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Writing - s2 of 1989 Act

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Contract

This page includes information on various matters relating to property contracts including the following:
  • Agreements by e-mail.
  • Assignment of benefit of consultant's report on sale of land.
  • Correcting mistakes by construction of documents.
  • Contract signed by agent for non-existent company
  • Oral variation precluded by term precluding oral variations
  • Rights of third parties.
  • Construction of property contracts in commercial context using common sense.
  • Interest on purchase price.
  • Mistake.
  • Stakeholders
See also the page on s2 of the 1989 Act.


Agreement by e-mail - guarantees

Metha v J Pereira Fernandes SA
[2006] EWHC 813 (Ch)

Section 4 of the Statute of Frauds provides that
    "no action shall be brought ... whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person ... unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised".
The effect of a non compliance with Section 4 is that the contract is unenforceable.

In this case the defendant Mr Mehta sent an e-mail to the claimant offering a guarantee. The e-mail was not signed by the defendant but was described in the header as having come from "Nelmehta@aol.com". The judge held that the e-mail could have been capable of constituting a sufficient memorandum of the agreement but that the automatic statement in the header of the source of the e-mail was not a sufficient signature. HH Jg Pelling QC at para 27:
    "Thus, as I have already said, if a party or a party's agent sending an e-mail types his or her or his or her principal's name to the extent required or permitted by existing case law in the body of an e mail, then in my view that would be a sufficient signature for the purposes of Section 4. However that is not this case."

Assignment of benefit of consultant's report on sale of land

Technotrade Ltd v Larkstore Ltd
[2006] EWCA Civ 1079

Summary

Where a landowner assigns the benefit of a consultant's report to a buyer of the land, can the assignee recover damages from the consultant, despite the fact that the assignor has suffered no loss in relation to the report? Answer: yes, provided that the assignor could have recovered damages if it had in fact suffered the loss.

Facts

In this case, a consultant provided a site investigation report to the owner of a development site. The site was subsequently sold to a third party, and the benefit of the report (as well as the right to sue the consultant) was also assigned to the new owner. Although the report had stated that the site was satisfactory, in fact a landslip occurred after the site had been sold to the new owner. An adjoining owner whose properties had been damaged by the landslip sued the site owner, and the site owner joined the consultant to the proceedings on the basis that he had the benefit of the report.

Decision

The Court of Appeal held that the new site owner could recover substantial damages from the consultant in relation to the loss that it had suffered. The fact that the original site owner had suffered no loss in relation to the report (having sold the site to the new owner at full value) was irrelevant - if the original site owner had not sold the site, it could have recovered substantial damages from the consultant, and the new site owner could therefore do the same.

Article: "An end to the disappearing trick" by Laurie Heller, Berwin Leighton Paisner - A consideration of the case law and principles behind the liability of a contract breaker following the transfer of a property and assignment of the relevant contract following the decision in this case (Property Law Journal, 19 February 2007, p 21)


Construction of documents

In addition to the cases in this section see the important decision of the House of Lords in Chartbrook Limited v Persimmon Homes Limited
[2009] UKHL 38 and Arnold v Britton which are dealt with on the Overage page.

Conflict between plan and words of contract - plan prevailed

Smith v Royce Properties Ltd
[2001] EWCA Civ 949

Summary

This case is an example of the application of the modern principles of construction, explained by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich BS (1998), in the context of a property dispute.

Facts

In the case there was a conflict between a plan and the relevant clause of an option agreement. The case concerned two parcels of land: OS 0062 (which was very large) and OS 0052 (which was very thin). The large plot was stuck behind the thin plot. On the ground it was impossible to distinguish between the two. Unless the option included the thin plot there would be no access to the large plot and the option agreement would be useless. However, the option agreement itself only referred to OS 0062.

Decision

The CA nonetheless had regard to the land registry plan which referred to both plots to contradict the clear words of the option clause. (The original plan was missing). To do otherwise would not make commercial sense. Indeed it was "inconceivable that [the parties] intended that the option should only apply to 0062". Tuckey LJ:
    "I do not think the judge's finding about the plan can stand. He should have given greater weight to the filed plan. As the only plan in existence, he should have started with the presumption that it did accurately reflect what was show on the plan attached to the conveyance, not only because it was prepared by the Land Registry, but also because that is what one would have expected it to show.

    Having therefore concluded that there was an ambiguity between the wording of the option and the plan, how should the judge have resolved it? He does not appear to have taken account of the commercial context to which I have referred. Common sense compelled the conclusion that the parties intended the option to cover the whole field. If the judge did feel compelled to decide that the wording prevailed over the plan because of the nineteenth century cases which were cited to him, I think he was mistaken. Where there is a conflict of this kind I think the modern approach is well summarised in Lewison: Interpretation of Contracts (2nd ed., 1997) at paragraph 10.07 which says:
      "Whether a plan controls a verbal description or a verbal description controls a plan is a question of construction of the particular conveyance. There is no presumption either way."
Obvious mistake - corrected by construction

(See also Mistake below).


Contracts (Rights of Third Parties) Act 1999

Avraamides v Colwill
[2006] EWCA Civ 1533

This is a Court of Appeal case, the first one to be decided under the Contracts (Rights of Third Parties) Act 1999. The respondents entered into a contract for the refurbishment of two bathrooms with a company. The work was not carried out properly, and the respondents sought to hold the appellants liable for the faulty work, as the company itself had no assets. The appellants had purchased the assets of the company, and agreed, in a contract made between the shareholders of the company and the appellants, to complete outstanding customer orders and to pay accrued liabilities of the company. The respondents sought to rely on the provisions of that contract under the 1999 Act, on the basis that they were customers of the company to whom accrued liabilities were owed.

Section 1(3) of the 1999 Act makes it clear that, in order to rely on the Act, a party must be "expressly identified in the contract by name, as a member of a class or as answering a particular description". There was no express identification of the respondents in the contract between the shareholders of the company and the appellants, and accordingly the respondents could not rely on the 1999 Act. (See in particular paras 18 and 19 of the judgment).


Contract signed by agent for (non-existent) company

Braymist Ltd v Wise Finance Co. Ltd
[2002] EWCA Civ 127.

Solicitors acting as agent for a company that had not yet been formed signed a contract to sell a parcel of land. When the purchaser failed to complete they served a notice to complete, subsequently rescinded, forfeited the deposit and claimed damages. The purchaser defended the claim and sought recovery of the deposit on the ground that no valid contract had been made.

By virtue of s36C(1) of the Companies Act 1985 the contract, having been made on behalf of an unincorporated company, took effect as a contract with the agent. The CA held that there was no common law bar to the solicitors enforcing the contract and, for the purposes of s2 of the Law of Property (Miscellaneous) Act 1989, they could be properly treated as having signed the agreement on their own behalf even though they had signed as agents on behalf of the unincorporated entity.


Interest on purchase price

P&O Overseas Holdings Ltd v Rhys Braintree Ltd
[2002] EWCA Civ 296.

Interest on the balance of the purchase price accrued in the vendors favour from the contractual date for completion even though it had not yet been registered as proprietor of the land. This was because it was capable of transferring the title pursuant to s37 of the Land Registration Act 1925.


Mistake

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
[2002] EWCA Civ 1407

In this case the CA abolished the equitable doctrine of common mistake. Solle v Butcher [1950] 1 KB 671, one of Lord Dennings great forays into justice, was overturned as being inconsistent with Bell v Lever Brothers Ltd [1932] AC 161. Where a contract is valid and enforceable on ordinary principles of contract law there is no jurisdiction to rescind the contract on the ground of common mistake.


Oral variation

Precluded by contract term that precluded oral variations

Rock Advertising Ltd v MWB Business Exchange Centres Ltd
[2018] UKSC 24

Summary

The Supreme Court decided that a "No Oral Modification" clause in a contract was legally effective. The clause had not been overridden by an oral agreement to vary the schedule of the payment of rent.

Facts

MWB Business Exchange Centres Ltd (“MWB”) operated serviced offices. Rock Advertising Limited (“Rock”) entered into a licence agreement (“the Licence”) with MWB to occupy office space. The Licence was expressed to be for a fixed term of 12 months from 11 November 2011. The Licence prohibited any oral variation and required that any variation would only be effective if:
  • set out in writing and
  • signed on behalf of both parties.
By early 2012, Rock had fallen into arrears. Rock’s director therefore sought to enter into an arrangement with MWB under which the arrears would be spread over the remainder of the term. There was a dispute of fact between the parties as to whether Rock proposal had been agreed orally over the telephone with MWB in February 2012.

On 30 March 2012, MWB locked Rock out of the office space because of its failure to clear the arrears and terminated Rock’s licence from 4 May 2012.

MWB then brought proceedings to recover the arrears. Rock counterclaimed in unlawful exclusion from its office premises.

Issues

Was the oral variation of the licence agreement effective in law?

First instance

The judge held that there had been an oral agreement to vary the Licence, which was supported by consideration. However, the variation was not effective in law because it did not conform to the requirements that any variation be set out in writing and signed by both parties. It was held therefore that it was open to MWB to sue for the arrears.

Decision on Appeal

The Court of Appeal overturned this decision and held that the oral agreement amounted to an agreement to dispense with the written variation requirement. MWB were therefore bound by the variation and it was not entitled to sue for the arrears at the date of issue.

Decision of Supreme Court

The Supreme Court reversed the decision of the Court of Appeal. Lord Sumption, giving the lead judgment, held that:
    “… the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation”.
Lord Sumption disagreed with the Court of Appeal’s “party autonomy” analysis and held that party autonomy, “only operates up to the point where the contract is made”.

It was held that it was by no means conceptually impossible for parties to agree not to vary their contract except by writing on the basis that any such agreement would be destroyed by a subsequent oral agreement. There was nothing incompatible between the otherwise permissive nature of the law of contract and the ability of parties to preclude themselves from varying an agreement by word of mouth.

The parties had not contravened the clause simply by agreeing an oral variation on the basis that the contract did not forbid oral variations, it simply rendered them ineffective.

Lord Sumption was of the view that enforceable “no oral modification” clauses were desirable for the following reasons:
  • They prevent opportunistic attempts to undermine written agreements by informal means.
  • It provides more certainty as to the existence and nature of contractual variations.
  • Formality in recording variations makes it easier for corporations to enforce internal rules restricting the authority to agree contractual variations.
Lord Briggs decided the point on narrower grounds. Lord Briggs was of the view that it would be possible to waive the no oral modification clause orally but only if done so expressly or by necessary implication. In the instant matter however, he noted that,
    ‘the alleged oral agreement to vary the Licence said nothing whatsoever about the NOM clause (of which both Mr I and Ms E were probably entirely unaware), and I would not treat it as having been done away with by necessary implication’.
Comment

This decision has provided some much-needed clarity on the enforceability of no oral modification clauses. These clauses now have greater teeth which will come as a great relief to larger organisations who may have previously found themselves suffering misfortune at the hands of an agent with authority to bind the company.

The decision is also likely to reduce the number of complex factual disputes which the courts are frequently called upon to resolve. Instead of engaging in the lengthy endeavour of finding what was or what was not agreed orally, the Court may now confine itself to answering the simple question of whether a variation was agreed in accordance with any NMO modification clause. It remains to be seen whether the analysis of Lord Briggs will be preferred, in which case, the questions to be answered by the courts will only be marginally more demanding. It is to be noted that this decision does not preclude any estoppel argument which a party may have. Estoppel simply did not arise on these facts.

Contracting parties ought now to take great care to ensure that any variation they may wish to make to their contract conforms to the requirements of any NMO clause.


Stakeholders

Gribbon v Lutton
[2001] EWCA Civ 1956

A decision in in which the vendor threatened to break off negotiations unless the purchaser paid a deposit of £21,600. The basic position was explained by Laddie at para 12:
    "Since the tripartite contract does not define entitlement between vendor and purchaser but responds to an entitlement determined elsewhere, what happens in a case where the deposit is paid by the purchaser to the stakeholder in advance of there being any enforceable contract between him and the vendor? Prima facie, since it is the purchaser's money and the vendor has no legal entitlement to it, the purchaser can demand its return to him at any time in advance of an enforceable vendor/purchaser contract being put in place. Thus if there is an unenforceable promise by the purchaser to pay a sum of money to the vendor, the vendor acquires no legal entitlement to it and the fact that the sum may have been paid to a stakeholder does not create an entitlement to it. The stakeholder can and must respond to a demand for repayment by the purchaser. The tripartite agreement does not alter who is and who is not entitled to the deposit."
See also para 14 of the judgment.

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