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Writing - s2 of 1989 Act

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Title

Specific performance

Title obligations of a seller where the contract is silent and the buyer is aware of the seller’s lack of title

Ezekiel v Kohali
[2009] EWCA Civ 35

Summary

The Court of Appeal confirmed earlier case law that stated that, where the buyer has actual knowledge of the seller’s title before exchanging an open contract, there is no obligation upon the seller to show a good title.

Facts

In this unusual case, both sides sought an order for specific performance of a contract for the sale and purchase of land. The sellers’ title to the land was registered at the Land Registry, but did not include the whole of the land agreed to be sold. The buyers’ claim for specific performance included an abatement of the total purchase price to reflect the sellers’ inability to make good title, whilst the sellers had successfully counter-claimed for specific performance at the contract price at first instance. The contract was merely ‘heads of agreement’ and contained no provisions regarding title.

There had been considerable argument before the Deputy Judge as to whether or not the buyers knew the extent of the sellers’ title to the land, and the Judge found as a fact that they did, and that this rebutted an implied legal obligation upon the sellers to make good title on the sale.

Decision

Both the appeal and the cross were dismissed. Mummery LJ, giving the main judgment in the Court of Appeal, said:
    “There is no dispute about the legal principles governing the case of a purchaser who has actual knowledge of the vendor's title before entering into an open contract. In the context of adducing evidence on an inquiry as to the vendor's title in a specific performance case Lord Finlay LC said in McGrory v Alderdale Estate Co [1918] AC 503 at 508


      ' …if the contract is open, the obligation which the law would import into it to make a good title in every respect may be rebutted by proving that the purchaser entered into the contract with knowledge of certain defects in the title. The inference in such a case is that he was content to take a title less complete than that which the law would otherwise have given him by implication.'

    …The position is different where the contract expressly provides for the vendor to make a good title. It is not then open for the vendor to prove that, at the time of the contract, the purchaser knew that the vendor had a defective title and that therefore a good title did not have to be shown by the vendor. That would go against the parol evidence rule that a written contract cannot be varied by oral evidence.”
Lord Justice Mummery was not satisfied that the Deputy Judge’s conclusion on the buyers’ actual state of knowledge as to the sellers’ title was wrong.

Comment

This case illustrates the dangers for a buyer of entering into a contract on the basis of ‘heads of agreement’, without importing the usual clauses that would protect the buyer, such as the seller’s obligation to prove good title.

There was no mention of s2 of the 1989 Act in the case presumably because the whole deal agreed between the parties was actually contained in the heads of terms and signed by them. That meant it was an open contract - hence the decision. Section 2 is not a problem where the whole deal is in the document, however feeble and lacking that deal may be. It is when part of the deal isn't in the document that the problem starts.


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