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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McDougall v Heritage Hotels Ltd & Anor [2008] ScotCS CSOH_54 (28 March 2008) URL: http://www.bailii.org/scot/cases/ScotCS/2008/CSOH_54_.html Cite as: [2008] CSOH 54, [2008] ScotCS CSOH_54 |
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OUTER HOUSE, COURT OF SESSION [2008] CSOH 54 |
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OPINION OF LORD CLARKE in the cause JACQUELINE McDOUGALL Pursuer; against (FIRST) HERITAGE HOTELS LIMITED and (SECOND) M H APARTMENTS LIMITED Defenders: ________________ |
Pursuer:
McIlvride; Lindsays W.S.
Defenders: Peoples Q.C., Cowie; Boyds Solicitors
28 March 2008
Introduction
[1] In this action the pursuer seeks the following orders:
"(FIRST) For declarator that the first defenders entered into a binding contract with the pursuer constituted by the pursuer's Reservation Form dated 20 July 2006 and the letter from the first defenders' solicitors, Boyds, to the pursuer's solicitors, A & S Ireland, dated 24 July 2006 in terms of which the first defenders undertook to make a formal offer to sell to the pursuer Apartment 8W, in the west block of 'West Links', North Berwick;
(SECOND) For declarator that the second defenders, as successors to the first defenders' heritable title to the subjects including the said Apartment 8W, in the west block of 'West Links', North Berwick, remain bound by the said contract concluded between the pursuer and the first defenders;
(THIRD) For decree ordaining the second defenders to implement their obligations in terms of the said contract and that by delivering to the pursuer within 14 days, or such other period as to the court shall seem proper, a formally valid offer to sell to the pursuer the said apartment at a price of £360,000 and subject to the first defenders' standard terms and conditions for the sale of apartments at the West Links development;".
The pursuer also seeks, in her fourth conclusion, interdict in the following terms:
"For interdict of the defenders and any other persons acting on their behalf from (i) advertising Apartment 8W, 'West Links', North Berwick for sale, or (ii) purporting to confer on any party other than the pursuer an option to purchase the said Apartment, or (iii) entering into a contract with any party other than the pursuer for the sale of the said Apartment, and that until the pursuer has rejected, or has failed to accept in formally valid writing within fourteen days of its delivery to her, whichever is the earlier, a formally valid offer to see to her the said Apartment at a price of £360,000 and subject to the standard terms and conditions for the sale of apartments at the West Links development".
On 23 February 2007 Lord Mackay of Drumadoon pronounced interim interdict in favour of the pursuer in terms of the fourth conclusion.
The factual context
"Thank you for your interest in West Links Suites, North Berwick. If you wish to purchase a property, the following procedure applies:-
1. You will be asked to fill out a Reservation Form. A cheque for £500 made payable to Boyds Solicitors will be required to secure the reservation and should be handed to the Selling Agents when completing the reservation form, a copy of which will be issued to you as a receipt. This ensures reservation of your chosen property for a period of fourteen days (no refund of the deposit will be made should you subsequently decide to withdraw).
2. The solicitors to the development, Boyds Solicitors, will then send the Missives to your solicitors, and you shall be asked to sign them. During the fourteen day Reservation Period you may organise the relevant valuations/survey reports, as required. Assuming you are satisfied, you will then instruct your solicitors to accept the offer. When Missives are concluded you become bound to purchase the property.
3. A deposit of a further 5% of the full purchase price will fall due on the conclusion of Missives. When paid the deposit will be treated as a payment to account of the purchase price, i.e. the sum due at the date of entry will be the purchase price less £500 + the 5% already paid.
4. The balance of the purchase price will be payable on the Date of Entry, which will be seven days after Heritage Hotels Limited have intimated to you that the Local Authority have passed the Subjects as fit for occupation.
If you have any questions regarding the above procedure, please contact Stewart Saunders Limited on 0131 226 6464."
"This form does not create a contract between the developer and the purchaser. The purchaser will be required to enter into missives with the solicitors of the developer within 14 days, failing which the reservation fee may be retained and the property sold to another party."
As well as acknowledging receipt of the pursuer's cheque, Messrs Boyds' letter, 6/4 of process, stated:
"We shall revert to you shortly with the pro forma Missives for execution by their client."
"In subsequent telephone conversations between A & S Ireland and Boyds between July and September 2006, A & S Ireland pressed Boyds for the offer. They were advised that, despite the delay in a formal offer being issued, the pursuer's reservation of apartment 8W was 'secure'."
"I write to advise you that we have decided to retain Property 8W until further notice and I apologise for any inconvenience caused. I enclose your reservation fee of £500 given to Stewart Saunders Limited, together with interest of £2.70, totalling £502.70.
I will ensure that Stewart Saunders remains in contact with you to advise when the apartment is to be released. In the meantime should you wish information and prices on available apartments please contact Stewart Saunders directly on 0131 226 6464."
A cheque for £502.70 made out to the pursuer accompanied that letter. The pursuer goes on to aver, in Article 4 of Condescendence, that "in a telephone conversation between A & S Ireland and Boyds on 9 October 2006, Boyds confirmed that their clients contended the pursuer's option to purchase had been cancelled and that the first defenders intended to market apartment 8W again at a higher price." On 10 October A & S Ireland wrote to Boyds, calling upon the first defenders to implement the agreement between the parties. In a further letter dated 10 October to MHL, A & S Ireland inter alia requested MHL explanation (sic) why they wished to cancel the reservation. In their reply dated 23 October MHL stated "We had not intended that reservation forms be completed at this stage" and that "If your client would like to be contacted again when this property is put back on the market, then we would be pleased to instruct our selling agents to provide the details at that time". In a letter dated 24 October Boyds stated "We understand our clients have responded directly ..." The pursuer goes on to aver that further letters of Messrs Boyds from her solicitors remain unanswered.
"The second defenders were aware when they accepted the conveyance of the subjects that the first defenders had contracted to make a formal offer to sell Apartment 8W to the pursuer. Separatim, the second defenders were aware that the first defenders had entered into an agreement in relation to Apartment 8W with the pursuer. They accordingly had a duty to make enquiries to establish the nature of the agreement. Had they done so, they would have ascertained that the first defenders had entered into a prior and binding agreement to make a formal offer to sell Apartment 8W to the pursuer. In accepting the conveyance of Apartment 8W the second defenders acted in bad faith."
[9] Article 6 of Condescendence the averments made by the pursuer are as follows:
"In terms of their contract with the pursuer the first defenders became bound to allow the pursuer the option to purchase Apartment 8W at a price of £360,000 and that by making a formal written offer to the pursuer to sell the apartment to her at that price. The pursuer is accordingly entitled to declarator as first concluded for. The second defenders having been in bad faith in accepting the conveyance to them of title to Apartment 8W, the said obligation is now binding upon them. The pursuer is entitled to declarator, and to implement of the contract as second and third concluded for."
The first three pleas-in-law for the pursuer are in the following terms:
"1. The first defenders having contracted to confer on the pursuer an option to purchase Apartment 8W, and that by making a formal offer to sell the property, the pursuer is entitled to declarator as first concluded for.
2. The second defenders, as successors to the first defenders' heritable title to Apartment 8W who acquired their interest in those subjects in bad faith, are bound by the contract entered into with the pursuer by the first defenders and the pursuer is entitled to declarator as second concluded for.
3. The second defenders being bound to make a formal offer to sell the said property to the pursuer, decree ordaining them to do so should be pronounced as third concluded for."
In Answer 7 for the first and second defenders which, in particular, addressed the application for interim interdict, it is averred:
"Further explained and averred, as regards the balance of convenience, that the pursuer has no prima facie case for interim interdict. Esto she has (which is denied), she has a very weak prima facie case and, in such circumstances, the balance of convenience favours refusal of interim interdict. If the pursuer's action fails and the grant of interim interdict results in financial loss to the second defenders, the second defenders will seek recovery from her of their losses."
Defenders' submissions
"There is clearly no reason in the English contract law why A, for good consideration, should not achieve an enforceable agreement whereby B, agrees for a specified period of time, not to negotiate with anyone except A in relation to the sale of his property. There are often good commercial reasons why A should desire to obtain such an agreement from B. B's property, which A contemplates purchasing, may be such as to require the expenditure of not inconsiderable time and money before A is in a position to assess what he is prepared to offer for its purchase or whether he wishes to make any offer at all. A may well consider that he is not prepared to run the risk of expending such time and money unless there is a worthwhile prospect, should he desire to make an offer to purchase, of B, not only then still owning the property, but of being prepared to considered his offer. A may wish to guard against the risk that, when he is investigating the wisdom of offering to buy B's property, B may have already disposed of it, or alternatively, may be so advanced in negotiations with a third party as to be unwilling or for all practical purposes unable, to negotiate with A. But I stress that this is a negative agreement - B, by agreeing not to negotiate for this fixed period with a third party, locks himself out of such a negotiation. He has in no legal sense locked himself into negotiations with A. What A has achieved is an exclusive opportunity, for a fixed period, to try and come to terms with B, an opportunity for which he has, unless he makes his agreement under seal, to give good consideration."
Although senior counsel for the defender did not himself make the point, the case clearly has to be looked at with some care in a Scots context because of the reference to the doctrine of consideration. Nevertheless, as I understood senior counsel for the defenders reason for referring to this case, was simply as an illustration of a claim, unlike what was being sought in this case, for damages for repudiation of an agreement to negotiate. Whatever might be said for such a claim in Scots law, this was not the redress which the pursuer was seeking in this case.
[12] Senior counsel emphasised that the statement in the reservation form 6/2 of process, quoted above, to the effect that it did not create a contract, made it perfectly clear that 6/2 could not be relied upon by the pursuer as creating any contract between herself and the first defenders. The pursuer herself avers that the property in the subjects had been transferred to the second defenders and had been made subsequently subject to a security in favour of a third party. Yet she did not seek reduction of the disposition in favour of the second defenders or the security in favour of the third party. She, nevertheless, sought to turn the clock back to the position as it obtained between July and October 2007. The pursuer's averments in Articles 5 and 6 of Condescendence seemed to be seeking to set up some kind of case against the second defenders, relying on the law as set out in the case of Rodger (Builders) Ltd v Fawdry 1950 SC 483. In the present action, however, the most the pursuer was seeking to establish was, it seemed, that the first defenders had an obligation to grant her an option. In the case of The Advice Centre for Mortgages v McNicoll 2006 SLT 591, the Lord Ordinary held that an option to purchase in a lease did not transmit against singular successors of the landlord upon the purchase of the leased property and the purchaser of the property was not affected by it, even though they may have had knowledge of it prior to the purchase. The obligation had been one personal to the original landlord and since there was no breach of any existing obligation by the seller, the rule in Rodger v Fawdry had no application. Senior counsel for the defenders submitted that similar reasoning should be applied with regard to the circumstances of the present case.
Submission for the pursuer
"The obligation
is indeed solvendum in futuro, but it is still debitum
in praesenti. So far as the
time-limit is concerned, therefore, there was nothing to prevent the existence
of the pursuer's right at the relevant date.
Neither does the other qualification on the option to purchase, namely
that the obligation became prestable only when the pursuer chose to exercise
the option, suspend the coming into being of obligation until that event
happened. If an obligation is qualified
only by a potestative condition, such as the condition that the creditor can
exact performance when he chooses, then, from the point of view of the debtor
in the obligation (in this case the second and third defenders, and now the
first defender), the obligation is in existence from the time of its
constitution, although performance is not is due until this is demanded by the
creditor. If, for example, a bank is
indebted to a customer on current account, the bank is bound to pay only when
payment is demanded by the customer, but the obligation exists from the time
when the account is opened and not just from time of the demand (Macdonald v North of Scotland Bank at p. 381).
There was therefore already in existence, at the time when the sale to
the first defender was made, a completed contract under which the second and
third defenders were under an obligation to sell the subjects to the pursuer on
demand made by her in the last three months of the lease, and the pursuer had a
right corresponding to that obligation.
Because the first defender knew of the existence of that contract, her
purchase of the subjects was not in bona
fide, so that she did not take the conveyance free from the personal
obligation affecting the land incurred by the second and third defenders. The pursuer is therefore entitled to enforce
the option to purchase against the first defender."
The Lord Ordinary in The Advice Centre for Mortgages case differed from the approach
taken by the sheriff principal in Davidson
on the basis that the sheriff principal had failed to give the decision of the
court in the case Bissett v Magistrates of Aberdeen (1898) 1F 87 its
proper significance. The Lord Ordinary,
at page 601 para. 38, referred to the case of Bissett in the following terms:
"In Bissett v Magistrates of
Aberdeen, supra, the granters of a lease of heritable property for
999 years bound themselves to deliver to the tenant and his heirs,
executors and successors at any time they should desire the same a feu charter
of the subjects of let. It was held
that the option to purchase was not binding on singular successors. Lord Trayner stated (at 1898 1F,
p. 90):
'Here the obligation is to
put an end to the right created by the lease, and to substitute for it another
and different right - to substitute a right of absolute property for a right
merely to use. I agree with the
Lord Ordinary in thinking that the obligation to grant a feu right was
personal to the granter of it, and that it did not transmit against singular
successors'."
At para. 39 the Lord Ordinary
continued:
"In my opinion Bissett is clear authority that an
option to purchase is not normally inter
naturalia of a lease. No doubt the
reason is that identified in Bissett,
namely that it involves converting the rights of a tenant into a wholly
different relationship, one of feu or, today, outright ownership. That is the normal rule, and exceptions may
exist. One such exception has been identified;
that is where it is established by
evidence that the custom and practice in leases of a particular nature is to
insert a particular form of clause. If
that is relied on, however, the party who asserts that a practice exists would
require to make appropriate averments. No
such averments have been made in the present case. Other exceptions may exist, but none was
suggested in relation to the present lease.
I accordingly conclude that any
option to purchase would not be inter
naturalia of the lease, and would accordingly not be binding on singular
successors."
At page 605 the Lord Ordinary sought to identify
the error on the part of the sheriff principal in his treatment of the decision
in Bissett in the following terms:
The sheriff principal held
that that decision had no bearing on the case before him, in that it was
concerned solely with the construction of the terms of the lease, under which
the obligation in question was assumed only by the original lessor without
reference to successors. In my opinion
the decision in Bissett goes
significantly further than that.
Lord Moncreiff makes it clear that the ground of decision was that
an option to purchase, involving an obligation to alter the tenure from one of
lease to one of feu, was not inter
naturalia of a lease. The result of
that was that it would not affect singular successors. The brief opinion of the Lord Ordinary,
Lord Kyllachy, is to the same effect.
Lord Trayner agreed with the Lord Ordinary. He was the only judge to refer to the
feature of the clause relied on by the sheriff principal, namely that it did
not refer to the heirs and successors of the lessor. He only did so, however, in the course of
distinguishing an old case, and this feature was only one of the grounds for
distinguishing that case; indeed, he
doubted whether the case would now be followed. In my opinion the sheriff principal did not
give Bissett its proper
significance. Bissett is of course binding on me. I accordingly conclude that Davidson v Zani was wrongly decided."
Counsel for the pursuer argued that in The Advice Centre for Mortgages case it
was clear that the Lord Ordinary had reached the decision he did having regard
to the important feature that there was no antecedent obligation in existence
at the time of the subsequent sale which was transferable to singular
successors. Moreover, insofar as his
Lordship held that the case of Davidson
was wrongly decided, it was because the sheriff principal had failed to give
sufficient weight to the case of Bissett,
which turned on special features of the law of leases. This did not arise in the present case. In the present case, the pursuer avers in
Article 2 of Condescendence, page 7B that "the apartment was offered
for sale at a price of £360,000".
Counsel for the pursuer submitted that any reasonable person reading
what was said in 6/1 of process would have considered that it was stating that
if the procedure set out there was followed, a binding agreement would be
concluded. I understood counsel,
thereafter, to contend that the completion of the reservation form by the pursuer
brought into existence an obligation on the part of the first defenders to
issue the pursuer an offer to sell to her the apartment. Counsel was asked what was to be made of the
wording at the foot of the reservation form;
his response was to say, as I understood him, that these words were not
fatal to the position being argued on behalf of the pursuer since clearly there
was a contract whereby the pursuer paid £500 in return for something. It was too early to conclude, without
enquiry into all facts and circumstances, that any contract, so concluded, was
simply creating a right in the pursuer to have the property reserved for her,
in the sense that the first defenders would not deal with another person in
relation to a possible sale of the apartment during the fourteen days
specified.
Defenders'
reply
Decision
"The right to rely on the
Register does not extend to one in knowledge of prior obligations or deeds
affecting the subjects. In Stodart v Dalzell, Lord Gifford, after saying that an important principle
was involved, went on to say (at p. 242):
'That principle is that the
singular successor is entitled to be free from the personal obligations of his
predecessor, and to take the subject unaffected by any burden not appearing on
the title or on the records. But the
singular successor has only this right if he is in ignorance of the existence
of any obligation or deeds granted by the seller relative to the subject, and
if he was in all respects a bona fide
purchaser, without notice of any right in any third party or of any
circumstances imposing a duty of enquiry.'"
The position reflected in those dicta, clearly, in my view, is very different from the
circumstances of the present case.
There was no contract in existence, to the knowledge of the second
defenders, which gave the pursuer a right in relation to the subjects. At most she had a right to have the
opportunity to continue to deal with the first defenders in relation to the possible
sale of the subjects. According to the
principles of the law of contract, if the first defenders had, in fact, issued
an offer to sell to the pursuer, the pursuer would have been entirely free to
reject that offer, to accept it, or to issue a counter-offer. Until that process was completed there was
no binding contract in relation to the subjects. She had no rights in relation to the
subjects. In my judgment, therefore the
second defenders' rights in the property are not in any event in any way
affected, which seems to be recognised by the fact that the pursuer does not
seek reduction of the disposition in their favour. Nor, in my judgment, can what otherwise must
only have been, at most, a personal obligation on the part of the first
defenders to continue to contract with the pursuer, be said to have passed to
the second defenders, who were not parties to any of the dealings in
question. The position, it seems to me,
is analogous to that which arose in the case of Wallace v Simmers 1960
S.C. 255. In that case the owner of a
farm entered into a Minute of Agreement with his son, whereby he agreed to sell
the farm to his son, under the reservation of the right of occupancy to one of
the cottages on the farm in favour of himself, his wife and his daughter so
long as they wished. The disposition of
the property granted to the son did not contain a reference to this
reservation. The disposition was
recorded in the appropriate division of the Register of Sasines. After he sold the farm to his son, the
owner, his wife and his daughter occupied the cottage. After the death of the owner and his wife
the daughter continued in occupation of the cottage. The son then exposed the farm for sale by
public roup. The farm was sold to a
purchaser who had been informed before the roup that the cottage was subject to
the daughter's right of occupancy. The
purchaser completed title to the farm and brought an action to eject the
daughter from the cottage. The First
Division held that, as the daughter's right of occupancy, was only a personal
right, exercisable as such, only against the granter and not capable of being
made a real right, it was not valid against a singular successor, even if he
had prior knowledge of it and that accordingly the purchaser was entitled to
decree of ejection against the daughter.
At pages 259-260 Lord President Clyde said this:
"The general rule is clearly
stated in Gloag on Contract, (2nd
Ed.) at page 178, to the effect that the purchaser is entitled to rely on
the title as it stands in the Register of Sasines, and is not bound by any
agreement, although binding on the seller, of which he had not notice. But there is an exception to the general rule
where the purchaser is aware that the seller has entered into a prior agreement
to dispose of the subjects. In each
case, the purchaser is bound to enquire into the nature and result of that
prior agreement, otherwise he may be barred by disputing it. It is this exception which the defender here
seeks to invoke.
But the present case, in my
opinion, clearly falls outside the exception.
The exception applies in cases such as Rodger (Builders) Ltd v Fawdry
and others and Stodart v Dalzell. In the former of these cases, there was a
prior contract of sale of the subjects, in the latter an informal acquisition
of a right of feu. From the decisions,
it is clear that the exception only operates where the right asserted against
the later purchaser is capable of being made into a real right. If it is nothing but a mere personal
obligation not capable of being so converted, then the ultimate purchaser is
not in any way bound or affected by it.
Any other result would be surprising indeed, for it would convert what
was and his never been anything but a mere personal right into something real
and enforceable against a singular successor."
The law, so stated, can, in my judgment, be applied to
the case sought to be made by the pursuer against the second defenders in the
present proceedings and the result is that it is clearly irrelevant.