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“Déception D’Outre Moitié De Juste Prix” - Snell v Beadle Revisited
Geoffrey Crill
On the January 18th, 1999 the Court of Appeal delivered a judgment in the case of Snell v Beadle[1] which creates a new range of problems for anyone involved with property in Jersey and, in particular, those advising potential purchasers and lenders.
Briefly, the facts of the case were that Mr. Snell owned two properties which adjoined a private road belonging to Mrs. Beadle. One of the properties had a pedestrian right of way over the road, but the other had none. There was development potential in the two properties together but only if one of the properties were to have the benefit of vehicular rights over the road. There was a considerable degree of urgency and importance from Mr. Snell’s point of view in gaining the necessary rights to maximise the value of his properties, as he was in considerable financial difficulties.
Mr. Snell and his business adviser met Mrs. Beadle and at a cordial meeting she agreed to sell to him a vehicular right of way over an 8 feet wide strip of the private road. This right of way would “unlock” the property sufficiently for Mr. Snell’s development plans to go ahead. The price agreed was £100, although Mrs. Beadle said that she would have to speak to her lawyers as she always did on such matters. Mrs. Beadle telephoned the following morning to confirm her agreement to the proposals and it was agreed that the terms should be put in writing. The business adviser typed a short agreement, which Mrs. Beadle read through, and signed. Mrs. Beadle then told the business adviser to contact her lawyer.
The Court emphasized that Mrs. Beadle knew exactly what she was doing, was quite happy with the proposals, and had not been pressed or forced into the agreement. As far as she was concerned there was an agreement with Mr. Snell.
Mr. Snell’s solicitors sent a copy of the agreement to Mrs. Beadle’s lawyer, expecting that the appropriate deed would be prepared and passed through Court. In fact Mrs. Beadle’s lawyer responded by saying that his client had not had any opportunity for reflection or for taking legal advice. He subsequently attended on site, and on his client’s behalf offered to sell the fonds of the private road to Mr. Snell for £15,000 instead of the right of way for £100 to which Mrs. Beadle had originally agreed. Consequently the proposed development of Mr. Snell’s property had to be abandoned, to his considerable loss. He actioned Mrs. Beadle for breach of contract.
Some two years after the proceedings were instituted, Mrs. Beadle’s answer to the claim was amended to include the argument:-
“that … the price of £100 … is a vile prix and is less than half of the real value … and the transaction is accordingly unenforceable as a dol réel arising from a déception d’outre moitié de juste prix.”
At the hearing, Mrs. Beadle’s lawyer advanced the argument that his client had been pressed into the agreement by Mr. Snell and his adviser and that they were guilty of trying to entrap or deceive her as to the value of the right to be transferred. The Royal Court upheld Mr. Snell’s claim and rejected Mrs. Beadle’s plea of déception d’outre moitié on the ground that to substantiate the argument required more than a finding that the price was less than half the juste prix and that it was not available as a defence in the absence of dol (which might loosely be translated as “fraud”).
Mrs. Beadle appealed against the judgment.
Despite the fact that in evidence before the Court of first instance Mrs. Beadle had confirmed herself content with the agreement, the Court of Appeal allowed the appeal. It stated:-
“Where in the case of héritage (but not in the case of moveables) a vendor receives less than one half of the juste prix he may within 30 years rescind the contract, which by reason of such a shortfall and perte becomes a contrat vicieux.”[2]
The Court of Appeal held that it was the shortfall itself which constituted the dol and so long as the shortfall had been established, there was no need to prove any sort of trick or fraud or conduct of that nature.
Having established that a sale at less than half the juste prix entitled the vendor to rescind the contract at any time within the next 30 years, the Court of Appeal went on to consider how the juste prix should be assessed. The Court defined juste prix as:-
“the reasonable and appropriate price in the market, of the héritage in the particular situation in which the parties found themselves, that is to say, not looking to these particular parties but rather parties circumstanced as these parties were, with all the likely motivations on the part of the vendor and purchaser suggested by those circumstances. …. Thus the objective approach inevitably takes into account the development or “marriage” value of the right in such a case as the present[3].”
In this particular case, the Court heard widely differing views on the value of the right of way, ranging from £65 to £15,000, but it decided that when the value to the development was brought into the equation, the agreed price of £100 was well below the juste prix and thus Mrs. Beadle was entitled to rescind the contract.
Thus, to recapitulate:-
(1) The Court acknowledged that the contract was freely entered into between the parties, with the vendor fully aware of all the circumstances of the vendor including the “ransom” potential of the land in question.
(2) The Court decided that the fact that the agreed price was less than half what it considered to be the proper value entitled the vendor to rescind the contract at any time within the next thirty years. That was sufficient to constitute the dol entitling the vendor to rescind the contract without having to prove any trick, fraud or conduct of that sort.
(3) The rule over-rides the maxim la convention fait la loi des parties although the Court insisted that it was not inconsistent with that rule, which is based on equality of treatment of the parties. By gaining such an advantage, the purchaser was not transacting on an equal footing.
The Court expressed doubt that the effect of its decision would be to cause inconvenience in the banking and property world on the basis that only rarely is property sold at such an undervalue so as to fall within the rule, and it further suggested that there will “no doubt” be ways in which an anxious purchaser can protect himself in doubtful cases. It is true that the Court specifically excluded from the rule (a) a gift of property, (b) instances where the value of the property is too uncertain for the principle to operate, and (c) instances where there has been a public sale at law.
The Court sought to relax its rule by stating that it also would not apply to a sale at a deliberately bargain price on the somewhat fragile argument that the parties in such circumstances could be regarded as having withdrawn their transaction from the terms of a rule which is intended to provide a form of justice between them.
That leaves however a whole range of transactions to which the rule may seem to apply unfairly. The Court referred to the juste prix as having regard to the “marriage” value of the land, i.e. the “ransom” value where the inherent value in the hands of the vendor is greatly enhanced in the hands of the purchaser. A recent example was the extension of a sports facility by the acquisition of a strip of land from the adjoining field, without which the facility would not have met revised standards. The land had been sold at considerably above agricultural land value but without it the sports facility was useless. Both parties got an excellent deal which suited them admirably but, applying the reasoning of the Court of Appeal, as this was certainly no bargain sale the transaction could be overturned. Arguably the farmer could have charged well over twice the agreed price and the sports body would have been forced to pay it. The fact is, however, that the farmer knew what the land was worth to him and to the other party, but chose only to demand a proportion of the maximum “ransom” value.
The juste prix argument put forward by the Court appears to be one-sided. It speaks of the “marriage” value (i.e. the enhanced value of the purchaser’s existing property), and the likely motivations on the part of buyer and seller in identical circumstances, but specifically excludes the circumstances of the particular parties themselves. The Court assumes that the parties are negotiating in a climate of equality, equally free to conclude an agreement or not. But how do we deal with the position where the vendor is in a position where he feels he has to sell at almost any price and the purchaser, aware of the added value of the available property to him, takes his opportunity to buy the property at (to him) a very favourable price?
Perhaps the most alarming aspect of the case was that, although the Court accepted that the principle would not apply in circumstances where the value of the héritage was too uncertain, it did not apply that exception in this case. The Court was faced with a small area of land of absolutely no use or value to anyone other than the purchaser. How then could the value of the land be anything other than what the purchaser was prepared to pay for it? Bearing in mind that the expert witnesses in the case assessed its worth at £65 on one extreme and £15,000 on the other, one would have thought that this was certainly a case where the value was “too uncertain”. The Court was confident that the circumstances in which the rule might apply were very few. It is respectfully suggested that they are less rare than the Court might imagine. True, a straight-forward sale of freehold property at an undervalue is rare enough, but far less rare are the grants or cancellations of rights for a consideration, where the grantor is arguably more likely to regard what he receives as a bonus payment than a calculated consideration. So, the landowner who receives £10,000 for the grant of drainage rights under his field for the benefit of an adjacent development site may appreciate that without the rights granted the development could not proceed at all, but still be content to consider the payment as a bonus which does not deprive him in any way of the use or enjoyment of his land. May that transaction be set aside on this principle? Likewise, when a neighbour is party to a contract to ratify an encroachment which would otherwise be hugely expensive to rectify, did the Court consider that in some way these situations were quite different from those which they anticipated would be covered by the rule?
The Court did not clarify who might effect the rescission of the contract or the consequences of that. It stated that in the event of the rescission of the contract, the purchaser should pay the difference between the price paid and the juste prix but does the right of rescission run with the land (in the case of a grant of rights, etc.) or is it a personal right? What if the acquired land or rights are now in the hands of a third party? Much may happen in thirty years. Take Mr. Snell’s case, for example. He wanted to develop his property. Assume that Mrs. Beadle has completed the agreed conveyance, and that Mr. Snell had carried out the development and disposed of the new units to purchasers some of whom would have obtained loans from lenders assuming that there was good title underlying their security. Subsequently seeing the profit made (or assumed to have been made) by Mr. Snell, Mrs. Beadle institutes proceedings for the rescission of the contract, with presumably the same result. The purchasers must lose their title and the lenders their security unless one or all of them is prepared to pay the difference between the agreed price paid by Mr. Snell and the juste prix.
What steps, if any, can a purchaser/lender take to protect his position against the possibility of a future application by the vendor/grantor for the rescission of the contract? The Court glibly said that “there will no doubt be ways in which an anxious vendor (sic) can protect himself by specific agreement in doubtful circumstances”. It may not be possible to share the Court’s certainty. The Court made new Jersey law when it created a new exception to the principle which was traced back over 700 years, by stating that contracts where the parties clearly intended a bargain price were outside the scope of the rule. However, how can the parties protect their contract where no bargain is intended but they are perfectly happy to stand by the agreement struck? If the contract contains some form of confirmation by the parties that they stand by the terms reached, does that reinforce the oath which the parties currently take to abide by the terms of their contract thus creating an effective estoppel? Alternatively if, as the judgment suggests, it is the very price itself that gives rise to the entitlement of the vendor to rescind the contract, it must be the contract as a whole which is rescinded, irrespective of any assurance of satisfaction with the agreed terms by the vendor (which it must be remembered Mrs. Beadle freely gave in evidence) contained in the contract.
It is submitted that all the parties can do is to reiterate within the contract of sale that they are satisfied with the consideration stated, notwithstanding that such consideration may be less than half the market value of the property, rights or indulgence transferred. Until the Court rules on whether this confirmation will over-ride the doctrine (i.e. whether or not the parties can contract out of the rule), there is no greater safeguard that can be put in place to prevent a subsequent attempt by the vendor or his successors to set the contract aside. A suggested amendment to the standard consideration clause is set out below (with translation).
Ladite vente héréditaire faite pour et en considération de la somme de £ Sterling payble en espèces par ledit Acquéreur audit Vendeur dix jours après la passation du présent contrat devant Justice. Etant expressement reconnu par lesdites parties que ladite somme a été agréée et acceptée par elles comme juste prix, librement négociée entr’elles sans aucun recours par ledit Vendeur ni de ses hoirs de renoncer le présent contrat suivant le maxim de déception d’outre moitié du juste prix.
The said sale made for and in consideration of the sum of £ sterling payable by the Purchaser to the Vendor ten days after the passing of the present deed before Court. It being expressly understood by the parties that the said sum has been agreed and accepted by them as the fair price, freely negotiated between them without recourse by the Vendor or his heirs to renounce the present deed according to the maxim of “déception d’outre moitié du juste prix”.
The decision is presently under appeal to the Privy Council and is expected to be heard during the first half of 2000.
Geoffrey Crill is a solicitor of the Royal Court and the senior partner of Crill Canavan, 40, Don Street, St. Helier, Jersey, JE1 4XD. Crill Canavan acted for the respondent in the appeal.
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