H L Estates Ltd. & Anor v Parker-Lane Homes Ltd

The dispute between the parties concerns the enforceability of a contract for the sale of land. This is the trial of a preliminary issue ordered by the Court on 14 October 2002 namely:

“Whether or not the Varied Agreement dated 17 August 2000 is enforceable.”

The first and second claimants owned separate plots of land which together were known as Mount Pleasant, Langley, Stratford upon Avon (“the property”). On 5 April 2000, the claimants and defendant entered into an agreement whereby the defendant agreed to buy the property from the claimants for £750,000 with completion due on 31 July 2000. This is referred to as the Original Agreement. The defendant failed to complete. The claimants served a notice to complete on 1 August 2000. The defendant did not comply with that notice.

It is common ground that the Original Agreement was valid and enforceable.

Negotiations ensued. Miss Baylis, a director of the first claimant, gave evidence that she was aware that, the defendant having failed to complete, the claimants had rights during August 2000 pursuant to the Original Agreement (to cancel the contract, resell the property and claim their loss from the defendant) but chose not to exercise those rights and instead, entered into the Varied Agreement. She accepted that the “deal” was that the claimants would not exercise its rights if the defendant agreed to complete the purchase of the property with a higher price and at a later completion date than those contained in the Original Agreement. There is, however, no evidence as to express words used by the parties in connection with reaching that agreement.

On 17 August 2000, the parties entered into the Varied Agreement which included an agreed completion date of 14 November 2000 and showed the purchase price as £800,000. The defendant did not complete. The claimants served a notice to complete on 30 November 2000. The defendant still failed to complete. On 15 December 2000, the claimants forfeited the defendant’s deposit with the intention of remarketing the property and have now resold the property to others for £675,000.

The claimants have begun these proceedings to recover the shortfall from the defendant. By its defence and counterclaim (and for the first time) the defendant alleged that the Varied Agreement was unenforceable by reason of non-compliance with Section 2 Law of Property (Miscellaneous Provisions) Act 1989.

Although in their reply and defence to counterclaim, the claimants pleaded that the defendant was estopped from denying that the Varied Agreement was enforceable, they no longer pursue the estoppel point.

It is common ground that, by reason of Section 2, contracts for the sale or other disposition of an interest in land should be capable of being made only in writing. The section provides:

“2 (1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.

(2)

The terms may be incorporated in a document either by being set out in it or by reference to some other document.

(3)

The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.”

The Original Agreement, dated 5 April 2000, identifies the parties to the agreement, (the claimants as Sellers and the defendant as Buyer). It identifies the property to be sold. The completion date is shown as 31 July 2000. The purchase price is shown as £750,000 and the deposit as £75,000. Special Condition 12 provided for an additional payment of £19,256 (less any tax if appropriate) by the defendant to the claimants. The Standard Conditions of Sale (3rd edition) were expressly incorporated. The claimants signed one part of the agreement. The defendant signed the other part.

The Varied Agreement is headed “Variation to Agreement for Sale.” The claimants are named as the Sellers and the defendant as Buyer. It is dated 17 August 2000. The document refers to the Original Agreement. It notes the date of the Original Agreement. It identifies the parties as the claimants and defendant. It identifies the property to be sold. The document goes on to say:

“1.

The Seller and the Buyer agree to amend the Original Agreement referred to above as follows:

1.1

The purchase price shall be £800,000 and the Buyer shall on completion pay the sum stated in the Original Agreement in Special Condition 12

1.2

The deposit of £75,000 pursuant to the Original Agreement shall be released to the Sellers

1.3

The Buyer shall make a further payment of £50,000 on 17 August 2000 to the Sellers by way of further deposit which shall be released to the Sellers

1.4

The completion date shall be 14 November 2000

1.5

The Buyer shall pay to the Seller on completion a further sum being interest calculated at 9% per annum on a daily basis on a sum of £675,000 from the 31 July 2000 to the completion date being £17,476.03

2.

In all other respects the parties confirm the terms of the Original Agreement remain valid.”

One part of the Varied Agreement was signed by the claimants as Seller and one part by the defendant as Buyer.

The claimant’s case is that the Varied Agreement complies with the requirements of Section 2 and is valid and enforceable. The defendant’s case is that the consideration for the Varied Agreement is not stated in writing. It is not possible to determine from the document alone that the increase in price, from the price in the Original Agreement, is the quid pro quo for the delayed completion date. Simple additional words would have sufficed e.g. “in consideration for the increased price, completion is delayed.” However, the document does not contain that or any other statement as to the consideration for the variation. It is not sufficient for the document merely to state new terms without stating the consideration for those terms. Accordingly, not all the terms which the parties have expressly agreed have been incorporated in the document. It follows that the requirements of Section 2 have not been satisfied.

In McCausland and another v Duncan Lawrie Ltd and another [1997] 1 WLR 38, the Court of Appeal considered the provisions of Section 2 of the 1989 Act in connection with a variation of a contract. At first instance, the trial judge concluded that, where there was initially a contract which complied with Section 2 (1) of the Act, it was open to the parties if they so agreed, to vary one or more of those terms; what mattered was that the variation concerned should be proved in the ordinary way. On appeal, Neill LJ said:

“It seems to me to be clear that Parliament intended to introduce new and strict requirements as to the formalities to be observed for the creation of a valid disposition of an interest in land. ... Under Section 2 all the terms of the contract have to be incorporated in the signed document. ... Counsel for the plaintiffs was correct when he submitted that the formalities prescribed by Section 2 have to be applied to the contract as varied. ... The law in this regard is made plain in the speech of Lord Parmoor in Morris v Baron and Co [1918] A C 1, 39 where he referred with approval to the following passage in the judgment of Shearman J in Williams v Moss Empires Ltd [1915] 3 KB 242, 246-247:

‘The principle… is that where there is alleged to have been a variation of a written contract by a new parol contract, which incorporates some of the terms in the old contract, the new contract must be looked at in its entirety, and if the terms of the new contract when thus considered are such that by reason of the Statute of Frauds it cannot be given in evidence unless in writing, then being an unenforceable contract it cannot operate to effect a variation of the original contract ... whenever parties vary a material term of an existing contract they are in effect entering into a new contract, the terms of which must be looked at in their entirety, and if the new contract is one which is required to be in writing but is not in writing, then it must be wholly disregarded and the parties are relegated to their rights under the original contract.’ ”

In that case, Morritt LJ referred to the 1987 Law Commission recommendation which led to the enactment of the 1989 Act, stating: “The reasons for the recommendation were to avoid the uncertainties arising from the doctrine of part performance, to ensure mutuality between both parties to the contract and to avoid the continuing uncertainty surrounding the operation of Section 40 Law of Property Act 1925 notwithstanding its long history ...” At page 48, Morritt LJ also quotes from a passage quoted in the speech of Lord Parmoor as follows:

“ ‘.. Those cases show that whenever the parties vary a material term of an existing contract they are in effect entering into a new contract, the terms of which must be looked at in their entirety, and if the new contract is one which is required to be in writing but is not in writing, then it must be wholly disregarded and the parties are relegated to their rights under the original contract.’ Unless the principle is maintained that it is not admissible to vary the terms of a contract in writing by a subsequent parol contract, which in itself would be required to be in writing to be enforceable, the safeguards provided either by the Statute of Frauds or the Sale of Goods Act 1893 might be practically evaded and rendered of little value as a protection against fraud or to ensure certainty.”

Morritt LJ said that the contractual date for completion was a material term, if only because it specified the time from which one or other party was entitled to serve a notice to complete and make time of the essence. At page 49, Morritt LJ said “the choice lies between permitting a variation, however fundamental, to be made without any formality at all and requiring it to satisfy Section 2. In my view it is evident that Parliament intended the latter. There would be little point in requiring that the original contract comply with Section 2 if it might be varied wholly informally. Further the respect in which the Act differs from the Bill proposed by the Law Commission indicates that Parliament intended more, rather than less, formality than that recommended by the Law Commission.

Mr Morgan refers me to W J Rossiter, George Curtis and others v Daniel Miller HL 1878 1125. At page 1143 Lord Hatherley said “It has been established for far too long a time, and by some precedents in your Lordships’ House, that if you can find the true and important ingredients of an agreement in that which has taken place between two parties in the course of a correspondence, then, although the correspondence may not set forth, in a form which a solicitor would adopt if he were instructed to draw an agreement in writing, that which is the agreement between the parties, yet, if the parties to the agreement, the thing to be sold, a price to be paid, and all those matters, be clearly and distinctly stated, although only by letter, an acceptance clearly by letter will not the less constitute an agreement in the full sense between the parties, merely because that letter may say, “We will have this agreement put into due form by a solicitor.”

At page 1148 in that case, Lord O’Hagan said, “I think ... that the contract was complete. Everything essential to the completion of it appears on the written documents - the parties, the premises, the conditions, and the price. An offer is made; those who had full power to accept it, did accept it in terms.…

Mr Cousins relies heavily on Wain and another v Warlters 1804 KB 10. That case concerned a guarantee. The document contained a promise to pay the debt of another but made no mention of the consideration. Lord Ellenborough CJ said at page 16, “the clause in question in the Statute of Frauds has the word agreement ... And the question is, whether that word is to be understood in the loose incorrect sense in which it may sometimes be used, as synonymous to promise or undertaking, or in its more proper and correct sense, as signifying a mutual contract on consideration between two or more parties? The latter appears to me to be the true construction of the word, to which we are bound to give its proper effect; the more so when it is considered by whom that statute is said to have been drawn ... the person to be charged for the debt of another is to be charged, in the form of the proceeding against him, upon his special promise, but without a legal consideration to sustain it, that promise would be nudum pactum as to him. The statute never meant to enforce any promise which was before invalid merely because it was put in writing. The obligatory part is indeed the promise, which will account for the word promise being used in the first part of the clause, but still in order to charge the party making it, the statute proceeds to require that the agreement, by which must be understood the agreement in respect of which the promise was made, must be reduced into writing. And indeed it seems necessary for effectuating the object of the statute that the consideration should be set down in writing as well as the promise; for otherwise the consideration might be illegal, or the promise might have been made upon a condition precedent, which the party charged may not afterwards be able to prove, the omission of which would materially vary a promise, by turning that into an absolute promise which was only a conditional one: and then it would rest altogether on the conscience of the witness to assign another consideration in the one case, or to drop the condition in the other, and thus to introduce the very frauds and perjuries which it was the object of the Act to exclude, by requiring that the agreement should be reduced into writing, by which the consideration as well as the promise would be rendered certain. The authorities ... all show that the word agreement is not satisfied unless there be a consideration, which consideration forming part of the agreement ought therefore to have been shown; and the promise is not binding by the statute unless the consideration which forms part of the agreement be also stated in writing.”

In that case, Grose J said, “what is required to be in writing therefore, is the agreement (not the promise, as mentioned in the first part of the clause) or some note or memorandum of the agreement. Now the agreement is that which is to show what each party is to do or perform, and by which both parties are to be bound; and this is required to be in writing.” In the same case, Lawrence J said, “and as the consideration for the promise is part of the agreement, that ought also to be stated in writing.”

Mr Morgan has taken me to Megarry and Wade, The Law of Real Property, 6th edition. At paragraph 12-027 the learned authors state “there are three essential elements upon which the parties must expressly agree if there is to be a valid contract for the sale of land ... these are:

At paragraph 12-031, the learned authors state, in relation to consideration “the contract must define with sufficient certainty the price to be paid, or, in the case of a contract to grant a lease, the rent or premium payable.”

Mr Morgan relies on the judgments in McCausland for the proposition that the Varied Agreement was a “new contract”. New terms were agreed. The parties had given up their rights under the Original Agreement. They had entered into a new agreement. That being so, following McCausland, the terms “must be looked at in their entirety”. Section 2 does not impose a more onerous requirement in respect of the Varied Agreement than it did in respect of the Original Agreement.

The claimants’ primary case is that the Varied Agreement sets out all of the terms required to be set out and is thus enforceable. All the terms which the parties have agreed are contained in both the Original Agreement and the Varied Agreement, including the price and the new completion date. That is sufficient to comply with Section 2. The parties were no more required to set out “in long-hand” the consideration for the new price and/or the new completion date than they were under the Original Agreement for the price and completion date.

Mr Morgan submits that it is not necessary for a contract to set out the consideration for each and every term. He suggests that the defendant’s case is in any event inconsistent. The defendant accepts that the Original Agreement was valid, notwithstanding that, in that agreement, the consideration for particular terms was not specifically identified. The Original Agreement does not explain the consideration for particular terms, including the term at special condition 12 that the defendant pay to the claimants on completion £19,256 in addition to the £750,000 shown on the face of the agreement. The pre-contract correspondence indicates that the parties negotiated as to whether that additional sum was to be treated as interest or as part of the capital payment for the property. The Original Agreement did not state expressly what consideration had been agreed for that additional £19,256. Mr Morgan submits that no more onerous requirement should be imposed in respect of the Varied Agreement.

Following Rossiter, it is sufficient if the ingredients for a certain and complete contract are set out. Mr Morgan submits that the court should conclude that the Varied Agreement contains all of the essential terms. It is not necessary to identify the consideration or the reason for having agreed each term of the contract. To impose such a requirement, would go beyond what Parliament intended.

If it were necessary to show consideration for the variation, Mr Morgan submits that it is apparent that the parties have abandoned their rights under the original contract. He submits that giving up rights under the original contract would be sufficient in any event. The result for which the defendant contends is not necessary for avoidance of any fraud or uncertainty.

The claimants’ secondary, alternative case is that, there was no express term of the Varied Agreement that consideration for the price increase was delayed completion. But even if there were such an express term, such a term was not material.

Mr Cousins relies on Wain v Warlters as an illustration of circumstances where the court concluded that a contract of guarantee was unenforceable for failure to state consideration, pursuant to Section 4 of the Statute of Frauds. That rule was changed by the Mercantile Law Amendment Act 1856 which provided, by Section 3, that a written guarantee would not be invalid by reason that the consideration did not appear in writing. Mr Cousins submits that, if it was necessary for Parliament to provide expressly that a contract of guarantee should not be invalid by virtue of a failure to state consideration, in respect of statutory provisions which preceded the 1989 Act, it would be surprising if Parliament had intended to relax the requirement to state consideration in respect of a contract for the sale of land, when part of the purpose of the 1989 Act was to make the requirements for writing more rigorous. The purpose of Section 2 of the 1989 Act was to tighten the law.

Mr Cousins submits that, before a party can rely on a varied term of a contract, he must demonstrate that there has been consideration, otherwise the agreement is void. A material term of a variation is the consideration for it. Section 2 applies as much to a variation as to an original contract. That consideration must, therefore, be set out in the Varied Agreement. Here, the deal between the parties was that the claimants would not rely on their rights accruing following service of the completion notice in August 2000 if the defendant would agree to pay a higher price. That was the consideration. That has not been set out in the Varied Agreement. That failure to state what is a vital part of the agreement (per Wain v Warlters) renders it void.

Mr Cousins challenges the claimants’ case that the Varied Agreement is a new agreement. The document describes itself as a variation. The document is drawn as a variation to the Original Agreement. The claimants have pleaded that this is a variation to the Original Agreement.

I enquired what the position would be if, instead of a Varied Agreement the parties had simply entered into a fresh agreement similar in all respects to the original agreement save that the date of the agreement, the price and the completion date were different from those in the Original Agreement. Mr Cousins submitted that, unless such hypothetical new agreement showed what the consideration was which supported the entering into that agreement, it would be unenforceable against the defendant. Mr Morgan submitted that the parties could have adopted that course of action, namely, simply entering into a fresh agreement, without any problem arising.

It is common ground (and trite law) that there must be consideration to support a variation, and that a contract for the sale of an interest in land must be in writing. It is not disputed that the latter applies to a variation to a contract. The issue is whether the consideration, the deal as Mr Cousins puts it, should have been spelled out on the face of the document. It is a startling proposition that a document which states clearly, on its face, the three essential ingredients, namely the parties, the property, and the price, is not an enforceable agreement within the meaning of Section 2. The strict requirements of section 2 as to formalities to be observed are, in my judgment, met here. The consideration for the sale of identified land was £800,000 plus the additional sums, all stated on the face of the agreement. There is no suggestion that there is any additional, hidden payment. There is no uncertainty as to what was to be paid, the land to be sold or the parties to the sale. In my judgment it was not necessary for the parties to have spelled out in detail (in longhand as Mr Morgan outs it) the deal which gave rise to the increase in price and later completion date or an explanation as to why the parties agreed to vary the Original Agreement.

The circumstances of the variation which the court considered in McCausland were very different. In that case there was an informal agreement to vary the completion date. That variation was agreed in correspondence which did not identify parties, price or property. Here, however, the material terms of the Varied Agreement are set out on the face of the agreement itself. I do not read the judgment of Morritt LJ in McCausland as suggesting that the absence of the few missing words which Mr Cousins submits should have been present should result in the agreement failing for want of that formality in the document.

Following McCausland, it is appropriate to consider the Varied Agreement as a new contract. The Varied Agreement does indeed set out the terms “in their entirety”: the document contains the essential elements, namely parties, price and property.

The position in Wain v Warlters is different. In that case, the document in question demonstrated a promise by one party but set out no reciprocal obligations on the part of the other party. Here, the reciprocal obligations are set out: the claimants must convey the land, the defendants must pay the sums stated.

Further, I am encouraged by the judgment of Hoffmann J (as he then was) in Spiro v Glencrown Properties Ltd and another [1991] Ch 537 to give a purposive construction to section 2. That, in my judgment, is achieved by construing the Varied Agreement as a document which contains the necessary elements sufficient to satisfy the requirements of section 2.

As the claimants succeed in their primary case, I deal only briefly with their alternative case. There is no evidence that the parties expressly agreed the words which Mr Cousins submits are missing from the Varied Agreement and which he says should have been included. Even if there had been such express agreement, such term was not material. The background is the renegotiation of the deal, the outcome of which is that the claimants chose not to pursue their rights but instead to accept a later completion date and higher price. The deal whereby the increased price was agreed was not a material term. Following Morritt LJ in McCausland, the absence of an immaterial term of that sort does not render the Varied Agreement invalid.

In all the circumstances the answer to the question is: the Varied Agreement is enforceable.