiff moved into possession and remained possessed thereof until May 1974. In May 1974, the defendant informed the plaintiff for the first time that she would not implement the obligations undertaken in the aforesaid sale agreement. This was the first occasion on which the defendant intimated the fact to the plaintiff and I disbelieve the evidence of witness HadjiMattheou to the contrary.

4. The factual issue that troubled me most is whether the defendant encouraged her co-heirs to withhold their consent in her wish to be released of her obligations under this agreement. On the whole I cannot infer the existence of any definite agreement among the heirs for the division of the property among them.

The fact that the plaintiff was in possession of the property is in no way conclusive. On balance I cannot hold that the co-heirs of the defendant were otherwise willing to give their sanction to this transaction and that they failed to do so in order to facilitate the defendant escape her obligations under the sale agreement. And my finding is that it was not possible in law for the plaintiff to become the owner of this property in view of the refusal of her co-heirs to agree to this. To complete the picture I may add that this refusal was rather pleasing to the defendant, in the circumstances, as she became inclined, in due course, for reasons best known to her, not to implement this agreement if possible. [*81]

The defendant had no right in law to be registered as the owner of the property. At most she could succeed in becoming registered as part-owner of the land. Even if there had been a binding agreement among the heirs as to the division of inherited property among them she could not obtain specific enforcement of this agreement in the absence of a written agreement and registration of it under the provisions of the Sale of Land (Specific Performance Law), Cap. 238. (See Iordanou v. Anyftos, 24 C.L.R. 97 - Avgusti v. Papadamou (1968) 1 C.L.R. 66 - Xenopoullos v. Makride (1969) 1 C.L.R. 488). The property was in the possession of the defendant for a period of time prior to 1967 but it is trully futile to examine the implications of prescription given the law on the subject, the fact that the land was registered land and the principle acknowledged in Angeli v. Lambi and Others (1963) 2 C.L.R. 274 that possession of immovable property by an heir, vis-a-vis his co-heirs, will not be deemed to be adverse. (See also Rodothea Papageorghiou v. Komodromou (1963) 2 C.L.R. 221.)

My findings make imperative examination of the question whether a vendor in an agreement for the sale of land is absolved of his obligations thereunder if he is unable to transfer the land sold. In England the matter was finally resolved in the case of Bain v. Fothergill (supra); though, as the subsequent history of this exceptional rule shows there is an inclination to limit the application of this rule to the narrowest [*82] possible margins. In Cyprus the question was never considered in any direct way by the Supreme Court, at least so far as I am aware, a fact that makes the matter before ,me novel to a degree. Learned counsel who appeared in this case did much to assist me in my task, though their assistance did not relieve me of the necessity to make further research in order to answer convincingly this rather delicate legal question.

Mr. Andreou for the defendant submitted that the principle affirmed in Bain v. Fothergill, that derives its origin from cases decided in the 18th century, is a definite feature of Common Law principles on the subject of damages and should apply in Cyprus in the same way it does in England despite the absence of any qualification to the rule embodied in s. 73 of the Contract Law, Cap. governing the recovery of damages for breach of contract. Alternatively he argued that the matter is regulated by the provisions of s. 56(3) of the Contact Law and invited the Court to hold that the word "loss", in the context of this sub-section of the law, envisages the recovery of actual expenses incurred and does not connote loss of profit resulting from the loss of a bargain. In aid of this submission he cited the case of Demetriou v. Antorkas, 21 C.L.R. 167.

Mr. Poetis, for the plaintiff, submitted that there is no scope under Cyprus Law for the application of the

rule in Bain v. Fothergill, considering the effect of [*83] land legislation in Cyprus, a system that removes many of the

uncertainties that may arise as to one’s ownership to land in England. It is correct that our Land Code, Cap.224, streamlines our Land Law along very definite lines and adopts a system of registration commendable both for its precision and simplicity. The importance of this system of registration as a salient aspect of our Land Law was eloquently stressed in Ibrahim v. Souleyman, 19 C.L.R. 237. Further, counsel for the plaintiff drew my attention to a number of English cases laying down that inability to make out a good title, if self induced directly or indirectly excludes the application of the rule in Bain v. Fothergill. Of course these decisions do not carry the case of the plaintiff any further in view of the findings of the Court.

The Rule in Bain v. Fothergill

In Bain v. Fothergill the House of Lords affirmed the principle that a party to an agreement for the sale of land, specifically the vendor, if prevented from performing his part of the contract by an unforeseen defect in his title is not liable to pay damages to the purchaser for the loss of the bargain, his only liability being to make good any expenses the purchaser may have incurred for the investigation of the title and execution of the agreement. This principle was not new, its existence having been acknowledged in definite terms as early as 1776, in the case of Flureau v. Thornhill, Their Lordships were fully[*84] alive to the implications of this rule and the fact that it imports an anomaly into the law and an exception to the general rule on damages in contract, as laid down in Hadley v. Baxendale (1854) 9 Excii. 349. They felt it was too late in the day to upset an exception to the general rule so firmly established in the law, an exception that was not altogether arbitrary, considering that the English system of land law makes it at times difficult to tell with certainly who the owner of a plot of land is.

The rule in Bain v. Fothergill was applied in many subsequent occasions but with a marked effort on the part of the Courts to limit its application to the narrowest possible limits. In J.W. Cafes v. Brownlow Trust (1950) 1 All E.R. 894 Lord Goddard C.J. absolved the vendor of any obligation to pay compensation to the purchaser of land except return the deposit with interest plus expenses incurred for the investigation of the title where it proved impossible for the vendor to make out a good title. In Day v. Singleton, Law Journal 1899 (New Series) 593, the Court of Appeal refused to extent the application of the principle in Bain where the inability of the vendor was self induced. In his judgment, Lindley M.R. laid emphasis on the fact that the rule in Bain v. Fothergill is an anomalous one, based upon the difficulties of showing a good title of real property in England, and should not be extended to cases where the application of the principle would lead to grievous injustice. In Phillips v. Lamdin (1949) 1 All E.R. 770 it was held that damages [*85] were recoverable for any delay to complete unless the delay is due to a defect in the title or a conveyancing difficulty.

In India the prevalent judicial view as well as the view of the learned authors of Pollock & Mu11a is that the rule has no application for the reason that the rule in Bain v. Fothorgill is an anomaly inextricably connected with the peculiarities of English land law and inasmuch as the Indian land law system is free of the uncertainties of the English land law system there is no scope for the application of this rule in India. The authors of Pollock & Mulla give another reason for the non applicability of the rule in India, namely that at the time of the enactment of the Contract Code In India the rule had gained no firm ground in England and therefore it could not be assumed that the legislature, in enacting the aforesaid Code in India, did so with the rule in Bain v. Fothergill in mind. (See Pollock & Mulla, Indian Law of Contract, 9th edition, p. 565, et seq). This consideration cannot of course affect our judgment as the Contract Law had been enacted in Cyprus at a later stage, long after the

decision in Bain v. Fothergill.

The only decided case in Cyprus on the subject of the applicability of the rule in Bain v. Fothergill is a

decision of the Full District Court of Nicosia (Protopapas v. Gunther and Another (1974) 10 J.S.C. 981 ). The learned Judges, in what I may describe a an elaborate [*86] judgment, debate at length the several aspects of the rule as well as the desirability of having such a rule as part of the Cyprus law. They came to the conclusion that our land law system is different from its English counter part in many material respects, the differences being such as to obviate the need for the application of the rule in Cyprus. They were fortified, in so holding, by the observations of Vassiliades, P. in HadjiTheodossiou v. Koullia and Another (1970) 1 C.L.R. 310, to the effect that the law should, at all times, remain a wise servant of society and never an obstinate master and that laws should be applied with a keen sense of the needs of Cyprus society.

Now section 73 of the Contract Law incorporates, broadly speaking, the common law rule adopted in Hadley v. Baxendale for the assessment of damages for breach of contract. None of the exceptions to this general rule, under the common law, are specifically mentioned in this legislative provision. Despite the absence of any qualications to the rule expressed in s.73, the Supreme Court has repeatedly decided that s.73 aims at a broad and not an exhaustive statement of the law on the subject of damages, and, therefore, the rule incorporated therein should be read subject to the common law exceptions to the rule in Hadley v. Baxendale. For this reason damages for breach of a contract of marriage should be assessed in the same way they are assessed under the common law, that is they should be assessed in the same manner that damages for [*87] civil wrongs are calculated and thus encompass compensation for injured feelings. (See Markou v. Michael, 19 C.L.R. 282; see also the decision of the Supreme Court in Paraskevas v. Mouzouros (1973) 10 J.S.C. 1245.)

I beieve I am on sound ground in saying that judicial precedent compels me to hold that the exceptions recognized under common law to the rule in Hadley v. Baxendale apply in Cyprus in the same way they do in England. of course the striking differences between the English and Cyprus Land Law systems limit, in practice, the scope of the application of the rule in Bain v. Fothergill in Cyprus. In my judgment the rule in the aforesaid case applies in Cyprus except to the degree it has been modified by another provision of the Contract Law, namely s.56(3). Section 56(3) of the Contract Law provides that a person who has promised to do something which he knew or with reasonable diligence might have known to be impossible is liable to make compensation to the promisee "for any loss which such promisee sustains through the non-performance of the promise". Therefore if impossibility to make out a good title in the name of a vendor of land was within the knowledge of the promisor or ought to have been with diligence within his knowledge he is liable to make compensation in accordance with the provisions of the above section of the Contract Law. In my judgment s.56(3) limits the application of the rule in Bain v. Fothergill to cases where the promisor could not, with reasonable diligence, ascertain at the time of entering [*88] into the contract his inability to make out a good title. And in the present case the defendant could, if she exercised elementary diligence, ascertain the views of her co-heirs on the subject before entering into this agreement.

The Nature of the Damages Recoverable under s. 56(3) of the Contract Law.

In Demetriou v. Andorkas, 21 C.L.R. 187, the Supreme Court expressed the view that "loss” within the context of s. 56(3) of the Contract Law should be construed as meaning actual loss and should not in any event connote loss of a bargain. This view was expressed obiter, and as such is made clear in the judgment itself, for the reason that the plaintiff had totally failed to prove any loss of profit resulting from the bargain and in consequence the plaintiff could, under no circumstances, recover in that action anything in the nature of loss or profit.

With the greatest respect I beg to differ from the view expressed by the learned Judges in the case of Demetriou v. Andorkas. Of course if the views expressed in Andorkas (supra) formed part of the ratio decidendi of the case my disagreement would have been of no avail as I would be bound to follow it. However I feel that the Supreme Court did not purport to give a final decision on the matter nor am I bound to follow the observations of the learned Judges in the aforesaid case.

And now my reasons for disagreement: Section 56 is included in that part of the Contract Law dealing with[*89] the performances of reciprocal promised encompassing s.51 to s.58. The word "loss” is encountered in many provisions of this part of the Contract Law and it would be surprising if the legislature intended the self same word adopted in the same part of the law to have one meaning in one section and another in the next. And unless the word "loss" is interpreted as connoting loss of bargain, the purpose of the legislature in many section of this part would be frustrated; for example, sections 53 and 54. The interpretation given to the word "loss" in the corresponding sections of the Indian Contract Law reinforces my view that "loss" should be construed as meaning loss of profit. (See Pollock & Mulla, 9th edition, at pages 384, 385 and 395.)

The learned Judges, in the case of Andorkas (supra), drew support for the position they adopted from the fact that a party guilty of innocent misrepresentation is not liable in damages and the aggrieved party can, at best, seek a rescission of the contract. This is a correct statement of the law but not, with respect, a complete statement of the law because if the misrepresentation, be it innocent, forms part of the contract then the injured party may sue for damages for breach of a term of the agreement. (See Cheshire v. Fifoot - The Law of Contract - 9th edition, p. 262 et seq.)

Generally the word "loss", in the field of damages, has a wider connotation and normally encompasses loss of profit. The discussion of the definition of damages[*90] in Mayne and McGregor. 12th edition, illustrates the position very well (see paragraph 13). Lastly one may usefully make reference to the discussion of the subject of damages in the leading case of The Heron II (1967) 3 All E.R. 686 and the terminology employed therein indicating, in my view, that the word "loss" has, in its ordinary connotation, a meaning wider than loss of expense and includes loss of profit. In ordinary language, if we wish to limit the meaning of the word "loss” we do this by qualifying it by some such words as "actual", for example. The definition given to the word "loss" in the Concise Oxford dictionary does again suggest that in the field of damages the primary meaning of "loss" is loss of profit. We refer to a lost person, to a lost opportunity and to loss of a bargain. (See also Words and Phrases Legally Defined, Volume III, at pages 180, et seq.)

For the reasons above given, I find that the defendant is guilty of a breach of contract and is liable to damages, reflecting the difference between the value at which the land was purchased and its value at the time of breach. In the result, judgment is given for the plaintiff for £1,100, with costs to be assessed by the Registrar and approved by the Court on the scale of claims between £500 and £2,000.-

Judgment for plaintiff for

£1,100.- with costs.