Sale of land – Land registration – Exchange of contracts – First-tier Tribunal (FTT) finding appellant entered into contract to sell property to respondent – Appellant appealing – Whether FTT erring in law in finding on facts found that contracts exchanged – Appeal allowed
In 2009, the appellant purchased 189 Walton Road, Woking (the property) for £160,000. In 2017, the respondent offered to sell the appellant another house for £215,000. In order to buy it, the appellant obtained a bridging loan on the security of the property. The appellant defaulted on the bridging loan and the lender appointed receivers who put the property up for sale at auction with a guide price of £200,000 – £210,000.
On 14 September 2018, the respondent provided a contract in duplicate for the sale of the property by the appellant to the respondent; he said that the contract and transfer were drawn up by solicitors. The contract provided for a price of £400,000, for completion on 16 November 2018, and for a deposit of 10% to be paid on exchange. The appellant also signed a transfer of the property to the respondent in Form TR1, which remained undated.
The appellant subsequently applied to HM Land Registry to cancel the unilateral notice entered by the respondent on the register of title to the property to protect the contract. The respondent objected and the matter was referred to the First-tier Tribunal (FTT) pursuant to section 73 of the Land Registration Act 2002. Before the FTT, the respondent succeeded in proving the existence of the contract. The FTT found that contracts were exchanged on 14 September 2018, that the agreement was not a sham, and that the appellant did not sign the contract as a result of misrepresentation or undue influence.
The appellant was granted permission to appeal, contending that the FTT erred in law in finding that contracts were exchanged on 14 September 2018 as the facts found could not, as a matter of law, justify that conclusion.
Held: The appeal was allowed.
(1) For an exchange of contracts, each party had to have identical contracts, or “parts” of the contract, and each had to sign his own part. At the time of execution neither party was bound by the terms of the document which he had executed, it being their mutual intention that neither would be bound until the executed parts were exchanged. The act of exchange was a formal delivery by each party of its part into the actual or constructive possession of the other with the intention that the parties would become actually bound when exchange occurred, but not before. The manner of exchange might be agreed and determined by the parties. The traditional method was by mutual exchange across the table. Delivery was a formal act and each party had to deliver his part: Commission for New Towns v Cooper [1995] 2 EGLR 113 considered.
(2) In a typical case, the parties were separately represented, and each signed his part of the contract and left it with his solicitor. In a simple case the solicitors would speak on the telephone, having been authorised by their clients to exchange, and would agree that contracts were now exchanged, recording the date and time. Delivery was not a physical handing over of the document, but was comprised in the fact that from that point on each held their own client’s part of the contract to the other’s order; each would then physically send or take their own client’s part to the other client’s solicitor.
In a more complicated scenario, one solicitor, say the seller’s, might hold both parts before exchange, his own client’s part for his own client and the buyer’s part to the order of the buyer’s solicitor. Delivery had not yet taken place. Again, exchange could take place by telephone, and delivery was a constructive event which took place when the two solicitors agreed on the telephone that contracts were exchanged. From then on, the seller’s solicitor held his own client’s part to the order of the buyer’s solicitor and would send or take it to him.
When discussing an exchange of contracts by telephone, possession of the necessary document need not be actual or physical possession. Possession by an agent of the party or of his solicitor in such circumstances that the party or solicitor in question had control over the document and could at any time procure its physical possession would suffice. In such a case possession of the agent was the possession of the principal: Domb v Isoz [1978] 2 EGLR 162 considered.
(3) Delivery was a formal act which the two parties each had to carry out. In the present case, as to delivery by the appellant, there was no finding of fact that when the appellant handed his part of the contract to the respondent his intention was to deliver it so as to exchange contracts; on the facts before the court, it might well not have been his intention. His intention might have been to leave the undated half with the respondent and authorise him to exchange contracts later; or it might have been to give his part of the contract to the respondent but not to authorise exchange.
As to delivery by the respondent, there was no explanation as to why the fact of agency meant that the respondent held his own part on the appellant’s behalf and why that constituted delivery. Such a finding was in any case insufficient to amount to a finding that there had been delivery. The fact that A held part of a contract to B’s order need not happen as a result of delivery and did not mean that contracts had been exchanged.
(4) There were insufficient facts found to lead the FTT to conclude that the two men exchanged contracts; this was a good illustration of the reason why the law required a formal delivery, whether physical, or attended by clear words that left no-one in doubt that there had been an exchange.
The FTT’s decision that contracts were exchanged would be set aside on the basis both that it was inadequately explained and also that the facts found by the judge could not, as a matter of law, have justified a finding that exchange had taken place. The Upper Tribunal would substitute its own decision that contracts were not exchanged, and direct the registrar accordingly to respond to the appellant’s application as if the respondent’s objection had not been made.
David Gilchrist (instructed by DWF Law LLP) appeared for the appellant; Andrew Butler KC (instructed by Mackrell Turner Garrett, of Woking) appeared for the respondent.
Eileen O’Grady, barrister
