Remedies

Darke desired to buy 200 acres of land from Smith. The land was located in Arizona, and Darke and Smith lived in California.

Darke offered Smith 400,000 for the 200 acres but Smith stated that he would only consider the offer and would give Darke his decision later. Jim, who was also interested in buying the same acreage, went to Smith and told him that he would be making a mistake if he sold to Darke because Darke's credit was "no good". Becoming cautious because of this information, Smith offered Darke an option to buy the acreage in 120 days for 400,000 which Darke accepted after paying Smith a nominal sum for consideration. Five weeks after making this agreement, Smith died and his son, Bob, inherited all of his property.

Bob discovered that his father having engaged in speculation, left the estate in need of a considerable sum of money, thus shares of stock in his broker's hand would be sold at a great sacrifice unless the estate could raise such money in another manner. Just at the time, Jim learning of Smith's death, went to Bob and offered him 5000 to sell 20 acres of the 200 acres to him (Jim) at a very favorable price. Since Bob needed the money, he deeded the 20 acres to Jim.

Darke discovered that Smith's estate was in need of money and two days prior to the expiration of the option, Darke, exercised it; however, Darke became aware of the fact that Smith's estate could not obtain money elsewhere in time to protect the brokerage account and he (Darke) refused to pay the 400,000 in the option contract but offered Bob 200,000 instead for the acreage. Bob agreed, primarily because of the necessities of his situation, and executed a deed to Darke for the 200 acres.

When Darke visited the property the discovered that Jim had fenced in his 20 acres. Darke then returned to Bob who denied any knowledge of Jim's acquisition of the 20 acres, claiming "it must be some kind of mistake".

Discuss the rights and remedies of the parties involved.

Firstly was there a contract between Darke and Smith? A promise in a 'simple' contract (not by deed) is binding, if supported by consideration. A promise to give something, not supported by consideration, is not binding. In Thomas v Thomas (1842) 2 QB 850 per Patterson J it was said "Consideration means something which is of value in the eyes of the law, moving from the plaintiff: it may be some detriment to the plaintiff or some benefit to the defendant."

In Currie v Misa (1875) LR 10 ExCh 153 it was stated"A valuable consideration...may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other." And in Dunlop v Selfridge [1915] AC 847 HL it was said to be "An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable."

It matters not that there ha not been more than a nominal value paid. Consideration must be something of value in the eyes of the law, but need not be adequate. Yet value is interpreted as economic value, not moral obligation. So in the case of Thomas v Thomas (1842) 2 QB 850 Mr. T died. Mrs. T paid £1 a year to his executors to live in the house for the rest of her life. Held: £1 a year was sufficient consideration.

So yes it would seem that there was a valid contract. Under land law to purchase the freehold at his discretion. It is an equitable right and as such should be registered. For registered land it should be protected by an entry on the register, as it is a minor interest. If it is registered it will be binding on a subsequent transferee of the registered estate, regardless of whether or not he has inspected the register or not. Even if not registered the interest will be binding on a person who is a transferee for no value such as Bob. If the land is unregistered land the interest should be registered as a land charge to take effect.

Is the contract therefore binding on Bob when Smith passes away? The basic rule is that only the parties to a contract can have rights or liabilities under it as per Tweddle v Atkinson (1861) 1 B&S 393 The fathers of a bride and groom agreed that each would pay the groom a sum of money. When the bride's father failed to pay, the groom sued him. It was held by Wightman J that no stranger to the consideration could take advantage of a contract though made for his benefit. Compton J stated that consideration must move from the promisee.
In Dunlop v Selfridge [1915] AC 847. Dunlop and Dew & Co had a contract stating that when Dew sold Dunlop's tires to retailers they would require the retailers to observe Dunlop's prices. Dew sold tires to Selfridge who said it would observe Dunlop's prices. Selfridge did not follow Dunlop's price list. Dunlop sued Selfridge for breach of contract.
Held the action must fail; "...only a person who is a party to a contract can sue upon it."
Resale Prices Act 1976, s.9 makes any attempt to fix the minimum price of non-exempt goods void. Resale Prices Act 1976, s.26 provides that a supplier who sells goods under a contract which provides for a maximum resale price can enforce that price against anyway who acquires the goods for resale with notice of the maximum resale price, even though not a party to the contract.

Perhaps the most likely judgment by the court is to view the interest as an option to purchase and thus passing with the land if the relevant requirements have met as regard the nature of the land and the registration of the interest.

However if this is not so then there are some circumventions of privity of contract and one of those is the trust of a promise. Here a promise by A to B to pay a sum of money, or to transfer property to C may be construed as constituting B a trustee of the promise by A for the benefit of C. If so, C (as beneficiary of the trust) can sue to enforce the promise. The action most suitable in our case is very likely to be for breach of trust therefore and not for breach of contract. Ordinarily the promisee must have intended to create a trust. Yet there is an argument that under equity a constructive trust could be held as would be unconscionable for Smith to renege on his promise and there had been a change in position by Darke in reliance upon the promise.

Bob says there must have been a mistake. Was there a genuine mistake? In the case of Raffles v Wichelhaus (1864) 2 H&C 906 Ex there was a mistake as to the nature of the subject matter. Here a buyer agreed to buy and a seller agreed to sell cotton 'ex Peerless' from Bombay. The buyer had in mind a ship of that name which sailed from Bombay in October, and the seller had in mind a different ship of that name which sailed from Bombay in December. It was held if the buyer and seller each had in mind a different ship there was no agreement between them. In our case it seems that there was no such mistake as both parties new the subject matter of the land. In addition Bob tries to cover the fact that he knew anything of the sale.

It is a long standing principle of English law however that "fraud unravels everything and that no court in the land will allow a person to keep an advantage that he has obtained by fraud" as per Denning LJ in Lazarus Estates Ltd v Beasley (1956). There is strong evidence of fraud on behalf of Bob. He knew of the sale to James as he carried it out. In addition he then went and sold the same land to Bob. Therefore the contract with Darke will be most likely set aside. However it is likely that Darke will not want the contract and set aside and what a remedy of specific performance, therefore compelling bob to sell the land to Darke.

However what position does this leave James in.? Darke will no doubt want all the land, can James keep his share? This will very much depend on the circumstances. The basic rule here is that a purchaser for value will not be bound by an unregistered interest in the land, unless it is an overriding interest, which an option to purchase is not, and thus will take free of them. If the interest was registered then the purchaser will be deemed to have actual notice of this by the very fact that the interest has been registered.

Therefore in conclusion, the answer to this question depends on the circumstances. Was the land registered or unregistered? Was the option to purchase registered or not when James bought the land? Based on the facts, it is most likely that the option was not registered otherwise James would not have bought the land. Thus James will be the rightful owner of the 20 acres as purchaser without notice of the option. Darke will be able to compel Bob under the contract through the remedy of specific performance and ensure that he receives the rest of the land. The Courts will likewise make a reduction in the price of the land accordingly.

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