Contracts for the Sale of Land and Personal Property: The Equitable Interests of the Purchaser

By Pawlowski, Mark; Brown, James | Nottingham Law Journal, Annual 2011 | Go to article overview

Contracts for the Sale of Land and Personal Property: The Equitable Interests of the Purchaser


Pawlowski, Mark, Brown, James, Nottingham Law Journal


INTRODUCTION

As property lawyers, we are all familiar with the general principle that a contract for the sale of land, which is capable of specific performance, operates in equity so as to confer a trust on the purchaser pending completion of the sale. Although some controversy exists as to the exact nature of the trust, it is well established that, upon exchange of contracts, equity will "treat that as done which ought to be done" (1) with the consequence that the purchaser acquires equitable ownership even though full (legal) title to the land will not pass until completion (and registration).

As land is unique, specific performance is readily available in the context of sales of land where damages would, clearly, not be an adequate remedy. The same cannot be said for contracts for the purchase of personal property where invariably the subject matter is not unique and where a substitute can easily be acquired in the open market. In circumstances, however, where the property is unique or scarce (for example, a rare painting or vintage car), the maxim that "equity treats as done that which ought to be done may be invoked so as to confer on the seller an equitable obligation to transfer the property to the purchaser in fulfilment of the contract. Where, therefore, the contract is specifically enforceable in this way, the seller, it is submitted, will again hold the property on trust for the purchaser where, as in a contract for the sale of land, there is an interval between the date of the contract and completion of the sale. The notion that a seller holds personal property upon trust for the purchaser pending completion of the sale is admittedly controversial, but this article seeks to argue that the same principles governing equity s intervention in sales of land should apply in the context of sales of personalty. It is submitted that equity s role in imposing a trust on the vendor both in relation to sales of land and personalty may be important in safeguarding the interests of the purchaser prior to, as well as after, completion of the transaction.

VENDOR AS CONSTRUCTIVE TRUSTEE OF LAND

It is well established (2) that, during the interim period between exchange of contracts and completion, the rights and duties of vendor and purchaser are defined in terms of a trust; the vendor holds the legal estate upon trust for the purchaser and the purchaser becomes a beneficial owner of the land.

Nature of the trust

The exact nature of the trust and the precise moment of its creation, however, has been the subject of some debate. Most agree that the trust operates not by virtue of the intention of the parties but by operation of law and, therefore, falls to be classified as a constructive trust. In other words, the trust arises on the basis that it would be unconscionable for the vendor to refuse to perform his contractual obligation to transfer the land. This classification, however, is not without its difficulties as a constructive trust normally requires no formality, yet a contract for sale of land will only be enforceable if it is in writing complying with the Law of Property (Miscellaneous Provisions) Act 1989, section 2(1). Thompson, therefore, argues that the trust should be viewed as sui generis. (3)

Timing of the trust

There is also some controversy as to the precise timing of the trust. In Rayner v Preston, (4) Cotton LJ characterised the unpaid vendor as being a trustee "in a qualified sense only" (5) and Brett LJ expressly rejected the notion that the vendor is a trustee from the time of making the contract. In his view, if that were the true position, then the vendor would be accountable to the purchaser for all rents accrued due and received pending completion, which is clearly not the law. James LJ also considered it inaccurate to treat the vendor as trustee upon the making of the contract because (pending completion) it is uncertain whether the contract will actually be performed or not. …

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