Russel v Russel (1783) 1 Bro. C.C. 269

FACTS

A borrower wanted a loan from a creditor. In order to obtain that loan, the borrower pledged and deposited the title deeds of his leasehold as a security with the plaintiff, for the sum of money. Later, the borrower became bankrupt and could not pay back the debt. So, the creditor, plaintiff in this case, brought an action before the court of chancery, to get an order to sell the land and recover his debt.

ISSUE

The main issue before the court was to determine whether the deed had been deposited by the borrower, the defendant in this case as a security for the loan that the plaintiff had advanced to him, in the absence of any written contract indicating the same?

LAW

The law that this case is concerned with is the Statute of Frauds.

The Statute of frauds is a law that requires certain kinds of contracts to be in writing to be enforceable by law. This is to prevent the parties from instances of fraud and misrepresentation in cases of contracts.

This law has its origin in the Act of Prevention of Frauds and Perjuries, 1677 enacted by the Parliament of England. It was enacted by Charles II to tackle the cases of frauds that had increased substantially, as the England Civil War had come to an end¹.

The idea behind this law is that while oral agreements are enforceable, their terms cannot be guaranteed. Every party usually has a different version of what was agreed under the oral contract, based on their understanding of the terms of the contract and what their intention was, at the time of entering into it. Whereas, if contracts are put down in writing and duly signed by the respective parties, there is a clear understanding of what the terms of the contract were and what the intentions and expectations of each party were, when they signed it. In cases of future disputes, this written agreement can facilitate the decision. It also diminishes the scope of frauds, that are often associated with oral contracts i.e. one party abjectly denying the terms of the contract or alleging that it had been agreed by him under influence of a fraud or misrepresentation.

However, one exception under the Statute of Frauds is partial performance. So, if it can be proved that one party has already performed their part of the bargain under the contract, the non-existence of a written contract cannot be used to negate the existence of such an oral contract.

PLAINTIFF’S ARGUMENTS

The plaintiff argued that the fact that the defendant had deposited the deeds with him, prior to him obtaining the loan, is a clear indication of the fact that he meant that those deeds were supposed to be the security for the loan and that itself gave the plaintiff the right to foreclosure. The actions of the plaintiff is a proof of his intention. The mere fact that there is no written agreement between the parties suggesting that the deposit was in the nature of a security, does not stop the plaintiff from exercising his right to foreclosure.

DEFENDANT’S ARGUMENTS

The defendants argued that just the act of deposition of the deeds of the leasehold is not enough to infer the intention of the defendant to be that of creating a possessory right of the plaintiff on his land. The plaintiff’s case was against the law , as it amounted to creating a legal charge on the land without any written statement, which is against 4^th clause of the Statute of Frauds.

ANALYSIS

In United Bank of Kuwait Plc v Sahib & Ors², Peter Gibson L.J. emphasised the essential contractual rule that had been set up in the case under consideration, which is that the deposit by way of security is treated both as prima facie evidence of a contract to mortgage and as part performance of the contract. The fact that the title deeds for the leasehold were submitted, indicates that there must have been some sort of contract between the parties, pursuant to which, the defendant had deposited the deeds with the plaintiff, as fulfilling his part of the obligation under the contract. An action on part of a party has to be preceded by some agreement or contract between the parties. So, the act of the defendant in itself is the proof of the existence of a contract, even if it had not been put down in writing.

However, in Hooper, Ex parte³, Lord Chancellor Eldon states that the vice of the decision in Russel is that it considers that the deposit of title deeds can have no meaning other than that of creating an equitable mortgage in favour of the plaintiff. He maintains that a deposit of title deeds can have multiple meanings other than that of creation of a charge. It might be that such deeds were deposited to the plaintiff to bestow upon him the duty to care for them. Or, even if they had been deposited in pursuance of a loan, that does not necessarily indicate that the borrower had any intention of creating a charge in favour of the plaintiff or that it bestowed upon the plaintiff any right of foreclosure. Without any express intention given in writing, it is difficult to determine the original intention of the borrower and everything else is just making a logical inference from his actions. However, he agreed that the decision in this case had been left undisturbed for a long time now, for it to be disturbed again.

This case would not even be a matter of discussion today, as modern laws of contract recognizes mere actions as demonstrating acceptance of terms of a contract. It is a well- accepted principle of contract law that performance on part of one party in pursuance of a contract, albeit oral, would be considered as evidence of an existing contract and would thereby bind the other party into performing their end of the bargain. The voluntary act of one side, is the evidence of their intention to honour the terms of the contract and can also shed light into the very terms of the contract.

In the case under consideration, the facts make it evident that the defendant wanted a loan from the plaintiff. Under such circumstances, the deposition of the deeds of his land to the plaintiff can be clearly held to be inferring to the intention of the defendant to use those deeds as security for procuring the loan. Such an act does create an equitable mortgage in favour of the plaintiff, which he can claim to be enforced, if the defendant becomes bankrupt and thus has no means of returning the loan amount to the plaintiff. The action of the defendant created a charge on his land in favour of the plaintiff, which he can now claim to be satisfied.

While it is true that oral agreements do have ambiguity regarding the terms of contract between the parties and can result in fraud and misrepresentation, when one party has performed their liability under the oral agreement, then that ambiguity cannot be said to persist. Such an act of part performance cannot be held to be ambiguous, but a clear indication of the intention of the party, and thus, a conclusive proof of the terms of the agreement.

JUDGMENT

The court decided in favour of the plaintiffs. Lord Loughborough based his decision on the doctrine of part performance and stated that the delivery of the title deeds to the plaintiff were for a valuable consideration and so it satisfies the prerequisites of a contract, which had been performed by both the sides and the court should just simply deliver the necessary formalities. The authorities however contended that, such a decision would depend upon the intention of the defendant in submitting the documents.

The jury found that the lease had indeed been deposited as a security to the plaintiff for the loan extended, which means that this gives the plaintiff a right to change the possessory right over the lease. Lord Thurlow stated in his opinion that the deposit of the deeds created an equitable mortgage in favour of the plaintiff and so, the land can be sold pursuant to his petition and he is in a position to recover his charges.