The Plaintiff contended that a letter written by the purchaser’s solicitor which effectively set out the terms of the agreement, enclosed the part of the contract signed by the purchaser, and asked in exchange for the counter-part signed by the vendor, created a binding contract between the parties.
Held: Negotiations ‘subject to contract’ for the grant of a lease remain in a state of negotiation until exchange of lease and counter-part.
Letters written by solicitors, acting as solicitors relating to a proposed grant of a lease, or related to a proposed acquisition of property by sale, are letters written by agents of the parties who have no authority to conclude a contract; they are not written by agents within whose ostensible authority there lies the function of making a contract. Once the documents had been exchanged however, the parties would be bound.
Lord Greene MR said: ‘One thing is quite clear on the facts of this case to my mind, that both firms of solicitors, one of whom – that is the vendors’ solicitors – practised in East Grinstead and the other of whom, the purchaser’s solicitors, practised in London, when they were instructed to carry this matter through by their respective clients, contemplated and intended from beginning to end to do so in the customary way which is familiar to every firm of solicitors in the country, namely, by preparing the engrossment of the draft contract when agreed in duplicate, the intention being to do what I have no doubt at this very moment is happening in dozens of solicitors’ offices all over the country, namely, to exchange the two parts when signed by their respective clients.’ and
‘When parties are proposing to enter into a contract, the manner in which the contract is to be created so as to bind them must be gathered from the intentions of the parties express or implied. In such a contract as this, there is a well-known, common and customary method of dealing; namely, by exchange, and anyone who contemplates that method of dealing cannot contemplate the coming into existence of a binding contract before the exchange takes place.
Lord Greene MR continued: ‘It was argued that exchange is a mere matter of machinery, having in itself no particular importance and no particular significance. So far as significance is concerned, it appears to me that not only is it not right to say of exchange that it has no significance, but it is the crucial and vital fact which brings the contract into existence. As for importance, it is of the greatest importance, and that is why in past ages this procedure came to be recognised by everybody to be the proper procedure and was adopted. When you are dealing with contracts for the sale of land, it is of the greatest importance to the vendor that he should have a document signed by the purchaser, and to the purchaser that he should have a document signed by the vendor. It is of the greatest importance that there should be no dispute whether a contract had or had not been made and that there should be no dispute as to the terms of it. This particular procedure of exchange ensures that none of those difficulties will arise. Each party has got what is a document of title, because directly a contract in writing relating to land is entered into, it is a document of title. That can be illustrated, of course, by remembering the simple case where a purchaser makes a sub-sale. The contract is a vital document for the purpose of the sub-sale. If he had not got the vendor’s part, signed by the vendor, to show to the sub-purchaser, he would not be able to make a good title. ‘If the argument for the purchaser is right and the contract comes into existence before exchange takes place, it would mean that neither party could call upon the other to hand over his part. The non-exchanged part would remain the property of the party who signed it, because exchange would be no element in the contract at all and therefore you could get this position, that the purchaser might wish to resell and would have no right to obtain from the vendor the vendor’s signed part.’
Judges:
Lord Greene MR, Cohen and Asquith LJJ
Citations:
[1948] Ch 93, [1947] 2 All ER 865
Jurisdiction:
England and Wales
Cited by:
Cited – Domb and Another v Isoz CA 29-Nov-1979
In a chain of conveyancing transactions, a solicitor sent his contract and deposit to his vendor’s solicitor, asking him to hold it to his order pending exchange. On the next day, that vendor’s solicitors agreed to an exchange of contracts over the . .
Cited – D’Silva v Lister House Development Ltd 1970
Even an unlawful sub-tenancy can have protection under Part II of the 1954 Act. The court described as fallacious the submission that section 74(1) does not extend to or answer the question whether the document has ever been delivered, saying: ‘The . .
Cited – Evans v James (Administratrix of the Estate of Thomas Hopkin Deceased) CA 5-Jul-1999
Before the parties called evidence, and having read the papers, the court considered that there was no real defence shown, and invited submissions. Negotiations for the grant of a tenancy had been terminated by the sudden illness of the proposed . .
Cited – Evans v James (Administratrix of the Estate of Thomas Hopkin Deceased) CA 5-Jul-1999
Before the parties called evidence, and having read the papers, the court considered that there was no real defence shown, and invited submissions. Negotiations for the grant of a tenancy had been terminated by the sudden illness of the proposed . .
Cited – Alan Estates Ltd v WG Stores Ltd and Another CA 1-Jul-1981
The proposed tenant wanted to get into possession, and was given a key and paid a quarter’s rent to the lessor’s solicitors to be held as stakeholders, before the lease had been formally granted. An undated lease and counterpart were executed and . .
Cited – The Anemone 1987
Owners wished to let their vessel on time charter to Afram Line Limited but were unwilling to do so without a guarantee. The negotiations were conducted by Centre Shipping on behalf of owners and Dipgrove Holdings on behalf of charterers. It was . .
Cited – Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd and Another CA 9-Mar-2012
The court was asked ‘whether a contract of guarantee is enforceable where contained not in a single document signed by the guarantor but in a series of documents duly authenticated by the signature of the guarantor. It is common in commercial . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Contract, Legal Professions, Agency
Updated: 10 July 2022; Ref: scu.183158
