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When is it right to rectify?

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15/10/2013

Earlier this year the Court of Appeal heard the case of Day & Another v Day [1], which involved an application seeking the rectification of a conveyance of property that took place in 1985.

The Mistake

The matter followed the death of Mrs Day in December 2008. The appellants were James and Michael Day and the respondent was Terence Day. Both appellants and the respondent were the executors of Mrs Day’s estate. By her last will of November 2008, Mrs Day directed that the property be sold and the sale proceeds be divided between her six surviving children equally (the respondent and appellants were three of those children), however, presumably, during the course of administering Mrs Day’s estate, an issue was discovered.

Mrs Day purchased the property in 1954 with her husband and the property was held by the couple as joint tenants. Upon her husband’s death the property vested in Mrs Day by survivorship and she continued to live there as her home. In May 1985 Mrs Day granted a general power of attorney to Mr Froud, a solicitor. On 6 June 1985 Mr Froud executed a conveyance, as Mrs Day’s attorney, which conveyed the property to herself and the respondent to be held by them as beneficial joint tenants. On the same day the respondent and Mrs Day (Mr Froud acting once again) executed a mortgage in favour of Gateway Building Society to secure an advance of £23,000 which was paid to the respondent. The Gateway mortgage was subsequently discharged and a further charge was executed on 1 November 1988 by Mrs Day (this time with no mention of power of attorney) and the respondent in favour of Midland Bank plc. The Midland Bank charge was also subsequently discharged and at the time of the hearing the property was mortgage free.

Upon Mrs Day’s death the property passed to the respondent as the surviving joint tenant and no longer formed part of Mrs Day’s estate to be distributed in accordance with her will.

Unsurprisingly, the appellants, as executors and beneficiaries under the will, applied to the court for rectification of the conveyance on the basis that Mrs Day had had no intention of transferring a beneficial interest in the property to the respondent. The respondent admitted in his defence that the purpose of the transfer was to enable him to raise funds but said that there was NO agreement that he should NOT acquire a beneficial interest in the property.

At first instance the Recorder found on the balance of probabilities that Mrs Day never intended or understood that the conveyance vested a beneficial interest in the respondent. He confirmed that had Mrs Day executed the conveyance herself then he would have made an order for rectification so as to provide that she remained the sole beneficial owner. In the particular circumstances though, the conveyance had been executed by Mr Froud and the judge found there was no mistake on his part. The court held that the power of attorney was validly granted to Mr Froud; that the conveyance was within the powers granted to Mr Froud; and that there was no mistake on Mr Froud’s part when he executed the conveyance. The Recorder therefore came to what he believed was the unsatisfactory conclusion that there was no mistake that he could rectify. He did, however, give permission to appeal and indicated that such appeal would have reasonable prospects of success.

Recitifcation

The Court of Appeal found that the Recorder’s reasoning was plainly wrong. The absence of a mistake on the part of Mr Froud was irrelevant as he was neither the settlor nor a party to the conveyance – he merely executed on Mrs Day’s behalf. The relevant issue was, instead, the subjective intention of Mrs Day. The Recorder had found that Mrs Day never intended to give, and never thought that she had given, a beneficial interest in the property to the respondent: he should therefore have ordered rectification. The court sought to explain that the Recorder’s confusion appeared to have arisen by incorrectly treating the general powers under the power of attorney as being authorisation for Mr Froud to execute the conveyance on behalf of Mrs Day on such terms as he saw fit and which would then bind Mrs Day. The Court of Appeal confirmed that the solicitor’s actual authority was prescribed by any instructions expressly given by the client. The power of attorney had the effect of giving the transaction the veil of authority for Mr Froud to bind Mrs Day, whereas his actual authority was exceeded. The apparent authority had no bearing on the actual intention of Mrs Day and did nothing to exclude the court’s equitable jurisdiction to rectify.

WM Comment

The jurisdiction of the court to rectify instruments is part of equity’s wider power to relieve against the consequences of a mistake. This case provides a good reminder that, for this equitable remedy to be available, the mistake in question must be by the settlor/donor and it must be either as to the legal effect of the disposition or to an existing fact that is basic to the transaction. Such mistake must also be of sufficient gravity to bring equitable jurisdiction into play. Other factors, such as the existence of a power of attorney for example, can confuse matters, but may not have any bearing on the legal position as regards rectification. The case is, of course, also a helpful reminder as to the importance of understanding the nature and extent of a power of attorney.

Here there was a mistake by Mrs Day as to the legal effect of the transaction in that she did not intend to give away her beneficial interest in the property and it was of sufficient gravity for the jurisdiction to rectify to come into play, namely that it was unjust for the respondent to retain the benefit of the unintended gift. The Court of Appeal permitted rectification of the conveyance to reflect that the beneficial interest in the property was solely Mrs Day’s; it did not set aside the conveyance.

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[1] [2013] EWCA Civ 280