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House or money?
02/10/2007 The Star Articles of
Law By BHAG SINGH
A contract should clearly specify the consequences and options that are
available to all the parties in case of breach.
THE purchase of a house invariably involves a large sum of money and is
ordinarily preceded by a Sale and Purchase agreement which describes the
property to be purchased and the price agreed upon. Apart from that it will
also stipulate the manner in which the transaction is to be carried out.
A situation that can arise is where after the Sale and Purchase Agreement
has been signed and a deposit made, the seller may change his mind and
decide not to go on with the sale after all. If this happens can the
purchaser compel the seller to sell?
Our reader, who is a Purchaser, says that in the agreement that has been
drawn up there is a clause which gives him a right to specific performance.
At the same time, there is also a clause which requires the seller to
compensate the buyer by paying him 10% of the agreed price as compensation
should he decide not to proceed with the sale.
A problem has arisen and the matter cannot be resolved despite the admitted
breach by the seller. This is because the buyer wants the house and not the
compensation and the seller is willing to pay the compensation but does not
now want to part with the house.
Hence our reader asks who has the better right in the matter? If the matter
goes to court who is likely to succeed? The outcome will depend not only on
the bare legal principles but the practical aspects, such as how the matter
is handled – including the evidence that is available and placed before the
court.
However, it would not be wrong to say that merely because there is a clause
in the agreement for payment of money on non-performance this by itself does
not mean that the other party is not entitled to specific performance. The
principle is stated in Halsbury’s Laws of England as follows:
“The answer is to be found by considering the intention of the parties, that
is, whether the party bound to performance has an alternative choice given
to him by the contract to perform or to pay the agreed sum, or whether he is
bound to do a certain thing, with a penal sum or sum by way of liquidated
damages attached as security. In the second instance, notwithstanding the
penal clause, the court enforces performance if the contract is such that
without the penal clause, it would have been proper for specific
performance.”
Therefore the intention of the parties provides an answer to whether there
is a better right to specific performance or only to get compensation. But
how does a person determine the intention of the parties when both clauses
are in the agreement?
In order to determine the intention of the parties, it will be necessary to
examine how the provisions that apply are incorporated. Are both options in
the same clause or in different clauses and, if so, in either event how are
they worded? Is one subject to the other and, if so, which one?
Such was the scenario in the Hong Kong case of Lee Tat Kwong v Choi Pui Kei
Stephen & Anor where having entered into an agreement for the sale and
purchase of property a deposit of HK$20,000 was paid. However, in the event
of breach clause 11 provided:
“If the purchaser does not, within the stipulated time, go to the
solicitors’ office to deal with the procedures, the vendor is entitled to
forfeit the provisional deposit, and further has the right to resell the
property or retain it for his own use. If the vendor in breach of contract
failed, within the stipulated time, to go to the solicitors’ office to deal
with the procedures, the vendor shall compensate the purchaser by twice the
amount of the provisional deposit in the total sum of HK$40,000 and the
purchaser is not entitled to dispute that. If the vendor in breach of
contract failed immediately to compensate (the purchaser), by the amount of
the deposit, the purchaser shall be entitled to take legal action to enforce
the purchase by specific performance, and also to claim for any loss
consequential thereupon.”
The vendor decided not to go on with the contract. He informed the purchaser
accordingly. He tendered HK$40,000 to him by way of compensation, claiming
that that was what they were entitled to do under the provision of clause 11
and claiming that, that being so, the purchaser would not be entitled to
specific performance. The purchaser applied for specific performance by way
of summary judgment.
The court had to decide whether the buyer was bound to accept the
compensation or insist on having the contract specifically performed. Based
on the facts, the court took the view that the purchaser had no other
alternative. Godfrey J. in so deciding went on to say:
“The necessary implication, to my mind, of the introductory words of this
final sentence of clause 11 is that the purchaser’s right to take legal
action to enforce the purchase by specific performance is to be available to
him if the vendors, in breach of contract, fail immediately to compensate
the purchaser by the amount of the deposit, but it is taken away from him if
the vendors do make the compensation for which the contract provides.”
Thus in the circumstances if the purchaser had failed to offer the agreed
compensation, the situation could have had a different outcome. But it also
shows the implications of the wording of the contract and how the action of
parties can provide specific provisions.
Here the seller had ensured that the contract gave him the right to pull out
by merely paying the compensation. Having incorporated this provision he
went on to exercise his right and thereby was able to avoid having to part
with the property.
If a buyer of a property is extremely desirous of acquiring the property and
does not want such a situation to arise, then it is up to him to ensure that
the contract clearly provides for this and does not allow the seller to exit
by paying the compensation.
Even where there is a valid and concluded contract, specific performance is
an equitable remedy and gives to the court the discretion to allow the
relief or do otherwise. Therefore even where there is a valid and
enforceable contract, the court may not grant specific performance. |
