Practice of ‘exchanging contracts for the sale of land by telephone’–A ‘bad practice’–Object to achieve simultaneous exchanges in the case of a chain of transactions–Extent of practice–No implied authority for solicitors to dispense by telephone with physical exchange of contracts–Specific authorisation from clients necessary–Dangers of practice illustrated by present case–Held on the facts that no binding contract between plaintiffs and defendant had been made and plaintiffs’ action for specific performance dismissed–Plaintiffs, having sold own property to a third party, rendered homeless.
This was an
action by Alfred Hyman Domb and Irene Stella Domb, his wife, against Dr Cecile
Claire Isoz for specific performance of an alleged contract for the sale by the
defendant to the plaintiffs of the defendant’s house at 34 Erskine Hill,
Hampstead Garden Suburb, London NW11. The defendant denied that in the events
which had happened any binding contract for the sale of the house had been
concluded.
T Forbes
(instructed by Yudolph & Brooke) appeared on behalf of the plaintiffs; N
Micklem (instructed by Royds Barfield) represented the defendant.
Giving
judgment, Mr DILLON QC said that the present case involved the consideration of
the validity of a practice which had developed among solicitors and was called
‘exchanging contracts by telephone’–that is to say, agreeing by telephone that
a binding contract existed before the formalities of exchange had been
completed and while one part of the contract was still in the possession of the
solicitor for the party who has signed that part. The case thus had an
importance for conveyancing practice beyond its own facts, though it was also,
of course, as homes are involved, of very great importance to the parties.
Eccles v Bryant [1948] Ch 93 decided two points. The first was that
if a sale was proceeding subject to contract, that meant that the matter
remained in negotiation until a formal contract was executed, ie, if the
contract was recorded in two parts, until the formal contracts were exchanged.
The importance of exchange was that each party should hold the part of the
contract signed by the other party. In particular, in the case of a purchaser
who decided to sub-sell, the part of the contract signed by his vendor and
handed over on exchange was an essential document of title which he needed in
order to make title to a sub-purchaser. Consequently, it was stressed that each
party had the right down to the very last moment when exchange took place to
change his mind and refuse to exchange.
The second
point decided by Eccles v Bryant was that, though a solicitor had
implied authority to carry the business entrusted to him through in the
ordinary way recognised as the customary way for dealing with conveyancing
matters such as the sale of residential property, he had in 1948 no implied
authority to agree to a method of making the contract other than the customary
method, for instance, by dispensing with exchange. See especially per Lord
Greene at pp 102-3 and per Cohen LJ at p 106.
It was clear
that the vast majority of domestic conveyancing transactions were now linked in
chains, in the sense that no purchaser could risk committing himself to a
contract to buy a new home unless he could simultaneously enter into a contract
to sell his existing home. Conversely, no person would commit himself to
selling his existing home unless he could simultaneously enter into a binding
contract to buy a new home. It was the result of this paramount need to achieve
simultaneous exchanges that the practice of exchanging contracts by telephone,
as it was called, had developed.
In the present
case three proposed transactions were proceeding by negotiation through
solicitors, after agreement subject to contract through estate agents, with a
view to simultaneous exchange of contracts. The first involved a sale by the
plaintiffs of their home to a third party. The second involved a sale by the
defendant of her home to the plaintiffs. The third involved the purchase by the
defendant of a new home from another party. It was common ground that the
plaintiffs wanted to achieve simultaneous contracts in respect of the first and
second transactions and that the defendant wanted to achieve the same in
respect of the second and third. It was also common ground that a binding
contract was in fact reached for the first transaction on February 9 1978 and
that a binding contract for the third transaction was never achieved. What his
Lordship had to decide was whether a binding contract was ever made in respect
of the second transaction. If it was, it was a contract made on the basis that
exchange was dispensed with, since it was clear that the part signed by the
defendant remained at all material times in the possession of the defendant’s
solicitors and was never passed over to the plaintiffs’ solicitors.
Reviewing the
position immediately before February 9 1978, which was the crucial date, his
Lordship’s findings were as follows. So far as the first transaction was
concerned, the plaintiffs’ solicitor was in a position to exchange contracts if
he could tie up the second transaction. So far as the second transaction was
concerned the defendant’s solicitor had in his possession the part of the
contract signed by the plaintiffs, which was to be held to the order of the
plaintiffs until agreement could be reached on the telephone as to the exchange
of contracts and a date for completion. The defendant’s solicitor was,
therefore, in a position to exchange if he could tie up the third transaction.
The position as to the third transaction, however, was that the defendant’s
solicitor had in his hands the part of the contract signed by his own client,
but had not received the part signed by the other party. Indeed he did not know
that the other party’s solicitor had not yet received it. The question of a
completion date for this transaction had not been settled.
On February 9
1978 the defendant’s solicitor, believing that the third transaction would be
tied up, agreed on the telephone with the plaintiffs’ solicitor that contracts
relating to the second transaction should be treated as then immediately and
irrevocably exchanged. The plaintiffs’ solicitor thereupon, assuming that a
binding contract existed in respect of the second transaction, despatched the
plaintiffs’ part of the contract for the first transaction. That resulted in a
valid exchange of contracts for that transaction and the plaintiffs were held
bound to complete the sale. Since such completion in mid-March the plaintiffs
were homeless and had to stay
higher offer and broke off negotiations with the defendant.
The practice
of exchanging contracts by telephone or, more accurately, dispensing with
exchange, had been developed by solicitors of their own initiative over recent
years in order to assist in achieving simultaneous exchanges where a chain of
contracts was concerned and to reduce the risk in a volatile property market of
parties ‘crying off’ after their solicitors had agreed to exchange. If a
solicitor agreed with the solicitor for the purchaser of his client’s old home
and with the solicitor for the vendor of his client’s new home that all would
post their clients’ parts of the relevant contracts on the instant day and the
solicitor did post both his client’s contracts on that day, he might yet find,
through one of his colleagues’ instructions having been countermanded, that he
only received one part in exchange and if physical exchange was essential, only
one binding contract was made.
The practice
of telephone exchange was by no means universal. How far it was adopted
depended very much on the practice of the individual solicitor. His Lordship
was satisfied, however, that nowadays it was adopted for good or ill by
experienced solicitors in the London area, at any rate, in a significant and by
no means insubstantial minority of cases where there was a chain of sales of
domestic residential property and it was desired to achieve simultaneous
exchanges of contracts for all transactions in the chain. One solicitor said
that telephone exchange was almost his invariable practice in situations where
a simultaneous sale and purchase had to be achieved, though in a sale which
stood on its own and was not linked with any other sale he would follow the
customary practice of exchange by post. By contrast, another stated that in his
professional career he had used telephonic exchange only three or five times
and then only when he judged the situation to be one where he had to exchange
straightaway or his client was going to lose either a sale or a purchase. He
added that, if the client lost one, he lost both, of course. Mr Stimson, the
assistant secretary of the South London Law Society, who had an extensive
conveyancing practice, said that he did not himself tend to suggest the
telephonic exchange ‘as of now’ sort of formula, but he did not object if the
solicitor on the other side proposed such a formula by telephone, as quite
often happened in a chain situation. He added that if that happened, he considered
himself to be under an implied obligation to send his client’s signed part of
the contract concerned to the other solicitor. None of these solicitors ever
considered getting specific authority from his client to dispense with
exchange. Each considered that he had implied authority to do so if he thought
it advisable because his client was ready to exchange contracts and needed,
above all, a simultaneous exchange on sale and purchase.
So far as the
particular clients in the present case are concerned, both solicitors no doubt
thought that they had authority from their respective clients to do what they
did. Each client would, if asked, most probably have authorised the solicitor
to do whatever the solicitor thought best to achieve simultaneous exchanges of
contracts. But neither client was specifically asked to approve the course
which was actually taken. That course had clearly led in one or the other case
to the clients’ instructions to achieve simultaneous exchanges not having been
carried out.
This practice
of telephone exchange involved, in his Lordship’s view, not an actual exchange
but dispensing with exchange by reaching a state of binding contract before
exchange has taken place, ie before one party’s signed part of the contract has
been handed or sent to the other. While he fully appreciated the considerations
which had led solicitors to adopt the practice of exchanging contracts by
telephone, his Lordship’s opinion was that it was a bad practice. A contract
for the sale of land and, not least, a contract for the sale of residential
property which was someone’s home was an important contract and a contract
which was, by statute, required to be evidenced in writing. It was because of
these considerations that the customary practice developed under which the
parts of the contract were prepared in duplicate, signed by the parties and
exchanged. If that were done, there can hardly be room for doubt whether a
binding contract had been made, since each party would hold or would receive in
due course of post the other’s part of the contract and each would then have a
written record of the terms of the contract signed by the other party. But with
telephone exchange, whether there was a binding contract or not would depend on
an oral conversation and possibly on the precise inflection of the words used.
There would be ample scope for conflicts of evidence, as here, and there might
well be cases where neither solicitor would have made a contemporary note of
his conversation with his opposite number.
The sole justification
for the practice would seem to be the firmly-held belief of the solicitor’s
profession that they could by this practice best carry out their clients’
instructions that contracts be exchanged simultaneously if at all. The facts of
the present case showed, however, that telephone exchange was not a panacea to
achieve simultaneous exchanges. Moreover, if the intention of the solicitor to
assist his client in what he thought to be an emergency was to be regarded in
itself as a sufficient justification for the solicitor to dispense with
exchange, there seemed to be every likelihood that a purchaser’s solicitor, for
instance, might agree to a deemed telephonic exchange of contracts before the
vendor’s solicitor had received the signed part of the contract back from the
vendor and possibly before the vendor had even signed his part of the contract.
These comments on the practice of exchange by telephone led to the conclusion
that the court should be slow to hold that the implied authority which the solicitor
undoubtedly had to exchange contracts by physical exchange in the customary way
was now extended to authorise telephonic agreement to dispense with exchange.
The practice
of telephone exchange was by no means universal even in the London area in
situations where there were chains of transactions; it was adopted in only a
minority of cases. The fundamental rule was that solicitors were not in the
absence of specific authority agents of their clients to conclude a contract:
see per Tomlin J in Lockett v Norman-Wright [1925] Ch 56 at p 62
in a passage cited with approval by Cohen LJ in Eccles v Bryant
at p 106. See also the helpful summary in Cordery on Solicitors, 6th ed,
at pp 113-114 The statement in Cordery
was:
A solicitor
has no general authority to bind his client as a proposing purchaser . . .
His Lordship
would add ‘or vendor’
. . . of
land, and authority will not be presumed by the court unless it is expressly
conferred upon him or is implicit in the terms of his retainer.
In the present
case there was no evidence that the plaintiffs or the defendant specifically
authorised their solicitors to exchange contracts by telephone or dispense with
exchange. Before ever the solicitors came on the scene, the parties had made
their arrangement through the estate agents subject to contract and that was a
well-understood phrase which imported actual exchange.
In his
Lordship’s judgment, it was not implicit now any more than it was in 1948 in
the terms of a retainer of a solicitor acting for a proposing purchaser or
vendor of land that he, the solicitor, was to have power at his discretion to
dispense with physical exchange of contracts and commit his client by telephone
to a binding contract in respect of the land. Therefore, neither solicitor in
the present case had authority to act as he did on February 9 and there never
was any binding contract between the plaintiffs and the defendant.
The
plaintiffs’ action for specific performance was accordingly dismissed with
costs.
