A recent case reminds us that parties who enter into a contract with joint and several liability are each liable to perform the whole contract on their own.
In this case, a husband signed a contract to take a lease on behalf of both himself and his wife, without obtaining his wife's authority. The court held that he was still bound by the contract.
In Marlbray Ltd v Laditi (2016), a developer had sold units in an apart-hotel at a sales fair in 2005. Various law firms agreed a standard form of sale contract with the developer and they attended the sale to represent prospective buyers and to exchange contracts. Mr Laditi used one of these solicitors to exchange contracts on a unit. The contract named him and his wife as joint purchasers, although only he signed the contract. He paid a reservation deposit.
Later, Mr Laditi paid a further 25% deposit but he and his wife were unable to obtain a mortgage as a result of the credit crunch. Without this they could not proceed. The developer terminated the contract for breach and kept the deposit.
Mr and Mrs Laditi took the developer to court and a judge found in their favour. He held that the contract was not valid because Mrs Laditi had not instructed the solicitors, signed the contract, authorised her husband to do it or ratified the agreement. The developer appealed.
Court of Appeal decision
The Court of Appeal unanimously found for the developer. It held that there was a valid contract between the developer and Mr Laditi alone. This meant that the developer did have the right to rescind the contract and, subject to further argument at trial, that it could forfeit the deposit.
On the main issues the court found as follows:
- The developer had entered into a contract with Mr Laditi alone. The buyer was named in the agreement as Mr and Mrs Laditi but the contract terms provided that the obligations of two or more buyers would be joint and several. Essentially, joint and several liability gives rise to one joint obligation between the contracting parties and as many several or independent obligations as there are contracting parties. This meant that it was quite possible for Mr Laditi alone to be liable to perform it.
- When Mr Laditi signed the contract, he had no authority to do so from his wife and so his signature was for him alone. He could not sign for her as she had not authorised him to do so. On the facts, she had not ratified the contract so as to become bound by it.
- The creation of a contract depends on the common intention of the parties. There was no express or implied implication that Mr Laditi's commitment to it was conditional on his wife signing it. There was no evidence that he had contracted purely on the basis that Mrs Laditi would be a joint buyer. Accordingly Mr Laditi could not escape the contract on the basis that his wife was not a party to it.
- The contract complied with the statutory requirements laid down by section 2 Law of Property (Miscellaneous Provisions) Act 1989. This meant that it was a valid and enforceable contract for the sale of land.
- Even if there had not been a contract or if it had not complied with section 2, no estoppel arose such as to allow Mr Laditi an equitable remedy that would entitle him to recover his deposit.
As with all litigation, this case turned on its facts, but it reminds contracting parties of some essential issues:
- When entering into a contract, remember that the intention is that the parties create a legally binding relationship. If some vital element is missing or if a party signs it based on some condition (such as that it must be binding on both parties to be valid), that must be made clear in the contract terms. That had not been done here.
- Where more than one person comprises any party to a contract, remember the distinction between joint and several liability. Joint liability means that all parties are jointly liable to perform the contract, whereas several liability means that each contracting party could be liable to perform the whole contract. It is rare to encounter a contract involving joint parties that does not provide for both joint and several liability.
- When signing on behalf of another party be sure to have written authority to do so in order to ensure that the contract is binding on them.