In Marlbray Ltd v Laditi [2016] EWCA Civ 476 the Court of Appeal had to consider if a contract for the sale of land could be valid when it was signed by one of two intended joint purchasers, purportedly on each purchaser’s behalf, but in circumstances where the second purchaser neither authorised the signature nor ratified the contract.

The case raised issues as to the continued liability of one party to a contract where the contract is void against a joint party, the operation of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and also the basis for a claim for the return of a deposit paid under such a contract.

Background to the appeal

Marlbray Ltd was the developer of an ‘apart-hotel’ in London. The development involved the sale, off-plan, of units in the apart-hotel to hundreds of individuals. The return on their investment was a share of the income generated from their unit (with income guarantees) and a certain number of free nights at the hotel. Upon completion of the development, each of the units was to be granted a 999-year lease.

Mr Laditi and his wife attended a sales fair in October 2005 at which they paid an initial deposit of £1,000 to secure a unit. Mr Laditi instructed a solicitor to act for him at the fair and contracts were exchanged on the day. The contract listed both Mr and Mrs Laditi as ‘purchaser’, and Mr Laditi signed the contract above the words ‘signed for and on behalf of the purchaser’.

Importantly, the contract also included the following clause: ‘Where two or more persons constitute the purchaser all obligations contained in this agreement on the part of the purchaser shall be joint and several obligations on the part of such persons.’

A 25% deposit was subsequently paid, held by Marlbray Ltd’s solicitors as stakeholder in accordance with the terms of the contract.

Unfortunately for the Laditis, although mortgages for the balance of the purchase price of the unit had been available at the time of the contract, such funding was withdrawn after the 2008 credit crunch. The Laditis were unable to obtain a mortgage and comply with Marlbray Ltd’s subsequent notice to complete. Marlbray Ltd rescinded and forfeited the deposit.

The Laditis brought a claim against Marlbray Ltd in which they argued that they had not entered into valid and enforceable contracts and sought the return of the deposits. Alternatively, they alleged that even if the contract was valid, the deposit paid by them was recoverable on the grounds of an unconscionable bargain, that the 25% deposit was a penalty or that section 49(2) of the Law of Property Act 1925 should apply. Marlbray Ltd counterclaimed for damages arising out of the failure to complete.

The decision at first instance

The issue as to the validity of the contact was tried as a preliminary issue. At first instance, the Laditis argued that the contract was void for failure to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, alleging that a complete contract containing all the terms had not been exchanged, only a sheet of paper headed ‘particulars’ and, alternatively, on the grounds that Mrs Laditi had not signed the contract, Mr Laditi having only purportedly signed it on her behalf. Mr Nicholas Strauss QC found against the Laditis on their principal argument and they did not cross-appeal.

However, on the alternative ground – Mrs Laditi’s failure to sign – the court found that Mr Laditi had no authority to sign the contract on his wife’s behalf. If further held that Mrs Laditi had not ratified the contract either by her actions shortly after exchange or by pleading in her particulars of claim that contracts had been exchanged on her behalf (this had been pleaded before her lawyers became aware that she had not signed the contract).

There was therefore no binding contract as against either of the Laditis and, subject to a claim brought by Marbray Ltd against Mr Laditi by way of set-off for breach of warranty of authority, Mr Laditi would be entitled to the return of his deposit.

On appeal

Marlbray Ltd appealed against the finding on ratification and, in the alternative, against the finding that Mr Laditi was not bound by the contract. It argued that even if Mrs Laditi were not bound, at the very least Mr Laditi must be estopped from denying the validity of the contract as against him, given the representation of authority made by him in signing the contract on behalf of both purchasers and given also the clause in the contract in relation to joint and several liability. Mr Laditi cross-appealed against the finding that, as a matter of construction, he had purported to sign the contract on behalf of both purchasers.

The Court of Appeal disposed of the arguments over the construction of the agreement and ratification swiftly, holding that the signature could only be construed as being made on behalf of both purchasers but holding also that no ratification had taken place.

Ratification requires knowledge of the full circumstances relating to that which is said to be ratified and must be unequivocal. Although Mrs Laditi had claimed the return of the deposit jointly with her husband, this was not an unequivocal act of ratification since the document which revealed she had not signed the contract was not disclosed until late in the proceedings and her primary case had always been that the contract was invalid in any event.

More significant is the court’s finding on the appeal seeking to uphold the validity of the contract as against Mr Laditi. On the court’s analysis, there were in fact three potential contracts created by the ‘exchange of contracts’ at the sales fair: (1) a contract between Marlbray Ltd and Mr Laditi; (2) a contract between Marlbray Ltd and Mrs Laditi; and (3) a contract between Marlbray Ltd and both of the Laditis. Although contracts (2) and (3) were void, that did not affect contract (1).

The court held that whether or not a valid contract has come into force as between A and B, both of whom have signed the contract, notwithstanding that contemplated party C has not signed the contract, will depend on the common intention of the parties as may be objectively ascertained from the circumstances surrounding the transaction. The issue is as to whether B’s agreement to execute is, expressly or impliedly, conditional upon C likewise executing the agreement. Most commonly, this issue arises in the context of guarantees, where a guarantor argues that their liability depends upon the signature of another party or the execution of a further security.

In the present case, given the clause as to joint and several liability, and given also the fact that it obviously mattered not to Marlbray Ltd whether Mr Laditi or both were the purchasers, there was no basis for the argument that the invalidity of the contract as against Mrs Laditi affected its validity as against Mr Laditi.

The court also rejected Mr Laditi’s further argument that the exchanged agreements did not satisfy section 2(1) of the 1989 act on the grounds that they did not contain all the terms of the contact and were not signed by or on behalf of each party to the contract as the ‘contract’ for these purposes was the (void) joint one with both of the Laditis.

The court reviewed the leading authorities identifying the policy behind section 2 of the 1989 act (including Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567; Braymist Ltd v Wise Finance Co Ltd [2001] 11 EG 174 (CS); and RG Kensington Management Co Ltd v Hutchinson IDH Ltd [2002] EWHC 1180) and concluded there was nothing in the policy behind the act requiring it to be construed so as to require the contract to satisfy section 2 both in respect of the joint contract and the several contract (in order for the several contract to be valid).

Rather, section 2(3) of the 1989 act distinguishes between ‘the document’ and ‘the contract’ and all that is required is a document signed by each party to the contract. The document before the court satisfied this requirement in respect of the several contract with Mr Laditi.

The court further held that, if wrong in that analysis, it did not follow that Mr Laditi would be entitled to restitution of the deposit on the grounds of a total failure of consideration. Relying upon the decision in Sharma v Simposh Ltd [2011] EWCA Civ 1383, the court reasoned that Mr Laditi had received the things for which the deposit had been paid (the unit had been reserved so that a lease could be granted to him and the conditional benefit of free nights in the hotel had been made available). 

Accordingly, even if the contract was void against him, it did not follow that the deposit should be returned.

Conclusion

In cases where a property is being sold to joint purchasers, lawyers should seek to ensure that the contract includes express provision for joint and several liability, especially in circumstances where one of the purchasers purports to sign on behalf of both. This avoids the need to rely on a breach of warranty of authority claim and will make all the remedies under the contract available against the party who has signed, even though the contract might be void against another.

Henry Webb, led by Romie Tager QC, acted for the successful appellant in Marlbray Ltd v Laditi

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